Some of the tax cuts being proposed by the Tories and the Lib Dems sound good, but in reality they are highly regressive.
There are several tax cuts currently being mooted by the government. First, advocated by Lord Lawson and a number of Tory backbenchers, is a proposed raising of the threshold at which people pay the 40p income tax rate.
Also being considered is a plan to raise the personal tax allowance to £10,500 and another to increase the lower National Insurance contributions threshold to £8,684.
Whilst the arguments for tax cuts are mostly coming from the Tory benches, Nick Clegg has been appearing in the media to promote an ostensibly ‘progressive measure’ such as raising of the personal tax allowance.
Yet an analysis by the Resolution Foundation has shown that, rather than being progressive, the various tax-cuts currently being mooted are in fact fairly regressive. Take a look at the graph below.
Overwhelmingly it is high earners who would benefit the most from the three proposed changes to the tax system. High earners gain the most from an increase in the 40p income tax threshold; but they also benefit more than most from Nick Clegg’s proposed increase in the personal tax threshold.
In other words, the much talked about ‘tax cuts’ do very little to help ‘ordinary hardworking people’, but are largely measures which would benefit those who are already sitting pretty; which perhaps explains why the Tory backbenches – not generally known for their concern with the plight of the low paid – are so keen on them.
Fortunately for us, graphs don’t tend to lie: these are tax cuts which would benefit least those who need them the most.
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One Response to “Three proposed tax cuts that are anything but progressive”
robertcp
Raising the 40% threshold is clearly not progressive but the other two tax cuts would help people on low and middle incomes. My preference would be to raise the threshold for NI because that would help people with incomes below £10,000. Cutting VAT is another tax cut that would be progressive.