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Now for some hard reality on taxes – they are going up

For the past two weeks, a stock narrative has been that UK Chancellor of the Exchequer Kwasi Kwarteng’s “mini-budget” was reckless and rattled the markets, and he should have been more cautious, set out the debt and borrowing side first, not talked about reversing Rishi Sunak’s tax hikes to corporate tax, NICs, etc, and got fully on board with the idea that what the UK needs are the highest taxes since Clement Attlee. This, apparently, is what the clever people in the Square Mile wanted, happily cheered on by much of the media, and the damper ends of the Tory Party.

But given a few days to think about this, what strikes me as what a lot of hysteria there has been, and how heavy taxes remain. This story in the Telegraph today shows how “fiscal drag” caused by static tax thresholds means millions of UK taxpayers will, in real terms, be worse off because their tax bills are going up, not down.

So the idea that we are going to move to some sort of Reaganite low-tax country was always a bit overdone. It suggests that fashionable opinion has so totally imbibed forms of socialism that anything a bit different sends people crazy. (The performance of the International Monetary Fund, an organisation that should be shut down, is a case in point.) It suggest that those Tory MPs threatening to unpick even the smaller tax hikes need to ask themselves why they are Tory MPs at all.

10 comments to Now for some hard reality on taxes – they are going up

  • Steven R

    “It’s my money and I want it now!”
    -J.G. Wentworth, also the Taxman

  • Paul Marks

    Yes, taxes are going up. Inflation is pushing people up brackets – in the 1970s “Rooker Wise” indexed tax brackets, but that seems to have gone, and the official index underestimates inflation anyway – although not so much in the United Kingdom as in the United States (American “inflation numbers” are as fake as election numbers).

    The “tax cuts” of Prime Minister Truss were just holding down the INCREASE in taxes by Johnson and Sunak. And the hysterical hate whipped up by the international media (and the IMF and other international bodies – including the Corporations) remined me of the lie-fest propaganda campaign around Covid. “Taxes for the rich ABOLISHED” (yes, most people had no idea that the tax was going back to 40% which it was under Mr Major and Mr Blair – they were told that taxes were “abolished” for the rich) was very much the same as “Flatten the Curve” and “Build Back Better”.

    By the way – under President Reagan the top rate of American income tax was 28%, that would not be allowed now. Would not be allowed by our international (world “governance”) rulers. Not for “major financial centres”.

  • Patrick Crozier

    I’m a bit confused how “static” tax thresholds in an inflationary environment puts taxes up. And, sadly, the article linked to is behind a pay wall. Can anyone explain?

  • Mr Ed

    I’m a bit confused how “static” tax thresholds in an inflationary environment puts taxes up.

    “fiscal drag” caused by static tax thresholds means millions of UK taxpayers will, in real terms, be worse off because their tax bills are going up, not down.

    Fair point Patrick, I think that the rationale is:
    1. If you pay tax on £50,000 of your income at 20%, and annual inflation is 10%, your £50,000 is terms of ‘value’ is £45,000 after 1 year. Over £50k, tax is 40%.
    2. If you get a pay rise of 11.1111% on your £50,000 to compensate for the inflation, your nominal pay becomes £55,555.55p. You pay 40% tax on £5,555.55, ending up with a marginal rate that is 20% (40% -20%) higher on your ‘extra’ £5,555.55 or you lose £1,111.11 on the ‘extra’, meaning that, inflation adjusted, you pay more tax on the same ‘value’ and are £1,000 pa worse off in purchasing power terms.

    Or, if you get no pay rise at all, you are simply 10% worse off.

  • Patrick Crozier (October 6, 2022 at 6:40 pm), if your annual pay rise for the current year equals the rate of inflation then you are paid the same as last year in real terms but more in money terms, so if the tax thresholds do not move then the real value of your tax free allowance shrinks, meaning you pay tax on a greater proportion of your real income. You may also cross an upper threshold, or appear further above it, and so pay a higher rate of tax on a greater proportion of your real income.

    Of course, if your pay stays static in money terms during a time of high inflation then you will avoid these problems. 🙂

  • Patrick Crozier

    Sorry, I’m being really thick here.

  • Paul Marks

    As J.P. points out, the world now takes the IMF and other international organisations having a political and cultural agenda – about “Equity”, that buzzword of the international elite – yes, we have an elite that formally supports egalitarianism, the Duke of Orleans, the richest man in France, played the “Citizen Equality” game, it did not end well.

    What next – will all the Corporations making quoting (and supporting) Rousseau compulsory for all staff?

    The endgame is well known now – Digital Currency with the Corporate State in charge of how much money people get, and what they spend it on. That is why Corporations no longer seem to care about customers – and care about ESG scores instead. Money is to be allocated on the basis of politics – ESG scores and-so-on, first finance money – but later on all money. The rich will be Woke not as a “Radical Chic” fashion statement, but because the only way to be rich will be to have the “correct” political and cultural opinions, whilst dissenters will be denied not just finance, but also employment.

    And if anyone thinks this, free enterprise utterly crushed and a Corporate State established, will work as an effective economic system – then I have nice bridge to sell you.

  • Steven R

    Or the ESG/Corporate/Government paradigm devolves into two classes: the elite (and wannabe elite) who play that game and who know that what they say today safely might be grounds for a purging tomorrow, but still go along with it because the rewards are worth the risk. In the meantime, most people aren’t affected, and those in charge only push so far because they do know there is an unknown point of breaking that will send the plebs in the streets to break out the piano wire and streetlight assembly kits and no one is really sure where that point of breaking is.

    Or as Orwell put it, “If there was hope, it must lie in the proles, because only there, in those swarming disregarded masses, eighty-five percent of the population of Oceania, could the force to destroy the Party ever be generated. The Party could not be overthrown from within. Its enemies, if it had any enemies, had no way of coming together or even of identifying one another. Even if the legendary Brotherhood existed, as just possibly it might, it was inconceivable that its members could ever assemble in larger numbers than twos and threes. Rebellion meant a look in the eyes, an inflection of the voice; at the most, an occasional whispered word. But the proles, if only they could somehow become conscious of their own strength, would have no need to conspire. They need only to rise up and shake themselves like a horse shaking off flies. If they chose they could blow the Party to pieces tomorrow morning. Surely sooner or later it must occur to them to do it.”

  • Paul Marks

    Steven R.

    No – all people are to be affected, not “most people aren’t affected”.

    Sir, you miss the true scale of the project.

    People are not going to choose what they spend their money on – the money is going to be nothing more than lights on the computer screens of governments and banks (it basically is just that already) and they, the Corporate State, will decide what people spend it on. And “training”, indoctrination, will be pushed (is being pushed) to the whole population – with no chance of even the most menial job for people with the “wrong” political and cultural opinions.

    There is hope – but the hope is from Economic Law, something that “George Orwell” (good man though he was) did not understand.

    Their system, the system they are creating, will not work.

    Indeed, what the establishment have already done is already failing.

    The end will be terrible, and I will not survive it, but many other people will survive – and they will build.

    Not the democratic collectivism imagined by Orwell (notice he can never even describe what he wants – as with Karl Marx, it is always left vague). The people will build (rebuild) a society based on private property in the means of production (most importantly land), voluntary trade, sound money (not fiat money and Credit Bubbles), and honest finance from Real Savings – the actual sacrifice of consumption.

    As Henry Hazlitt put it long agon – “Time Will Run Back”.

  • Martin

    Surely it would have been smarter politically, and probably economically, to have announced doing something about the thresholds than the 45p rate? Would potentially benefit many more people and bait Labour into daring to reduce the thresholds