One tax threshold fits all

Most countries recognise that those who earn more can afford to pay more tax. In this article, I used numbers based on the UK taxation system, the principles should be the same everywhere.

In the UK, the details vary for individuals due to the complications in our system. Plus there are a bunch of other taxes which I’ve ignored to keep things simple. Here are typical thresholds where the income tax rate changes:

• ￡12,500: 0% -> 20%
• ￡50,300: 20% -> 40%
• ￡125,100: 40% -> 45%?

These thresholds reflect where the government - and possibly the rest of us - define poverty and wealth.?

Or to put it another way, you could label them as:

• ￡12,500: poverty -> working class
• ￡50,300: working class -> middle class
• ￡125,100: middle class -> wealthy

But here’s the problem. How wealthy you feel isn’t just about how much you earn. It reflects several other factors: household size, housing costs, regional cost of living

Take a household on the middle threshold, around ￡50k.?

• Rural Cornwall or Lincolnshire
• No children, or children have left home
• Bought a house in the 1990s
• Overall feel: comfortable

Or another household on the same threshold, around 50k

• Greater London
• Children or other financial dependents
• Rent, or bought a house recently
• Overall feel: poverty

I suspect this also explains why most people feel that MPs are overpaid at ￡86,500. In a lot of the country, that’s a very generous salary. In London, with a family, it is barely survivable.

It is difficult to find a balance that will work everywhere: but it does seem as though governments could try harder. For example, some countries have tax breaks relating to children.

I have heard discussion of a flat rate (income) tax for everyone, everywhere. This would be simpler to administer, but I suspect it would lead to different inequalities.

We believe that most people don’t care about the headline tax rate. What they care about is that after tax, housing, utility costs, and essential spending on food and clothing, there is still something left at the end of the month.?

And, at fflow, we believe that people don’t want to know the details of the software they use. They don’t all want to use it the same way. They do want to share the same information with all the team, and for it all to "just work".