One point that underpins much of the tax debate

Over on the IEA blog, Mark Littlewood recently repeated a very commonly made point by those of a more low tax persuasion:

It’s worth noting that the relatively affluent in Britain pay a very high proportion of the overall tax take. In terms of income tax, the highest earning 1% contribute nearly a quarter of all receipts and the top 10% account for well over half.

There’s no prizes for guessing what conclusion Mark drew from this, but turn the point on its head and it serves just as well for the opposite political perspective.

It’s worth noting that the very affluent in Britain receive a very high proportion of overall income. In terms of income tax, the highest earning 1% earn so much compared to the other 99% that the 99% only pay in total three times more income tax than the 1% despite outnumbering them by 99 times.

Depending on how you look at Mark’s figures they either show how much tax the top 1% and 10% pay or how rich they are compared to everyone else. The huge imbalance is also reflected in the large sums being brought in by relatively modest changes to pension tax breaks, limiting (for example) the amount you can put into a pension and still get tax breaks to £50,000 per year. (That’s putting £50,000 a year into a pension; not earning £50,000 a year.) Changes that will affect only around 100,000 people are set to bring in an extra £4 billion in tax.

How much you can tax without damaging the generation of wealth has long been a subject of political debate, and with the huge deficit it’s unlikely to stop any time soon.

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