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The British tax system explained in layman’s terms…
Suppose that every day, ten men go out for beer and the bill for all ten comes to £100.
If they paid their bill the way we pay our taxes, it would go something like this…
The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7.
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.
So, that’s what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by £20.” Drinks for the ten now cost just £80.
The group still wanted to pay their bill the way we pay our taxes.
So the first four men were unaffected.
They would still drink for free. But what about the other six men? The paying customers?
How could they divide the £20 windfall so that everyone would get his fair share?
They realized that £20 divided by six is £3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so the fifth man, like the first four, now paid nothing (100% savings)
The sixth now paid £2 instead of £3 (33% savings).
The seventh now pay £5 instead of £7 (28% savings).
The eighth now paid £9 instead of £12 (25% savings).
The ninth now paid £14 instead of £18 (22% savings).
The tenth now paid £49 instead of £59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
“I only got a pound out of the £20,”declared the sixth man.
He pointed to the tenth man,” but he got £10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a pound too. It’s unfair that he got ten times more than I!”
“That’s true!!” shouted the seventh man. “Why should he get £10 back when I got only two? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works.
The people who pay the highest taxes get the most benefit from a tax reduction.
Tax them too much, attack them for being wealthy, and they just may not show up anymore.
In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
You will recall that in the 60s our then esteemed PM Harold Wilson tried to soak the rich with a top tax level of 95% and - guess what - the rich left the country. In fact we had a massive brain drain of the talented to the US and elsewhere. Margaret Thatcher in contrast got it and introduced a tax regime that let the talented hang on to a reasonable part of their income, with a maximum tax level of 40%. This became the norm for many years and even the Labour party decided to leave well alone - until now.
Whilst big bonuses to bank staff stick in my throat, like everybody else’s, the fact is that the financial sector is far and away the most important part of our economy. Despite the recent problems in this sector London remains one of the top centres for the industry and trying to prevent the payment of bonuses where profits have been made is simply killing the goose that laid the golden egg.
Similarly raising the top rate of tax (now 50% but effectively higher when personal allowances - or the lack of them - and national insurance rates are taken into account) will again lead to an exit of the talented. So, as the parable above explains, when we go to the pub we won’t be able to afford to drink.
What is it with politicians? It really is not that difficult to understand.
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am I reading this incorrectly or is there a change of heart? It’s unfortunate but true that if Obama’s move to stop banking/financial bonus payments is successful, then the truth of the matter will be>>>>>the rest of us will suffer at some point….the good thing is Obama can’t do anything except read the teleprompter….I’m not sure what the right thing to do is as I hate anyone making more in bonuses than me, however, I still agree that the bonuses being made are absurd and somehow they need to be restrained…which brings me to your post of today and Jan 21st. As your last line states in the 21st post, Is there really success all around?
I beleive the right thing to do is simply nail Penelope in the Guard house and forget the rest ….
have a good one…..
From your post today: “Despite the recent problems in this sector London remains one of the top centres for the industry and trying to prevent the payment of bonuses where profits have been made is simply killing the goose that laid the golden egg.”
from your previous post:Calling Time on the Bankers-Jan 21st, 2010
“What kind of obscenity is it for Goldman Sachs to pay $500k bonuses at a time like this? I know Wee Wild West will disagree with me but I think Obama is right on this. If the financial sector cannot behave responsibly then they must be made to do so.
In the UK the banks keep bleating that if they do not pay out these large bonuses then their star traders will simply go to someone who will and the bank will be less successful and the economy will suffer. But if the US takes the lead in curbing these excessive payments then there will not be anywhere for them to go - so success all round.”
Thank goodness that our country isnt run by morons like Urban Eric . What tosh . I mean who in the right mind would believe this flawed logic . Look I have a budget defict of 500 trillion pounds as a result of saving the worlds bankers bonuses and providing benefits to our wonderful immigrant population . It is clear to me and to my colleagues in the government that higer taxation is the way to deal with this . We are agreed that too many people do not take the financial plight of the country seriously and seem intent on spending on silly consumer items . Far better that they stop this and instead , via the tax system help me reduce the deficit and provide a stable economy which will allow me to increaseMPs expenses in the next government .
I note that Urban Eric is in Australia at the moment and is keen to have his benefits paid directly . If he would send his Australian bank details to me I will make sure this is done . he should also be pleased to hear that I have just introduced a special one off payment for rogues like him that leave this country on a one way ticket of 5000 pounds . He will of course continue to receive all his normal benefits inflated by 50% and can have a bit more if he finds this inadequate in his new country . This is all part of our plan of freeing up housing for immigrants from Easatern Europe which seems to be working really well and is allowing this country to regain its position as the number 1 destination of choice for all illegal immigrants , an achievement that we can all be proud of
Yours financially unsound
A Darling
Oi Oldfart steady on son! We dont want no trouble does we? I ear that your puttin it abhat that you an John Terry is the same bloke. I’m reckonin this is abhat gettin to play hunt the sausage with some underwear models down Slagheap.Okay fairplay .Usually. But Terry’s just made me his agent after his old agent Max Clifford unaccountably fell down the stairs with his hands tied behind his back as he left my office in Romford. So stop messin son. We dont want no trouble does we? You n me had a good business relationship in the past like when I collected your cash from Woolies n Northern Rock after they got silly about not payin just because your I T advice made them go bust.So lets keep it regular, eh?