Brown 'bombing Britain to brink of bankruptcy'

[emad]

Nicholas Cecil, Chief Political Correspondent
30.12.08

DAVID CAMERON today accused Gordon Brown of "bombing" the economy to near collapse with higher taxes and spiralling debt.

The Tory leader branded Labour "corrupted by power" and attacked the Prime Minister for returning to Seventies-style economic policies.

Mr Cameron said in his New Year message: "It's no surprise that a Prime Minister whose decisions over a decade helped cause the debt crisis, who failed to prepare the country for the gathering storm, and whose irresponsible extra borrowing will now deepen and lengthen the recession, turns round and tells us the recession will be a test of everyone else's character.

"The Prime Minister tells us to find our Blitz spirit when he is the one dropping the bombs - the tax and debt bombshells that are taking Britain to the brink of bankruptcy."

http://www.thisislondon.co.uk/standard/article-23609609-details/Brown+%27bombing+Britain+to+brink+of+bankruptcy%27/article.do

[Anarcho-Socialist]

1. nonsense

The public finances are shitty but bankruptcy is a long way off. Higher taxes are to pay for the PFI nonsense and the bailout of the City (socialising the follies of the ultra-wealthy) as demanded by monetarists and neolib ideologues. The high personal debt levels are a result of the flawed economic model that neoliberals have implemented these past thirty years.

The Tories have no economic plan apart from cutting the upper tax band. There's a greater danger to the UK economy through deflation rather than inflation so Cameroonian indignation about spending levels isn't in touch with reality.

Is Cameron suggesting a return to the Thatcher economic turmoil that drove Britain into a deep and needless recession in the early '80s? There's an old-fashioned anti-Keynesian screech to the "Seventies-style economic policies" comment.

[Albus]

2. Absolutley! Ever higher taxes and ever higher borrowing are the way forward

and we should all applaud Mr Brown and Mr Darlings foresight and wisdom in these things.

I'm sure the next generation will feel the same way.

[Anarcho-Socialist]

5. monetarism got us into this mess

and it's not going to get us out of it. Yes, and higher taxes on the ultra-wealthy are needed.

[Albus]

6. Quite right too! But

why stop with the ultra rich? (who will likely just load up their treasure into their floating gin palaces and stream off somewhere else)

We must tax everyone. For as eny fule nose, individuals are not very good with money, and governments are just so much better at getting good value.

So, says I, lets have an across the board tax rate of 95% and one simple tax free band of, say, £12000 which should be more enough for anyone to lead a decent enough life surely.

Any more than that and they'd only waste it on junk food, drink & tobacco making themselves obese and sick and putting extra pressure on the already grossly under-resourced NHS or throw it away on nasty evil CO2 emitting cars or foreign holidays.

No, take it off 'em - it's for their own good.

[muriel_volestrangler]

7. 69% might be a good top rate, because 70% is the marginal rate for people on working tax credit

20% income tax + 11% national insurance + working tax credit tapered at 39% = 70%

So, for someone receiving working tax credit, and in work (eg a single adult at the minimum wage, working 40 hours a week), for every £1 extra they earn, they only get 30p. If that's sufficient incentive to work extra for them, then it should be for high earners (1% national insurance above the upper earnings limit, plus 69% income tax).

Or, let's call it 70%, so that the tax system is just about progressive.

[Nihil]

8. Maybe it's just too early but could you try that again please?

I know there was a certain amount of flippancy involved but I got
the impression that your post was based on something and that
confused me ...

Not sure if it's just stupidity :dunce: or lack of coffee :hangover:
but I was under the impression that I paid ~55% (40% tax + 11%? NI with
zero tax credit) whilst my wife pays 0% (minimum wage for <16 hours
per week with zero tax credit) and that was about the full range for
UK tax. What were you saying/trying to say please?

:shrug:

[muriel_volestrangler]

9. If you are working at minimum wage, full time,

you are paying national insurance, income tax, and receiving working tax credit.

Rates: http://www.hmrc.gov.uk/RATES/taxcredits.htm

WTC for a single person is £1,800 + £735; when your gross income is above £6,420, the amount that is paid is withdrawn, at the rate of 39% of everything you earn above £6,420; so that acts like another tax at the rate of 39% - for every extra £1 you earn, your tax credit is reduced by 39%. But you still pay income tax and NI on your actual wage.

If you earn £11,918 (minimum wage, 40 hours week, 52 weeks), the WTC is (1800 + 735) - (11918 - 6420)*0.39 = £391. If you earn £12,400, it's (1800 + 735) - (12400 - 6420)*0.39 = £203. You've earned £482 more, but your tax credit is reduced by £188.

I think that withdrawal rate applies to those getting child tax credit too, but the calculation for that is more complicated, and I'm not going to attempt it. The non-transparency of tax credits is, I think, one reason why this situation exists - it's not an obvious single figure that gets reported.

I realise that if you have the working/child tax credit, then some withdrawal rate is needed; but I think that the combined effective marginal tax rate of 70% is pretty high for someone on low wages (and note that 70% was specifically designed as the rate - when basic rate income tax was lowered from 22% to 20%, the government put up the withdrawal rate from 37% to 39%), and that the typical Tory argument (that a high upper tax rate acts as a disincentive to work) gets shot down in flames by the continuing existence of a high marginal rate for those on low wages.

[Nihil]

10. OK ... I've obviously being stupid here so thanks for bearing with me ...

I can follow your example but can't make that final jump ...

> But you still pay income tax and NI on your actual wage.

OK. You pay income tax (at 20% or 40% depending on numbers) and NI
on everything you earn above a certain minimum (tax-free) amount.

> WTC for a single person is £1,800 + £735; when your gross income is
> above £6,420, the amount that is paid is withdrawn, at the rate of 39% of
> everything you earn above £6,420; ...

Fine so far: The government is giving back your tax at a decreasing
rate that starts with the value of £2535 and ends up at a value of £0
once your income has risen to the appropriate figure.

Where you lose me is with your next step:
> ... so that acts like another tax at the rate of 39% - for every
> extra £1 you earn, your tax credit is reduced by 39%.

To me, gradually reducing the tax credit is simply gradually restoring
the existing tax rate for that income: it is explicitly *not* providing
a further tax on top of the "already paid income tax", it is reducing the
amount of *refund* you are getting back from that "already paid income tax".
It is reducing the tax reduction, the refund itself not the income.

This means that when the refund is £0, you are simply paying the same
tax as everyone else who isn't entitled to the WTC (20%/40% + NI) and
so can't claim that it is somehow a "combined effective marginal tax
rate of 70%" as it is only restoring the original tax rate.

i.e.,
You are saying "20% income tax + 11% NI + WTC tapered at 39% = 70%"
while I see "20% income tax + 11% NI - WTC" = <33% (while WTC > 0)
(then 33% from that point until higher rate kicks in to make it 55%).

Thanks for your patience but I'm still missing something ...
:shrug:

[muriel_volestrangler]

11. It's the marginal tax rate - the amount taken in tax on any increase in gross earnings

And the figures of 20% and 40% (for income tax) are also marginal rates - they are the tax you pay on the amount you earn above the tax free allowance, or about the higher tax threshold.

"To me, gradually reducing the tax credit is simply gradually restoring
the existing tax rate for that income: it is explicitly *not* providing
a further tax on top of the "already paid income tax", it is reducing the
amount of *refund* you are getting back from that "already paid income tax".
It is reducing the tax reduction, the refund itself not the income."

Reducing a refund has just the same effect on the net amount of earnings that go from the employer to the employee, and how much goes to the government, as an alteration in a tax rate. If you plotted a graph of gross earnings against tax and NI paid, the gradient would show the marginal tax rate - and the gradient would be 0.7, ie 70%, for people getting tax credits. Once you get above a certain amount it drops to 31%; a bit further on, it goes up to 41% (when you start paying 40% income tax, and 1% NI - the point at which those 2 changes happen is meant to be unified in the near future, I think, but it's roughly the same point already for a typical person, I think).

Yes, tax credits never mean you pay more than you would if they didn't exist at all. But there's a sort of double standard in the way someone's 'tax rate' is reported. People may say "I pay tax at 40%", but that doesn't mean that 40% of their income is taken in tax. It means that their marginal rate is 40%. And, for someone receiving tax credits, the combined rate of income tax and tax credit withdrawal is 20+39=59%, and then there's 11% NI (I don't know if it's possible for someone to end up paying higher rate tax and still be eligible for child tax credits - maybe if you had a huge family? - but that potentially could be a marginal rate of 79%).

I'm not saying this means we should get rid of tax credits; I do wonder if the withdrawal rate is too high. But my main point is that some people say that high tax rates (ie marginal tax rates) are a disincentive for work; but we already have them, for people at the low end of the scale. I think the ones at the high end could still feel an incentive to work if they had a marginal tax rate of, say, 60%.

[Nihil]

12. Ah!

Finally, I see what you are saying!

("By George, he's got it! Hurrah!")

Thanks for being patient and explaining it to a financial muppet!

:toast:

[LeftishBrit]

3. Cameron is electioneering though who knows when the election will be

I have yet to see any coherent policy, other than 'Blame Labour!', come out of his mouth.

And it was to a large extent the Tories who destroyed British industry, and turned us into a banks 'n money society, thus making us much more vulnerable to this sort of economic downturn. And who reduced regulation of banks and financial institutions. (Admittedly New Labour did nothing to reverse these policies.) Of course it's a worldwide problem but we needn't have been so vulnerable to it.

[T_i_B]

4. it seems that whenever I hear the credit crunch being discussed...

...somebody always mentions the fact that it was Thatcher who turned us away from manufacturing and towards a financial services lead economy, and that it's that aim of the Tories that has turned sour.

The best thing that the Tories can go at the moment is find a good quality replacement for George Osbourne and start looking for policies that might actually get us out of this mess. Clinging obsessively to Laissez-Fare may have its attractions but a more pragmatic approach to getting out out of the credit crunch would go a long way for the Tories.