[wdmmg-discuss] BBC radio program about tax

Thu Sep 16 08:01:29 UTC 2010

Of course, if the tax codes were effectively computerized, this extra
complexity would make no difference as it would amount to only an
extra term in the calculation:

eg

tax = min(0,x-800)*0.20   # with one tax band

# with a 10% tax band at £300
tax = max(500, min(0,x-300))*0.10 + min(0,x-800)*0.20

But it does tell you how to present someone's tax when you calculated
it [ http://listentotaxman.com/ ] -- as a percentage.  Best flagged up
on the screen as a really big two digit number.

I've had arguments with people (who really do know better) about the
inheritance tax rate.

"But my house is worth £300k, and it's outrageous that I have to pay
40% tax on it value when I die"

No!  No!  No!  It's 40% on the margin above £250k, which comes to 8% net tax!

So the tax allowance is perfectly well understood, but it is
considered an all or nothing event.  People don't visualize the
allowance on annual salary because they really only think in terms of
the weekly wages.

Now, higher earners should, quite rightly, pay a higher net percentage
of tax, because they don't feel it.  For example, if Bill Gates lost
50% of his income it would have no effect on his lifestyle.  Someone
on the dole who loses 50% of income can't eat.

But higher earners retain PR consultants who perpetrate serious
mischief with concepts such as
http://en.wikipedia.org/wiki/Tax_Freedom_Day -- arithmetically
averaged across the whole of the population at 30%.

Almost no one's net tax burden is anywhere near that.  But they don't
hear any other number, so it works.  The debate going on in the USA
over tax cuts for the very rich is instructive.  That there is a
debate at all shows how little understanding people have for their
actual cash-balance economic self-interest, as opposed to their
perceived self-interest [in accordance with conclusions from "Public
Opinion" (Lippman 1921)]

http://en.wikipedia.org/wiki/Jobs_and_Growth_Tax_Relief_Reconciliation_Act_of_2003

There are tables there which show the amount of marginal tax per
income bracket.  These should also have a column for net overall tax,
and -- most importantly -- the percentile of the population subject to
each tax bracket.

No table of income brackets should ever be shown without percentiles
of income distribution.

up to $6,000
      marginal tax rate=10%
      percentile population=30%
      absolute population=90million
      average income in bracket=$2034
$6,000 - $27,950
      15%	
      12%
      43million
      $19,834
$27,950 - $67,700	
      etc

With these extra columns in the table you get a proper presentation of
what the numbers mean and who they effect -- and they can be used to
calculate the a new tax take when the rates are changed.

Julian.

On Wed, Sep 15, 2010 at 5:17 PM, K Corrick
<kathryn.corrick at googlemail.com> wrote:
> Julian,
> Totally agree. I've been listening to them this week. They've been really
> interesting and helpful. Definitely worth listening to. I now know nuggets
> such as why economically it's much better to increase the Personal Allowance
> but why politically it's more attractive to lower the tax band percentage.
> Cries of "10% tax" much snappier than "We're raising the personal allowance
> by £500".
> Kathryn
>
>
> On Wed, Sep 15, 2010 at 12:51 PM, Julian Todd <julian at publicwhip.org.uk>
> wrote:
>>
>> It's called Evan Loves Tax.  I heard one show yesterday morning
>> explaining how the tax system is deliberately complicated because the
>> public responds to things like lower band rates of tax, but not to
>> higher personal allowances, even though both achieve the same thing
>> (the former with greater complexity).
>>
>> Recommended for everyone here:
>>    http://www.bbc.co.uk/programmes/b00tpp23
>>
>> Julian.
>>
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>
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