How our tax system works. Median wage is 38k
Assuming on PAYE:
- The first 38k you earn you get £2488.68 a month
- The next 38k you earn an extra £1939.07 a month
- The next 38k you earn an extra £1603.33 a month
Somebody on 3 x median income pays 5.11 times the tax and NI that somebody on median income does. That is the basis of a progressive taxation system. And it is right.
The problem is when you put hard stops in place, like 100k limit for childcare or loss of free NHS at 3 x median income, people stop working.
So I could go to work and do an extra few shifts for the NHS, but in doing so I tip yourself into having to pay more for my own healthcare. No thank you, I’ll stay at home. There are a lot of cliff edges around the 100k mark (including loss of personal allowance leading to an effective 60% income tax rate) that means that people choose not to do any overtime or discretionary work around that level.
The way to manage this is through a progressive taxation system that ramps up taxation as you earn more.The problem is that the super rich will find a way round it.
