Tax cuts for millionaires

This keeps getting raised and it annoys the pants of me (well rotated pairs I hope - fashion ed). 

In April 2009 Alistair Darling, the Labour Chancellor of the Exchequer, announced a new 50% tax rate on all income above £150,000. Previously the highest rate was 40% for all income above £37,400. This measure was timed to come into effect from 5 April 2010, just before the next UK election, which the Labour party expected to lose, and indeed did (hurrah - agitprop ed)

So, whichever Government that was going to follow them, was going to find the economic outlook pretty grim and the Government income and expenditure in total disarray (as ever after a Labour Government - economics ed), in fact the Chief Secretary to the Treasury, Liam Byrne left a note for the next incumbent of the office, which read, and I quote, "Dear Chief Secretary, I’m afraid to tell you there's no money left. Kind regards – and good luck! Liam."

Now, given that the Labour party had been in power since 1997, that is, 12 years, before creating this new tax band you have to ask yourself if this measure was going to raise a substantial amount of income tax, why had they not brought it in beforehand?

Simply politics, given their inevitable and indeed looming defeat, the Labour Party wanted to put the following Government (now the Coalition - ed) in a bit of a dilemma, given that, removing this new tax band, would cause huge political fallout. In fact the Labour party have used the partial removal of this band to berate the new Government over tax cuts for millionaires.

This was and still is a political masterstroke, as here we are in 2013 with the Coalition, which announced a reduction of this new rate from 50% to 45% in the April 2012 Budget, and with its actual removal looming on the 5 April 2013 being berated after the Chancellor's Budget speech with this hackneyed phrase,  by the Labour leader, Ed Miliband (like the real thing, David Miliband, but softer and more cuddly - ed)

Now, I am not sure about you but £150,000 (in any ones book a lot of dosh, moolah, rhino, cash - ed) however it is not a £1,000,000  (that's even more dosh - ed) by any stretch of the imagination, but that is the Labour Party for you, never very good with figures.

What I will endeavour to show, by showing the costs of various salaries through the periods 2009-10 (last year of the Labour government, without 50% band, so max rate 40%), 2012-13 (last year with  50% band) and the forthcoming tax year 2013-14 (50% band decreased to 45%) how much tax a disparate set of incomes actually raises.

Note the figure the furthest on the right is the percentage of income that the tax payer keeps, it is quite noticeable that the proportion that you keep decreases the more you earn, progressive taxation is what it is called, not only do you pay more in pounds, you pay an increasing percentage.

The tables also shows the cost to the employer as your gross income plus the employers NI contributions that are in effect a "job tax" on the worker.

2009-10 Last Year of Labour Government 40% Upper Tax Band

Makes for some interesting reading for the year 2009-10 above, that under the Labour government a millionaire salaried worker (perhaps a Premier league footballer or perhaps a banker - ed) gets net pay of 59.63% or £596,313 (ooh that's large - ed) but also generated £530,954 in income taxes (includes income tax, employees NI and  employers NI - ed)

Last financial year with 50% upper band

For this last financial year, we can see that the "millionaire" is now only getting net pay of 49.85%  or £498,537 but is generating £638,429 to the Government coffers! That is quite a substantial extra contribution of over around £107,000 more  a year than under the Labour Government. If this is that lucrative for the Government, why didn't they raise it earlier?

Coming Tax Year 2013-14, with 50% cut to a 45% Upper Tax Band

In the coming financial year, the millionaire will be keeping 50.29% of their income, or £502,908 but still be generating £634,030 for the Government coffers. So, even with this, "tax cut", the "millionaire" tax payer is still contributing more to the Government coffers than at any time under the Labour Government.

Given the large amount of money that these "millionaires" (anyone earning over £150,000 being a millionaire obviously - ed) generate, surely we want more of them rather than fewer, as each one of them contributes one hundred and twenty times more than the £20,000 a year tax payer.

Afterthought
It is worth noting, that in the year 2009-10, according to HMRC, there were 16,000 people who declared themselves as having incomes of £1 million or greater, by 2010-11 there were only 6,000 in the same group.

It is unlikely that 10,000 millionaire income earners disappeared, it is more likely that some brought forward their income (as these high earners are generally paying themselves via dividends rather than as PAYE - ed) to pay at the lower tax rate, or they may have put off taking that income until a later time when the rate has been reduced, as high earners can usually do, as they have well paid accountants and financial advisers to help them make these seemingly tricky decisions

Those earning £150,000+ (308,000 people) pay £47bn or just under 30% of the total.

Those earning between £35,000 and £150,000 (3.7 million people) pay £57bn or 34% of the total

Given that there around around 30 million workers in the country (according to the HMRC, so the figure must be right - ed), then the rest of the 26 million works pay the rest, 36%, of the total.

What is also interesting about these figures, is that most, in fact 80% of the workers in this country earn an after tax income of less than £35,000. In fact there is a nice bit of graphery (is that really a word? - ed) over at the Guardian, which is interesting to play with.

So in an environment where the words, "paying their fair share of tax" is bandied about, given that the top 20% already contribute 64% of the tax, aren't they already paying their fair share of the tax?