UKIP win Clacton by-election by a landslide

[The Don]

Yes, I now understand.He is right, although there are still a number of drawbacks with having thresholds. I'll describe one of them below.

Only if there is an endless array of thresholds, evenly arranged* and covering all of the range of incomes/ property values/ capital values (for CGT) and so on. In practice, this is never done. As with Property Band G in Council Tax calculations there is always an upper threshold which is below the highest figure by a very considerable way.

*Evenly is the wrong word. I mean arranged in such a way as the curving line on the graph you described remains smooth. This could well mean that the gaps are logarithmic, for all I know. They aren't normally so well thought out, being as they are subject to political whim.

I agree that the community charge (and by the same measure the water rates for those of us who are unmetered) can seem unfair but that's what happens when a fee is a flat amount rather than a % of income or asset value.

I don't understand however why thresholds have to be evenly spaced to be fair. In my mind the unfairness comes when a small increase in asset value or income results in a marginal tax rate of more than 100%. In the UK, stamp duty is the only tax that comes to mind that behaves in that way.

@ddt

Thanks for the clarification on the German income tax codes. It didn't sound right to me but I didn't want to tell a colleague that the didn't understand his own taxes

 

[MikeG]

.......I don't understand however why thresholds have to be evenly spaced to be fair. In my mind the unfairness comes when a small increase in asset value or income results in a marginal tax rate of more than 100%. In the UK, stamp duty is the only tax that comes to mind that behaves in that way.....

Wasn't the whole point (I think you made it?) that the richer you are, the more you pay, proportionately? Well, with poorly spread thresholds, or with thresholds that stop, leaving an open ended final category, the graph of tax owed would not be smooth, leading to possible inequities, such as person A paying x% of his income/ property value/ whatever in tax, and person B, many times richer, paying a smaller percentage. For this to happen, A only needs to fall slightly above a threshold, and B could be within the same category and just below the next threshold or, most likely, they are both in the top open-ended category with A being only just in it.

You dismissed thresholds as a problem. For these reasons I've just given, and because of the various financial products designed to exploit them, and because of the complexities of the tax laws needed to deal with them, I don't agree with you.

 

[GlennB]

Given the entire amount being taxed at the higher rate once a threshold is crossed is irrational, the only question that remains is how to solve it.

The Don's method would give rise (afaics) to a value/tax graph that is a series of straight lines, each section becoming steeper at the threshold points.

MikeG's method would lead to a curved graph (actually still a series of straight lines, but very tiny ones as each threshold is one penny).

The latter is marginally fairer but is hard for everyday folks to calculate (a smart phone app? Online calculator? If the increments were infinitely small you'd need integral calculus I think) The former is good enough and we're already familiar with it from other forms of taxation.

Storm in a teacup, if you ask me

 

[The Don]

Wasn't the whole point (I think you made it?) that the richer you are, the more you pay, proportionately? Well, with poorly spread thresholds, or with thresholds that stop, leaving an open ended final category, the graph of tax owed would not be smooth, leading to possible inequities, such as person A paying x% of his income/ property value/ whatever in tax, and person B, many times richer, paying a smaller percentage. For this to happen, A only needs to fall slightly above a threshold, and B could be within the same category and just below the next threshold or, most likely, they are both in the top open-ended category with A being only just in it.

That's because what you describe isn't a tax but a charge. You are quite correct, charges (like community charge or vehicle excise duty or indeed the price of a packet of crisps) hit people at the lower level of the band higher that the upper level.

You dismissed thresholds as a problem. For these reasons I've just given, and because of the various financial products designed to exploit them, and because of the complexities of the tax laws needed to deal with them, I don't agree with you.

Thresholds themselves aren't the issue, the issues seem to be:

• Where all income/asset value is taxed above the threshold and not just the incremental amount (like stamp duty)
• Where there is a charge rather than a tax (like the community charge)

Neither of these relate to taxes with increasingly high marginal tax rates.

• Where there is a single rate and no zero rated band (aka a flat tax) then the rich and poor alike pay the same proportion. This is arguably the least fair but the rich don't pay a smaller proportion
• Where there is a single rate and a zero rated band then the rich pay a marginally greater proportion because as the asset/income value rises the zero rated band has a proportionately smaller effect
• Where there incrementally higher rates then the rich pay a greater proportion

Under none of these systems do the rich pay a lower proportion.

 

[Craig B]

That's because what you describe isn't a tax but a charge. You are quite correct, charges (like community charge or vehicle excise duty or indeed the price of a packet of crisps) hit people at the lower level of the band higher that the upper level.

Therefore, so do taxes levied as a percentage of the prices of commodities bought in the shops, unless these are luxury goods only, that average consumers don't buy.

 

[The Don]

Therefore, so do taxes levied as a percentage of the prices of commodities bought in the shops, unless these are luxury goods only, that average consumers don't buy.

True, sales taxes are regressive, assuming that the less well off spend a greater proportion of their income on goods taxed in this way.

In a completely artificial example,

Person 1 is less well off and gets £400, spends half of it on zero rated items (many foodstuffs, childrens clothes and the like), and the rest on items taxed at 20%. They pay £40 in tax or 10%

Person 2 is better off and gets £4000, spends the same £200 on zero rated items, and blows all the the rest on items taxed at 20%. They pay £760 in tax or 19%

Of course the richer person is much more likely not to spend everything, if they were to save or invest half of their money then their effective tax rate would be lower than the less well off person.

 

[Darat]

Easiest solution is to do away with inheritance completely - the dead can't own anything.

 

[Guybrush Threepwood]

Easiest solution is to do away with inheritance completely - the dead can't own anything.

Hardly, that may well be the simplest solution, but I doubt any political party that tried to implement it would call it easy. Suicidal, insane or hopelessly idealistic maybe.

 

[Craig B]

Of course the richer person is much more likely not to spend everything, if they were to save or invest half of their money then their effective tax rate would be lower than the less well off person.

That is an important factor in this. Poorer people spend all their income at once. Thus they promptly pay, as it may be, quite high rates of tax, proportionately more, in respect of purchase taxes, than more prosperous persons. Some things, like food, are zero rated for VAT, which is very helpful, as these form a larger part of the expenditure of the less well off.

 

[ddt]

Only if there is an endless array of thresholds, evenly arranged* and covering all of the range of incomes/ property values/ capital values (for CGT) and so on. In practice, this is never done. As with Property Band G in Council Tax calculations there is always an upper threshold which is below the highest figure by a very considerable way.

I meant "continuous" in the mathematical sense. No sudden jumps in the curve. The major thing for being fair is that you don't have somewhere a marginal rate of over 100%.

*Evenly is the wrong word. I mean arranged in such a way as the curving line on the graph you described remains smooth. This could well mean that the gaps are logarithmic, for all I know. They aren't normally so well thought out, being as they are subject to political whim.

You may make it nicer by having small brackets and small increments in tax rate - or even the German solution where the rate increases continuously and smoothly - but I've never heard people complain of all too big jumps in tax rates. But maybe that's just me.

@ddt

Thanks for the clarification on the German income tax codes. It didn't sound right to me but I didn't want to tell a colleague that the didn't understand his own taxes

You're welcome. But maybe you should suggest him to buy a tax guide or hire a tax consultant. I managed to "find" quite a lot of deductions for my income tax. German tax case law is more extensive than that of the rest of the world combined, or so I've heard.

 

[Recovering Agnostic]

<SNIP>
I don't understand however why thresholds have to be evenly spaced to be fair. In my mind the unfairness comes when a small increase in asset value or income results in a marginal tax rate of more than 100%. In the UK, stamp duty is the only tax that comes to mind that behaves in that way.

Agreed in full. The only examples I've ever come across of marginal tax rates in excess of 100% are bureaucratic anomalies (recipients of certain benefits are often mentioned at this point), which are routinely described as unhelpful obstacles to rational behaviour. The economist in me hates them with a passion, although I should observe that the operation of the market generally covers the particular anomaly of stamp duty quite well, as the additional burden around a threshold is fairly small in relation to the sums being spent. £5k is a lot in most contexts, but when you're spending > £250k on a house, it's almost pocket change.

Now, UKIP - remember them? Imagine my surprise when I looked up at the thread title! They're gaining on many fronts, largely because they're not any of the other parties, all of whom are broadly similar and obsessed with what focus groups tell them will win key marginals. UKIP can justifiably blame the state of the economy on all of the Tories, Labour and Lib Dems, they can position themselves as outsiders from the remote Westminster snouts in troughs, they can complain about things not being like "the good old days", and most importantly, they can offer the easy answer of "get out of Europe", which is going to have more appeal than some mumbling about tinkering with taxes and benefits, even if it's counterproductive kneejerk saloon bar racism. They're the only party* with a clear, positive proposal that marks them out as different. The irony is that in a country dominated by neoliberalism, with the divide between left and right shrunk almost to nothing, they look like a breath of fresh air even though they're more neoliberal than any of them.


* - Discounting the Greens, whose message is much less populist and who it seems are never going to be given their due attention in any case.

 

[Darat]

Hardly, that may well be the simplest solution, but I doubt any political party that tried to implement it would call it easy. Suicidal, insane or hopelessly idealistic maybe.

False triotomy!

 

[Craig B]

Here's how the leader of the Labour Party responded to UKIPs successes, as reported in the Guardian. This is how his statement starts.

Although it draws much of its support and ideology from the Conservative right, I recognise Ukip is also tapping into a seam of discontent and despair that Labour cannot – and will not – ignore. It is a sentiment that has developed over decades during which industries that used to provide decent prospects have disappeared at the same time as immigration has wrought huge changes in some communities.

People doing tough jobs, trying to provide for their families and give their children a decent shot at succeeding no longer believe they live in a country working for them. Some who feel left behind by our economy and left out of our politics have turned to Ukip in anger, while still more have grown weary about the claims made by all political leaders. Our task is to turn the despair and cynicism on which Ukip thrives into a positive force for change. We can only do so if we understand that many people are turning to Ukip because of disappointment with Conservative and Labour governments. From my first day as Labour leader, I have been clear that the next Labour government would neither just pick up where the last left off nor risk ignoring the legitimate concerns of working people.

That is why we have developed a new approach to immigration ...

No, I think he's developed it because he's terrified of losing seats, and there is nothing so shameless that he won't do it to prevent that. See also http://www.theguardian.com/politics/2014/oct/11/ed-miliband-toughen-benefit-rules-for-migrants.

 

[MCel58]

Agreed in full. The only examples I've ever come across of marginal tax rates in excess of 100% are bureaucratic anomalies (recipients of certain benefits are often mentioned at this point), which are routinely described as unhelpful obstacles to rational behaviour. The economist in me hates them with a passion, although I should observe that the operation of the market generally covers the particular anomaly of stamp duty quite well, as the additional burden around a threshold is fairly small in relation to the sums being spent. £5k is a lot in most contexts, but when you're spending > £250k on a house, it's almost pocket change.

Now, UKIP - remember them? Imagine my surprise when I looked up at the thread title! They're gaining on many fronts, largely because they're not any of the other parties, all of whom are broadly similar and obsessed with what focus groups tell them will win key marginals. UKIP can justifiably blame the state of the economy on all of the Tories, Labour and Lib Dems, they can position themselves as outsiders from the remote Westminster snouts in troughs, they can complain about things not being like "the good old days", and most importantly, they can offer the easy answer of "get out of Europe", which is going to have more appeal than some mumbling about tinkering with taxes and benefits, even if it's counterproductive kneejerk saloon bar racism. They're the only party* with a clear, positive proposal that marks them out as different. The irony is that in a country dominated by neoliberalism, with the divide between left and right shrunk almost to nothing, they look like a breath of fresh air even though they're more neoliberal than any of them.


* - Discounting the Greens, whose message is much less populist and who it seems are never going to be given their due attention in any case.

It is exactly that which makes UKIP so dangerous, they are tapping into the most irrational of fears that the British press have fed everyone for years. So they fester on an irrational idea that Britain is still able to be great in a global economy on its own or possibly with the U.S.A and its the EU or immigration or some one else's fault when the UK is not doing well. It's scapegoat politics and its an easy message to deliver, unfortunately the opposition to it is neither effective or delivered with anything like the strength it needs.

 

[Wudang]

You want to know about UKIP? If you're in the UK please share this

 

[angrysoba]

Maybe this is ancient history by now, but UKIP Calypso:



And a response: