As loyal and obedient citizens and patriots, we do not question the taxes we pay. Just as in the saying attributed to Benjamin Franklin; ‘nothing is certain except death and taxes’; we observe ourselves enduring the prospect of dying with the same equanimity as an annual tax return.
Yet throughout history, many revolts by citizens have had their roots in what were perceived as ‘unfair taxes’ of which there have been many. The American revolution against the British crown in the 18th century is a prime example. Perhaps the distance between the taxer and the taxee gave courage to those who through boxes of tea into the sea in Boston harbour, but whatever it was, it signified a general feeling of ‘enough is enough’ where taxes were concerned.
Today, many so called ‘developed’ nations are experiencing a rise in the cost of living and stagnant wages. The effect is to squeeze the financial security of the poorest in society until they are eventually turned out of their homes and onto the streets.
Governments have a large part to play in this scenario and often are called into account for their policies. The citizens of France, at present, are being informed they will get their government pensions two years later than they expected. Those soonest about to retire will be most enraged by the decision along with those who resent the way the President Macron used parliamentary privilege to push the change through without debate…like a monarch.
The citizens who pay their taxes (and there are those who don’t in the so called, ‘black economy’ ) feel strongly that they should get some return on their life long financial support of their nation. Few question how much they actually pay the government over their lifetime. If they did they might be shocked.
If we take the United Kingdom as an example, when taxes are referred to in budgets this is assumed to mean income tax. There will be ‘a penny in the pound’ added to taxes or a penny taken away. It all sounds rather trivial but the reality is the opposite. Multiply that penny by pounds earned in a year and multiply that by the millions of tax payers and the figure is staggering.
Yet there are more feints going on, that hide the true worth of taxes to governments. Their favourite trick is to rename taxes as something else. In the UK there is a tax which is named ‘national insurance’. It is currently 2% of weekly earnings for those earning over £967 and 12% of weekly earnings for those who pay less. You will note that this is over 8% a month because the amount has been broken down into a 52nd of a year.
So if you pay say 25% income tax and add roughly 12.5% national insurance you pay 37.5% tax on your income.
It gets worse. Every time you buy most items, you pay ‘value added tax’. Another name for it is ‘purchase tax’. There are different levels for different items but let us say you pay 17.5% on average. That now brings your tax contributions to 55% tax; in other words over half your income.
In the UK it doesn’t stop there. Continuing the theme of disguising taxes by not using the ‘t’ word, there is the ‘community charge’. This evolved from what was originally named the ‘poll tax’ but was renamed by the Thatcher government for reasons that are hopefully becoming clear. A person who lives in the average B and D council tax set by local authorities in England for 2023-24 is about £2,000. So for a person earning £40,000 a year, pays an extra 5% tax to their local council bringing their taxation up to 60% of total income.
We are approaching the extraordinary, agreed approximately calculated, annual personal taxation being two thirds of total income in the UK.
You might add on an annual ‘car tax’ for those who own one, and now, various charges for entering ‘low emmision zones’. You might also pay the local council for using the parking space outside your home or at work. The car owner has long been a ‘golden goose’ for the Chancellor of the Exchequer.
Of course, there are particular life events that will shift your total taxation figure upwards. Inheriting money over a fairly low threshold, brings more tax in for the government treasury. The same happens when an item is sold that has gained in value, such as a house or painting. Agreed there are exemptions for houses if it has been a main residence but after a few years of say, renting out the house, this exemption expires.
To top it all, the ‘National Lotteries’ all over the world, constitute a ‘voluntary tax’ disguised as a chance to become rich…also known as gambling. Ironically, it tends to be the least able to afford a lottery ticket who feel most drawn to the one in x million chance it offers; in other words, ‘unlikely in the most extreme’.
Remember the certainty of death and taxes? Well of course there is a final tax on death, paid not by the deceased who tend not to have an opinion on the matter any longer, but by those who inherit the estate. There is a threshold of £325,000 below which this tax does no apply but above this amount the tax on the estate is 40%. An example from the government website;
Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).
It could be a tidy sum given the rising cost of houses and number of home owners in the UK. It would certainly bring the tax rate paid over a lifetime above 66% for a moderately wealthy person. But even this lucky person might then have had to dispose of this assett and pay care home fees of over £1000 a week during the last few breaths of being a tax payer.
Using the example of the United Kingdom may be extreme because it has the high standards of social welfare that accompany and indeed are paid for by high taxes.
| Description | Percentage of tax |
|---|---|
| Health | 21.9% |
| Welfare | 19.6% |
| Business and Industry | 14.4% |
| State Pensions | 10.1% |
| Education | 9.6% |
| Transport | 4.5% |
| Defence | 4.5% |
| National Debt Interest | 4.1% |
| Public Order and Safety | 3.9% |
| Government Administration | 2.0% |
| Housing and Utilities, like street lighting | 1.4% |
| Environment | 1.3% |
| Culture, like sports, libraries, museums | 1.2% |
| Overseas Aid | 0.9% |
| UK Contribution to the EU Budget | 0.60% |
In the United States of America, those who can afford insurance against illness buy it because they will certainly not be to afford the high costs of health care. A person being told they need a new liver for $100,000 may not be able to pay and, as in the old joke; ‘will stop buying green bananas’.
There is no perfect system and to some extent one can change country if you do not like the taxation and welfare system. But where ever you live, in my view it should never to be taken for granted that governments are being open and honest about how much money they take from you, and how much loose change you get back.
An after thought; why don’t democracies offer voting for where taxes are allocated, rather than on the personality cult figures who present themselves randomly as representing you.
Matters Blog 