Tuesday, 8 January 2013

Solidarity in action - why the highest earners pay more than enough

As the debate about spending and tax rises still rages in the US, it may be useful to have a quick look at the specific income tax rates that apply to working people. In Britain, the view is that US citizens pay far less income tax than we do. The US, so the story goes, is a low tax country.

If one looks at the marginal tax rates for individuals that apply to their taxable income, nothing could be further from the truth. The New York Times has helpfully published a graphic detailing the marginal tax rates and how they developed over time.

(you can find the graphic HERE)

The graph is revealing. Despite the incessant news about rich people avoiding tax, the tax rate for top earners in the US ($350k plus) is similar to that in the UK. The rate is 39.5 per cent. That is only 5.5 percentage points lower than the top marginal tax rate in the UK. In fact, it is only 0.5 percentage points more than the tax rate Labour had levied (40%) on the highest earners from 1997 to 2010.

On top of that, people working in the US of course also pay local taxes, which adds to the burden. This picture throws a different light on the argument that 'tax rises can pay down the debt' of the US or the UK. The fact is that the highest earners in either country already contribute about half of all income tax revenue. Their tax burden is already a multiple of what the lowest earners contribute to the treasury. That's solidarity in action.

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