Do you know how much tax is paid by the rich? Apparently not
A new report by the Equality Trust. published on Monday, claims that the British public hugely underestimate what the poorest pay in tax and suggests that a more progressive system should be put in place. Katie Allen writes:
The poorest 10% of households pay eight percentage points more of their income in all taxes than the richest – 43% compared to 35%, according to a report from the Equality Trust .
The thinktank highlights what it sees as a gulf between perceptions of the tax system and reality. Its poll, conducted with Ipsos Mori found that nearly seven in ten people believe that households in the highest 10% income group pay more of their income in tax than those in the lowest 10%.
The report found that a household in the lowest 10% income group pays 43% of its income in tax, while average households and those in the highest 10% income group both pay just 35% – 8 percentage points lower than those in the lowest 10%.
But public perception of the amount of tax paid by each group is rather different. The poll, which had more than 1,000 online respondents in the UK, found that on average, the public think that households in the lowest 10% income group pay almost a quarter of their total household income in all taxes, while the average household pays 30% and a household in the top 10% pays 36%.
All respondents were required to read a document providing them with same working definition of household income and all types of taxes before beginning the survey. The below shows what definitions were provided:
- “household income” – that is total household income from all sources, before tax and other deductions.
By tax we mean all of the following types of tax:
- Income tax
- Tax on interest earned by savings/rental income/other income
The chart below shows the perceived and preferred tax distributions of those polled. It also shows the actual amount of tax as calculated by the Equality Trust.
The thinktank argues that although questions around tax and who pays what are often tackled by parliament and the press, a large amount of the debate "is based upon a reductive and misleading account of tax". The Equality Trust's aim when conducting the poll was to shine light on this area.
Not only did it find that the public's perception of
how the UK's tax system affects households in different income groups was strikingly different from reality, the thinktank says the poll results show that the public believe the UK’s tax system is more progressive than it is. Nearly seven in ten people think that households in the highest 10% income group pay more of their income in tax than those in the lowest 10%. In reality, the top 10% pay a smaller proportion of their income in tax than the bottom 10%.
The report concludes:
Public perceptions and preferences of the UK tax distribution differ greatly from thereality. This is most pronounced in relation to the bottom 10% household income group, where on average public perception and preference differ by 19 percentage points and 28 percentage points respectively from reality
However, it found a smaller gap between the perceived, preferred and actual taxes faced by the average household.
But why is there such a big difference between what people perceive and the reality? Well, according to the report:
From an analysis of the distribution of different types of taxes paid by households it is possible to infer that public perception, and its inaccuracy, is partly attributable to people’s tendency to disproportionately focus on income tax in any consideration of the overall tax burden
Research was conducted online by the Equality Trust in partnership with Ipsos Mori among a total of 1,036 adults aged 16-75 in the United Kingdom from 11–14 April 2014 via its OnlineiOmnibus survey. The data were weighted by age, gender, region, social grade and working status to the known profile of the UK population aged 16-75.
- All respondents were required to read a list which provided them with same working definition of household income and all types of taxes before beginning the survey (you can read the full list above)
the percentage of income paid in all types of taxes by the household income groups
The Equality Trust used the ONS effects of tax and benefits on household income, 2013 data to calculate the level of tax paid by each group. The data available from the ONS runs from 1977 to 2011. The Trust looked at the difference between gross income and post-tax income, measuring the percentage of gross income removed through direct tax and indirect taxation.
- The ONS data addresses taxes on incomes and not those on capital, as there is not a valid way of estimating these taxes. The Equality Trust focused on households in the lowest 10%, Mean and highest 10% income groups, as these are available in the ONS dataset and, believe, that these are the easiest to communicate to the public.