The new higher income tax rate
The tax system often features in early discussions with new economics students. In anticipation of questions and wanting to get my answer right, I have been double-checking on the new income system with effect from 6th April 2010.
The personal income tax allowance will be £6,475
The basic rate of income tax is 20%
The marginal rate of tax between the top of the basic rate band and £150,000 is 40%
From 2010 there is a new higher income tax rate of 50% for taxable income above £150,000
The other change is the gradual withdrawal of the personal tax free allowance for people with a net income in excess of £100,000
Above £100,000 the tax allowance is reduced by £1 for every £2 extra of net income
Thus people with an income of more than £113,000 will no longer receive a tax free allowance
National insurance contributions rise in 2011.
The costs and benefits of having a higher 50% marginal rate and the choice of £150,000 as the taxable income level at which this kicks in will prompt plenty of interesting discussion.
Tax revenues and the recession
To support Penny’s blog on the latest public finance position, here is a PowerPoint presentation that you might find useful to use with students…
read more...»Fiscal Drag
Almost four million people now pay income tax on their earnings at forty per cent compared to just over two million when Gordon Brown became Chancellor. Hundreds of thousands of middle-income taxpayers are now paying some of their income at the top rate because income tax allowances have not risen as fast as wages over the last decade. This is known as fiscal drag. This tax year (2008-09), the basic Personal Allowance - or tax-free amount - is £5,435. Taxable income is charged at 20% for incomes between £1 to £36,000 and then at the top rate of 40% for any earned income above that. On average, higher rate taxpayers each contributed £22,400 to the government’s finances last year.
The Times covered Fiscal Drag in an article a few years ago ... still relevant today
MP calls for tax-or-charity reform
How best to encourage a giving culture where more of us are incentivised to give a share of our income to good causes? The Labour MP Frank Field delivering the Allen Foundation Lecture has called for reforms to income tax so that the top income groups earning £150,000 or more would be given a choice - give some money to charity or face a 10 per cent tax surcharge. Field claims that the inspiration for his idea came from a conversation with Margaret Thatcher! The full text of his lecture is available here
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