Who's proportional tax burden is highest in the UK - the richest or the poorest?

Question

I have heard it said that the poorest 20% of tax payers in the UK have a larger proportional share of tax than the richest 20%. Can anyone tell me if this is true or not? Also, if you know of links to articles about this, I would be grateful if you could include them. Thank you.

Answer 1

I'm not aware of any source documenting this. Strictly as an economist I would be surprised if the direct burden of income taxation (even after deductions, etc.) is heavier on the poor than the rich -- even in the United Kingdom whose income taxe scales are not particularly progressive. To arrive at such a result one would probably have to include consumption taxes as well, for THEY weigh much more heavily on the working class. Think about it: one (rich) family spends most of its money paying the mortgages of its Surrey mansion; one (poor) family spends most of its money buying VAT-infested goods down the supermarket and, even better, super-taxed beers and fags.

Answer 2

The poorest. Although rich people pay more income tax and capital gains tax, VAT is the great leveller. Poor people spend a greater proportion of their income on taxable goods.

We could have a more progressive tax system if we raised the top level of income tax and reduced VAT. This would also reduce our contribution to the EC budget. However, poor people are less likely to vote than rich people.

It's the same the whole world over
It's the poor what gets the blame
It's the rich what gets the pleasure
Aint it all a bleedin' shame.

Answer 3

I think that the trick is in VAT.

Say you earn $100 buy 50 loaves of bread at $1 each plus 20% tax. You pay $60. The tax is $10, which is 10% of your income.

Compare that with a guy who earns $1000, and still buys just 50 loaves of bread. The $10 tax is 1% of his income.

This effect causes the tax burden to be regressive, fall on the poor more.

One extra thing to bear in mind is that the porr save less spend more of their income, therefore since the VAT is a tax on consumption, they get hit sort of twice as compared to the rich who save more.

On the other hand, income taxes are progressive, taxing the rich more.

The answer lies in which of these effects is stronger. I think that if you are really comparing the super rich to the equivalent poor, say top 5% and bottom 5%, your statement is more likely to be true than if you compared teh bottom and top 20%.

The super rich are likely to have means of escaping the income tax burden by shifting funds and the equivalent poor have no savings and spend all their income.

Answer 4

I assume you're talking about PAYE (tax on earnings) - if so, this is unlikely. There is an amount you can earn before paying any tax whatsoever (usually just under £5000 but can vary). There is then a further amount which is only taxed at 10%, and it is only when you get higher up that you get the 22% tax. For lower earners, this is a higher proportion of their income which is tax free or low tax.

e.g. Person X earns £10000 per annum
£5000 is tax free and he pays 10% tax on the remaining £5000
Total annual tax = £500 = 5.0% of his annual income

Person Y earns £50000 per annum
£5000 is tax free, he pays 10% tax on the next £10000** and the balance at 22%
Total annual tax = £8700 = 17.4% of his annual income

**note: I am unaware of the exact figure at which your salary changes from low rate to high rate tax

Answer 5

the poorest because they will have to pay the same proportion of their income as tax as with the high income earners