The top 1% of income earners in the Uk pay 28% of the total income tax take. As they earn 13% of all the income, that means they pay twice as big a share of the tax as their share of the income.
The bottom half of all earners in the UK pay 10% of the total income tax. The sum they pay in total is less than the amount paid out in Housing Benefit, which goes to this wide group of people.
You could say this is a very “progressive system”. the bottom half paying less than the benefits they receive back, whilst the top 1% pay twice their share of the income.
However, at a time of economic difficulty, when the government wishes to spend so much more than it is currently collecting in revenue, there are many cries to tax the rich more. To do this successfully you need to have a tax system which attracts more very rich people here, and which tempts rich people to invest, venture and spend in ways which trigger more tax revenue from them. The higher rates introduced by the outgoing Labour and incoming Coalition governments have led to a predictable continuing drop in revenues. Taxes on wealth and income yielded 3.5% less to August 2012 than the same period the previous year.
The USA has lower tax rates on the very rich than the UK. Top rate federal income tax is 35%, compared to 50% (plus 2% NI) here. State income tax varies from 0% to 11%. Allowing an average of around 5% means the US top tax rate is more than 10% lower than the UK one.
Despite this- or more likely because of it – the US top 1% earn 17% of all the income. More importantly , they pay 37% of all the Income Tax paid. So with lower tax rates the USA achieves the goal of getting the rich to pay much more. It also has more seriously rich people, which some will dislike and others will see as helpful to pay all that extra tax. In the US the rich pay more than twice their incoem level. They make an overall bigger contribution than in the UK.
My advice to Mr Clegg is simple. By all means aim to get more money off the rich. The way to do it is to set rates that they will stay to pay. Get the right tax rates and more will come to pay.
By all means get the tax burden down on those on middle incomes as well. We are all overtaxed. That is one of the reasons the eocnomy is not performing as well as we would like.