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In a BBC documentary produced towards the end of last year a selection of people around the cities of Britain were interviewed on their opinions of their own social situations and on who should pay more tax. The answer was almost universal; everyone thought they were struggling and paid too much, and they all thought the people in the next bracket up should do more. This view was repeated (albeit with increasing eloquence) from the £8,000 / year part time supermarket lackey to the £80,000 a year professional financial services managers. The only people to offer an alternative view were the super wealthy (i.e. multi-million annual income) for whom taxation was, by their own admission, "entirely voluntary." Interestingly the super-wealthy seem split between those who really do pay their full tax bill out of a sense of social responsibility, and those who don't pay anything and avoid talking about the issue.
Although at the time this didn't elicit much from me aside from a slightly exasperated sigh, a recent Daily Telegraph article interviewing a financial services professional earning 'high 50,000s' made me reconsider this issue.
Sometimes "people" think things because they are narrow minded, ill informed, media led, naive, or otherwise lacking. Particularly in the field of politics instinctive and emotional reactions to the main political parties seem to triumph over reasoned argument or policy specifics. Rarely however, the national zeitgeist actually gets it right. I think this might be just such a time.
As I've said for a long time everyone really does pay too much tax.
As the BBC and DT have shown, people are even starting to realise this, although its a slow, slow trudge up the slippery slope of realisation. (Just as a thought experiment on this imagine you earn £18,000 per year gross, pay student loan deductions, and save £100 per month - how much do you pay in tax? Answer at the bottom). Unfortunately we aren't out of the woods yet however, people still misunderstand why everyone is paying too much tax.
To try and illustrate this I'm going to resurrect my intrepid islanders who seem to have been unexpectedly popular; Spike, Timmy and Jonny. They are joined in their tribulations this time round by Sammy and Andy. Rather then create another island I've set this one in a frontier village (this gets a bit complicated by the end so bear with me).
Timmy, freshly reincarnated from his island-based doom, arrives on the frontier first and picks out the best land for farming. Using his tools, knowledge and start-up funds he builds a farm and becomes not only self-sufficient but surplus producing.
Second along comes Jonny, he's heard there’s good farming in these parts and also sets up his own fields and orchards. He's not quite as capable as Timmy, but he still gets by and makes a small surplus each year.
Next comes Sammy. Sammy can't farm, but he's got useful skills (let's say blacksmith). So rather then setting up a third farm he becomes the village smith. He charges Timmy and Jonny for his services, and since they can only pay him out of their surpluses he is the poorest of the three, however, the farms both become more productive because of the repairs and improvements Sammy can make to their tools, and in the winter the two farmers both put aside some of their store to help the smith.
Fourth is Andy. Now Andy doesn't really have any skills, he can't farm, he can't smith, he can't thatch. But... he does have some fighting experience.. so what happens?
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Zero out of ten if you said anything involving police, army or anything else 'happy liberal'.
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Andy of course takes over. Threat of violence is the basis of all state authority, and one guy with a sword is a pretty big threat to two farmers and a smith who has to get bailed out in the winter. Andy gets both of the farmers to pay him a part of their produce each year (more from Timmy since he has the better farm), and gets Sammy to build and maintain his house and equipment.
We now have a functioning mini-economy. We have two producers (Timmy and Jonny), a service industry (Sammy), a welfare state (Timmy and Jonny helping Sammy out in the winter), taxation (anything Andy takes), and a government with an army (Andy).
Now along comes Spike.
To start off with Spike goes to work for the farmers, after all with the need to support Andy and the new tools from Sammy, they can make use of the extra hands, so Spike goes to work. Any initially this works, both of the farmers make bigger surpluses, give some to Spike, some to Andy and make some extra themselves. This is how an economy is supposed to work - each member increases overall productivity, and that extra production gets split between the various stakeholders.
But then Spike gets bored and decides he doesn't actually want to work for the farmers anymore, and he can't work for Sammy since he doesn't have the skills or abilities to help out in a forge. So instead he goes to Andy, and he tells Andy that if Andy doesn't make sure he continues to get his share of the farm output he's going to help Timmy, Jonny and Sammy throw Andy out.
Andy, believing this to be credible threat (four against one is starting to get a bit hairy), agrees to give Spike some of the produce he takes from Timmy and Jonny. Of course, in time Andy decides he doesn't want to give up his own standard of living so Timmy and Jonny will just have to cough up more in tax, and Sammy is just going to have to maintain Spike's house as well as Andy's.
We've now got through to something, that seen at a distance and in dim light, is a super rough approximation of the current economy. In particular a significantly sized class that isn't government, doesn't work, and use the threat of overthrowing the government to keep itself supplied at the expense of the rest of the society.
A bit later Timmy, Jonny and Sammy met up in whatever passes for a pub in my 5 man frontier town. Timmy complains that he has to give up more from his farm then Jonny has to give from his, and Jonny should do more to help. Jonny in turn complains that Sammy isn't get his tools fixed fast enough and he needs to do more to fix up equipment faster and to a higher standard. Finally Sammy complains that he is getting less for his services because the two farmers have to give most of their surplus to Andy and Spike now, and so he is having to work faster, and do more, but he is getting paid less. The three all go round in a circle blaming one another, or occasionally blaming Andy for taking so much off them.
Spike meanwhile, lounges on, doing no work, paying no tax, but indirectly causing all the problems of Timmy, Jonny and Sammy.
I'm not going to end this one with actual mass death. (Though obviously the solution is a Timmy, Jonny, Sammy uprising, kicking Spike out (possibly of the land of the upright and breathing), and requiring Andy to actually do something in exchange for his share of the farming output). Instead I'm going to link this back to my original point about Nimbyism.
Everyone really is paying too much tax.
The problem isn't the tax, or the government, or other taxpayers (all of whom are paying tax as well).
The problem is everyone and anyone who wants something for nothing in the form of state support. To whatever extent you want the country to provide healthcare, education, defence, roads, bin collections, pensions and so on, your Spike.
Welcome to the welfare state...
/Z
EDIT: In answer to the 18,000 question, the maths goes something like this;
£18,000 gross,
Income tax, national insurance and student loan is deducted at source leaving;
£14,574.04
You presumably live somewhere and therefore pay council tax. The average council tax bill for 12/13 in England is £1,201, leaving;
£13,373.04
Let's say you drive a car, that's probably £60-80 a year in VED, plus about 50% of your cost of fuel. Some serious guesswork later (average 10 miles per day at 25 mpg) implies an annual fuel bill of, at current prices, £900, or £450 in tax, including tax say £520;
£12,853.04
Now take out the £100 a month saving (£1200).
Means your disposable income is about;
£11,653.04.
But of course you get taxed on that as well, I'm not going to run the whole thing out but an average VAT of 20% would mean a final post-tax spending power of
£9,322.43.
Adding your savings back on (since you do get to keep that for now)
£10,522.43.
So your total tax bill, after consumption, on £18,000 is about £7,477, or 42%.
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