Tax

What was that, Darling?

Always nice to reference Blackadder. So, Alistair Darling has sought to dig Labour from a hole of their own making by raising the personal tax-free allowance by £600. Not only does this allow stupid people to think 'Oh good, I'm £600 better off' (when they're not) he's paid for it by borrowing £2.7billion - i.e. the country is going further into debt to dig Labour from this hole - one that anyone with any sense saw coming a year ago.

He is also going to 'lower the level at which 40p tax is paid - so higher earners did not gain from the change.'

Yep, and some more of the middle classes get moved into the top tax bracket.

It's a threshold raise for one year only (they 'aim' to continue the support, but....)

Of course, this is nothing to do with the upcoming by-elections. Oh no. Just as certain tax breaks made as 'one offs' had nothing to do with the general election in 2005. 'A one-off council tax refund of £200 for every household with a member aged 65 or older. Annual winter fuel payment of £200 for over-65s and £300 for over-80s' (source)

On the other hand, it is better to have a government which realises they've cocked up and seeks to put it right - but they've put it 'right' by increasing national debt. They could have saved a lot of cash by removing the expensive and also pointlessly invasive ID card scheme. A scheme which has the appearance of increasing, but doesn't substantially increase actual security. Scrapping this illiberal scheme would have also righted another mistake.

Yes, it's a tax break today (or rather it's removing a tax increase) - but it'll have to be paid for tomorrow.

Weasel Words from Number 10

Recently there was a petition to reduce the VAT on fruit juices with an aim to help people toward their 'five a day'. I thought this too modest myself, if you really want people to eat healthily why not remove the tax totally, making up for it in other areas? It's annoying that healthy is often expensive (as well as inconvenient... surely there is a market for the healthy takeaway/delivery service? - I suppose the difficulty is getting started) The government responded: 'To date the Government has been sparing in its use of VAT reduced rates and has only applied these where they are affordable, and provide the most effective and best-targeted support for the Government's social objectives when compared with other policy instruments.' - to me, that seems fair enough. I.e. it adds complexity without the gain.

However, here's the weasel words: Furthermore, European VAT rules require that in most cases, the same VAT rate is applied to all competing products. This limits the extent to which any new reduced rate could be targeted on the most healthy fruit drinks.

Rubbish! Are they really saying that most people don't know the difference between a cola and a glass of orange juice?

At the moment, all food (including things like hotdogs and crisps) is subject to a zero rate of tax. But people who want to make a healthy choice and buy smoothies and juices get taxed 17.5% VAT.

Are they really claiming that a fruit juice should not be classed as 'foodstuff'?

How Taxes Work

How Taxes Work . . . This is a VERY simple way to understand the tax laws. Read on — it does make you think!!

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to £100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men — the poorest — would pay nothing; the fifth would pay £1, the sixth would pay £3, the seventh £7, the eighth £12, the ninth £18, and the tenth man — the richest — would pay £59.

That's what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement — until one day, the owner threw them a curve (in tax language a tax cut).

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by £20." So now dinner for the ten only cost £80.00.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six — the paying customers? How could they divvy up the £20 windfall so that everyone would get his "fair share?"

The six men realized that £20 divided by six is £3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would end up being PAID to eat their meal. So the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so the fifth man paid nothing, the sixth pitched in £2, the seventh paid £5, the eighth paid £9, the ninth paid £12, leaving the tenth man with a bill of £52 instead of his earlier £59. Each of the six was better off than before. And the first four continued to eat for free.

But once outside the restaurant, the men began to compare their savings. "I only got a pound out of the £20," declared the sixth man who pointed to the tenth. "But he got £7!"

"Yeah, that's right," exclaimed the fifth man, "I only saved a pound, too . . . It's unfair that he got seven times more than me!".

"That's true!" shouted the seventh man, "why should he get £7 back when I got only £2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up. The next night he didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered, a little late what was very important. They were FIFTY-TWO POUNDS short of paying the bill! Imagine that!

And that, boys and girls, journalists and college instructors, is how the tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore.

Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straightforward logic!

via Snopes and Division of Labour, following a post from a Drunken Wasp