UK Taxes and benefits — more “equalising” than you think


  1. is true, the tax and benefits system goes some way to equalising incomes. Whether it does so more in the UK than in other countries, or more now than it used are more complicated questions.
  2. You’re right that with indirect taxes, the lower your income the higher proportion of your income you pay on indirect taxes. And there are some awful taxes (e.g. council taxes) that hit the poorest disproportionately hard. But the main reason for this effect is that indirect taxes are taxes on expenditure, and the link between income and expenditure is only approximate. Students living off loans, or anyone living off a redundancy payments or savings will have very low income and rather higher spending so their indrect tax burden will be huge as a percentage of their income, but not as a percentage of their expenditure. Those with high incomes especially if they think their high income won’t last may be saving most of it rather than spending it and pay only a small percentage of their (large) income in indirect taxes. If you cut indirect taxes most of the benefit will go to those spending the most, not to ‘ the low income four person family just about getting by.’
  3. I don’t get your point. Any system that taxes earners and provides benefits for children and the retired will have this effect won’t it?
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