How Much Tax Do The Rich Pay Anyway?
A lot more than you may think ...
I came across this quote while reading this weekend, ''The top 1% makes half the nation's wealth. That means they should be paying half the nation's taxes. That's not punishing the wealthy, it's maths'' ...
How much tax do the rich pay? You may be surprised!
copyright: bonzodog / 123rf stock photo (licensee)
So this week, I thought I would look at UK government statistics to see what they actually paid and how relevant this quote is to real life.
According to the government's own figures, Income tax brings in around 26% of the government's income. National insurance around 17%, VAT around 17% and corporation tax 6%. ie Some 2/3rds of all taxation from these four taxes.
There are then a whole host of other taxes and rents and other income from state owned property that contribute to the remaining third.
Of the UK adult population of around 52.4 million, there are 29.9 million income tax payers. Around 4.6 million of these will pay tax at the higher rate, providing 38.5% of total income tax revenue and 343,000 taxpayers (1.1% of taxpayers) will pay tax at the additional rate, providing 28.9% of total income tax revenue.
Or to put it more simply, the richest 1.1% pay 28.9% of income tax. The next 15.4 % of richest taxpayers pay 38.5%. And yes it is math, as tax is a percentage, so the rich pay much more than the average person.
"This means that the ordinary taxpayer, 83.5% of the tax paying population, pay just 33.3% of income tax!
Or to rephrase it yet again, the rich do indeed pay the vast majority of income tax and the rich actually already pay two-thirds of all income tax! Of course, this lumps all higher rate taxpayers in the 'rich' category and you might say that only the top earners who pay 45% tax should be classified as 'rich'.
It also means that if 34,000 of the richest people in the UK were to leave and go somewhere nicer/warmer/less-tax-expensive (take your pick of reasons), then, on average, we as a nation would lose some 3% of all the income tax paid in the UK. What would that mean for closing hospitals or reducing the number of firemen?
And, of course, the richest 1.1% in the UK are the ones for whom changing countries is simple. They probably already own houses in other parts of the world.
The Labour government of 1974-1979 tried putting taxes up for the richest 1% and there are plenty of examples of people who either left the UK for another country or simply reduced the amount they paid themselves from their businesses so that that they ended up paying less tax.
Statistics show that the number of higher rate taxpayers fell by 25% in 1977! Not all of this loss would have all been rich people leaving the United Kingdom or paying themselves less, as economically the UK was in trouble, but I have no doubt a significant proportion was lost to these two reasons.
What we do know is that wealthy people spend more. A lot more! They have bigger houses, refurbish them more often and pay the top band of council tax. They have expensive cars/planes/boats and pay for them to be maintained, they buy the best food, clothing and other finery and pay VAT on all of this expenditure. They'll employ housekeepers, gardeners, drivers and a team of people to support them in their lifestyle.
"In other words, they contribute to the economy in lots of ways beyond the amount of income tax they pay!"
So next time you hear someone bleating about their socialist roots, how unfair taxation is, and that the rich don't contribute their fair share, remember these statistics. Because we, quite simply, need the rich, successful people to live here!
Until next time ...
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas … and can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.