Let’s imagine I am a top rate taxpayer and I receive a £500 bonus, if I spend it all, how much goes into the real economy to buy goods and how much is taken by the government in taxes, duties, etc as its “Fair Share”?
So it would appear that a “fair share” for the state of my hard earned £500 bonus is 68.1% ?
But, that’s not the whole story, because the £159.34 of “goods” is paid to the companies that produce them and a good part of the cost of those goods is made up of tax.
Assume that the companies involved pay 50% for materials, 40% for Labour and make a 10% pre tax profit:
So the state’s “fair share” is up to (£22.41+£340.66)/£500 = 72.6%
But there is more:
The raw materials of £79.67 purchased by the companies represent the revenue of the companies for whom the raw materials are the outputs and are increased in cost because of tax. So assume 14.1% of that amount also goes in tax, another £11.15 for the state.
(£22.41+£340.66+11.15)/£500 = 74.8%
Allowing for the fact that this process continues further still down the supply chain It does not seem unreasonable to assume that ultimately the state will take 75%+ of the bonus.
I get to keep just 25% of the value in free market goods and services and the state takes the rest. Yet, still the left demand higher taxes so I pay my “Fair Share”!
This article was originally published on Libertarian View.
Editor’s note: The bonus example illustrated in this article uses the 50% rate of tax, however in the UK, the top rate of income tax is 45% – making the figure (in UK terms) after income and national insurance £265.00.