Are you better off because you pay your taxes?
Few of us actually like paying our taxes, but most of us have little choice in the matter when it is deducted from our salaries before we even get paid. However, it might ease the bitter pill to discover that many of us are actually better off because we pay taxes.
Confused? The answer lies in the net benefits to taxpayers, and accountants Smith and Williamson have concluded that the cut-off point at which you receive less than you contribute is actually higher than you might have thought, and falls on gross household incomes of around £35,000 to £38,000. Anyone earning less than this is, theoretically at least, quids in.
The point at which a household switches from being an overall 'taker' to a 'giver' is where disposable income, passes a threshold of about £27,000 net. At that point a household is receiving benefits (not just cash benefits, but includes societal benefits such as average usage of school and the NHS) and paying taxes to the extent that the two cancel each other out. If a household earns more than this tipping point, it is a 'giver' and pays more in taxes than it receives. If the household earns less, they get more than they pay out, a 'taker'.
Although Smith and Williamson stress that numerous factors are involved, and dependent on individual circumstances, take the following example of a household with a gross income of £39,000. Just over the break-even, the household would enjoy benefits quantified at just under £12,000, but would be required to contribute almost £13,000 in various taxes, making it a net 'giver' by around £1,000.
The calculations showed that, actually, most of us are takers rather than givers. The top 40% of households by earnings are carrying the lower-earning 60%. This is supported by Institute for Fiscal Studies (IFS) figures that suggest 300,000 very high earners, out of about 30 million income tax payers, paid 30% of all income tax. It said that over a period the income tax burden had been pushed increasingly on to this narrow band of top earners- in 1980 the top 1pc of earners paid 11% of all income tax.
At the same time, the number of taxpayers is falling, in part owing to rising personal allowances taking the lowest earners out of tax- between the tax years 2011-12 and 2013-14, the number of income tax payers has dropped by 900,000 to 29.9 million. HMRC has also commented that receipts from higher earners are less predictable, partly because wealthy people can easily emigrate to a more tax-favourable jurisdiction.
So are you a giver or a taker? And which would you rather be- a household with less cash, but getting more out of the deal, or one with more cash, part of which you have to share with 60% of the population…