4 - UK tax benefit system Flashcards

1
Q

what is the UK income tax

A
  • paid on amount of taxable income (after allowances)
  • personal allowance = 12.5k
  • taxable income = ANI - PA
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2
Q

what does gov use taxes for

A

to fund transfer programs
- universal transfer = NHS, education
- means-tested transfers = WTC, public housing, FSM

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3
Q

what is the UK tax system like

A

tax is a piecewise linear and continuous function of taxable income

with constant MTR by bands (4 bands)

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4
Q

what are the marginal tax rates

A
  • for the lower part of your earnings you still apply the lower bands + the higher bands
    0-12.5k = 0%
    12.5-50k = 20%
    50-150k = 40%
    100-125 = 60%
    125k + = 45%
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5
Q

what is marginal tax rate graph T’(z) = MTR

A
  • bar chart at each level
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6
Q

what is individual tax graph T(z)

A

straight lines

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7
Q

what is the 100k tax trap

A
  • when income is over 100k, the 12.5k personal allowance drops by 50p for every £1 earned over
  • once 125k reached = no PA
  • so an extra 20p of tax on that marginal pound = MTR = 60% not 40%
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8
Q

what is national insurance NI contributions

A
  • deducted from pay
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9
Q

what was the 45 billion in tax cuts?
and why was it not good

A
  • abolish the 45% MTR on income above 150k
  • they would still face the 40% tax rate
  • hoping that it would have a trickledown effect
  • proportionately helps the super wealthy more - the billionaires
  • big regional differences in tax savings
  • would lead to more growth if the tax cut was for lower incomes than higher = no evidence of trickledown effect
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10
Q

what is the difference between PAYE and self assessment

A

PAYE
- system used by employers - do your taxes through PAYE

self
- you have to fill in tax return yourself

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11
Q

who would have benefited from the cut of 45 tax rate to 40

A
  • 10% of gain would go to 150-250k people
  • half of the total tax savings goes to millionaires
  • people that benefit the most = super rich
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12
Q

what are UK tax credits

A
  • they are both based on family income
    working tax credit WTC

child tax credit CTC

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13
Q

what is the WTC

A
  • in work support
  • for low income - you have to work a required amount of hours to qualify
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14
Q

what is CTC

A
  • supports families with children
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15
Q

what are US income tax credits like

A

in work tax credits for low income working families:
EITC = earned income tax credit
CTC = child tax credit

eligibility is based on income and number of children

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16
Q

what is the difference between US and UK tax credit systems

A

UK
* provides more cash benefits to out of work people
* based on hours worked
* high phase out rate

US
* based on earnings
* EITC - doesnt pay 0 hour workers, and has high phase in rate

17
Q
A