the uk tax system from a gender perspective jerome de henau the open university women’s budget...
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The UK Tax system from a gender perspective
Jerome De Henau
The Open University
Women’s Budget Group training day
London, 30 January 2015
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Overview
Sources of tax revenue Personal Income Tax and NICs Gender effects Indirect taxes Changes in indirect taxation Gender effects Analysis of GIA by government
Main principles of a tax system – trade offs
Collecting revenueEfficiency: lowest cost of administrationSimple: avoiding loopholes for tax avoidance
Providing incentivesNudges (work incentives, attractiveness of savings)Deterrent (tobacco, alcohol, polluting activities)
Equity: normative fairnessHorizontal: taxpayers who are equal in economic terms
treated equally for tax purposesVertical: unequal individual from an economic standpoint
should be treated appropriately differentially for tax purposes3
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UK government total revenue 2014-15
Income tax25%
NICs17%
VAT17%
Fuel4%
Tobacco & alcohol
3%
Other indirect taxes
3%
Council tax4%
Capital gains & inheritance
1%
Stamp duty2%
Corporation tax6%
Business rates & other
5%
Other taxes and royalties
5%
Interest and dividends
3%
Other receipts4%
£648.1 billion
37.7% of GDP
Roughly £12,400 for every adult or
£10,000 per person
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Note: Figures are for general government net receipts on a calendar-year basis. Source: T. Clark and A. Dilnot, Long-Term Trends in British Taxation and Spending, IFS Briefing Note 25, 2002 (http://www.ifs.org.uk/bns/bn25.pdf); National Statistics series YBHA and ANBY.
Personal income tax – tax baseTax base (taxable income)
Earnings from employmentIncome from self-employment and unincorporated businessesJobseekers’ allowances (contributory)Retirement pensionIncome from property, interest on savings, dividends on shares
Exempt:Most means-tested benefitsSome universal benefits (DLA)Savings in ISA
Deductible from taxable incomeEmployer and employee pension contributions (with limits)Gifts to charities
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PIT – schedule
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Individual filing system: individual income
Total individual income
- exempt income
- deductions
= taxable income
Personal allowance
Amount taxed at 20%
Amount taxed at 40%
Amount taxed at 45%
PIT – allowancesBasic PTA (Under 65):
Up to £100,000 taxable income: £10,000 in 2014-15 (up to £10,500 in 2015-16)
Age-related allowances (ARA):65-74: £10,500 (disappears next year as basic PTA catches up) 75+: £10,660 – tapered (50p) to basic PTA if inc. > £27,000
Basic PTA and ARA tapered down to zero (50p) for income above £100,000 (so = 0 when income reaches £120,000).
Married couple allowance: gradually removed (abolished in 2000 except for older couples)
Transferable Tax Allowance (from 2015-16): for married couples, none in higher tax band, one spouse transfers part of taxable income to other spouse if other spouse’s income is below basic allowance (£10,500).
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National Insurance contributionsContributions on earnings and income from employmentOnly due by those below state pension ageSimilar principles than PIT (progressive, basic ‘allowance’ before
contribution is dueEmployer’s contributionWeakening link to contributory benefits received (such as state
pension or JSA) – amount is collected to a fund and government uses it to fund general spending (some earmarked for NHS)
Different systems for employees and for self-employedFor employees: 12% due between primary threshold (PT =
£7,956) and upper earnings limit (UEL = £41,860) and 2% above it
Employers pay 13.8% above PTReduced rates for those who opted out of SERPS (below UEL)
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Indirect gendered impact of income tax
What determines tax levelsPosition of men and women in earnings distribution (different
taxable incomes)42% of taxpayers were women in 2014-1575% of those below £11,000 gross earnings in 2013 were
women (And 25% of female earners were below PTA; 9% men)Types of income (dividends/earnings) by gender (different tax rates)Differences in age (ARA)
Men pay more tax than women (on earnings)BUT: analysis of changes in tax rules
Gainers and losers against counterfactualIn % of incomeIn cash contribution 15
Indirect gendered impact of income tax
Increase in PTA% of beneficiaries who are women
Those who do not benefit fully
Those who do not benefit at all
Cost of measure in foregone revenue
Knock-on effects on auto-enrolment
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Indirect gendered impact of income tax
Increase in PTA (to £10,000 and more)% of beneficiaries who are women
43% of beneficiariesThose who do not benefit fully
53% of women (near PTA)Those who do not benefit at all
out of tax (one-off) and no income tax (63% women)Cost of measure in foregone revenue
£12bn equivalent to further cuts in social securityKnock-on effects on auto-enrolment
auto-enrolment only for those above PTA
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Horizontal equity – households with same total income Individual filing system: each adult/earner files their income
separately and the tax schedule applies to their individual taxable income
Joint/family filing system: the total income of the couple is pooled and income tax applies to this total, with different systems providing different deductions for dependent spouses
Mixture: transferable allowance (future TTA, former MCA)
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Horizontal equity – households with same total income
Discussion (families with two dependent children): Dual-earner couple each on £15,000One-earner couple on £30,000Single-earner (lone parent) on £30,000
Income tax bill without TTA and net income? Ignore NICs
And with TTA? (assume couple is married and max TTA= £1000)
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Horizontal equity – households with same total incomeIncome tax bill without TTA and net income?
£15,000 gross tax = (Gross-PTA)*20% = £1000
Net = £14,000 *2 = £28,000
£30,000 gross tax = (30,000-10,000)*20% = £4000
Net = £26,000
Income tax bill with TTA?
Only for one-earner couple (assumed married)
Tax due on £30,000-10,000- £1000 Tax= 20%*19,000 = £3800
Net = £26,200
Income split (Germany): one-earner couple total gross/2 and taxed individually net £28,000 and not £26,000
Value of unpaid contribution: taxed or not?20
Work incentives – effective tax rates
Intensive margin: participation/average tax rate (work at all?)Extensive margin: marginal tax rate (work more hours?) Important for second earners:
Individual versus joint taxationCombined effect of tax and withdrawn benefits(when means-
tested)Changes in PTA (mainly marginal tax rates)Other work-related costs: care replacement, commute
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0%
20%
40%
60%
80%
100%
120%
0 10 20 30 40 50
AETR (PTR) w/cc into hr of woman's employment - Man 40h
no c in hh
1c in cc
3c in cc
2c no cc
2c in cc
lp 2c in cc
Work (dis)incentives – effective tax rates
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Childcare cost £4.4 ph per child; hourly wage both partners at £16; childcare needed for 1.12 times min. hours worked; 15h free childcare 38 days a year for 3-4y; 1c 2y, 2c 3-4y, 3c 2-3-4y
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
0 10 20 30 40 50
AETR (PTR) w/cc into hr of woman's employment - Man 40h
no c in hh
1c in cc
3c in cc
2c no cc
2c in cc
lp 2c in cc
Work (dis)incentives – effective tax rates
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Childcare cost £4.4 ph per child; hourly wage both partners at £6.50 (min wage); childcare needed for 1.12 times min. hours worked; 15h free childcare 38 days a year for 3-4y; 1c 2y, 2c 3-4y, 3c 2-3-4y. Family on Universal Credit with 85% childcare element
Indirect taxes – VAT VAT (tax on value added, paid on final expenditure but claimed
back for intermediate inputs)Mainly regressive (proportional tax on expenditure) but:
20% standard rate (up from 17.5%)5% reduced-rate (energy saving products, contraceptive and
women’s sanitary, children’s car seats, domestic fuel and power, etc.)
0% rate (food, construction of new dwellings, children’s clothes, prescription drugs, books, water and sewerage services, etc.)
Exempt (rent on domestic dwellings, private education, health services, finance and insurance, postal services, funeral, etc.)
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Indirect taxes – dutiesMost duties work in similar ways
Tax as percent of quantity soldFor tobacco, also proportion of price.
Again proportionality makes them regressive
However, tax incidence depends on consumption patternsLower income hh consume relatively more tobacco and
alcohol, hence are taxed more (as % of income) regressiveLower income hh consume relatively more zero-rated items
(food, children’s clothes) thus lower tax incidence progressive
Gender analysis by gendered household types
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Indirect taxes – change in ratesNeed to look at household types and composition by gender-
relevant characteristics:number of earners, age of adults (pensioners/working-age)couple/singlepresence of children
All have different spending priorities which will drive differences in tax burden and contributionsMen smoke and drink more than womenSmoking also larger proportion of lone parents’ budget than
other parents (smoke more and lower income)Men commute longer distances and more likely to drive than
women
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Indirect taxes – change in rates Increase in VAT
Scrapping fuel duty escalator
Cuts in alcohol duties
Increase in tobacco duties
Removing air passenger duty for children
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Indirect taxes – change in rates Increase in VAT
Impact more on low income despite zero-rated goodsScrapping fuel duty escalator
Benefits menCuts in alcohol duties
Benefits men Increase in tobacco duties
Benefit women but not lone parentsRemoving air passenger duty for children
Unclear but likely to benefit women more although lower income families with children (most of which headed by women) do not fly much
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Indirect taxes – change in rates 2010-2011
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0.00%
0.50%
1.00%
1.50%
2.00%
All earning Male sole earner Female sole earner
None earning
% pts change in total indirect tax incidence (May 2010 - April 2011) - for working-age households with and without children by gender
of earners
with children without children
Indirect taxes – change in rates 2010-2011
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0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
D1 D2 D3 D4 D5 D6 D7 D8 D9 D10
% pts change in total indirect tax incidence (May 2010 to April 2011) - for couple and single adult households by decile of
equivalised hh incomes
Couple hh Single man hh Single woman hh
Other taxesCGT on difference between asset value at sale and at purchase
Except for main houseOn deceaseCapital below a threshold (£11,000)
18% for basic rate taxpayers and 28% for higher rate taxpayers
Inheritance taxCorporation tax (21% standard rate, 20% reduced rate)Stamp duty taxBusiness ratesOther
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Gender impact assessment - TreasuryEquality Duty towards protected groups (gender, age,
disability, sexual orientation, ethnicity, gender identity) “Due regard”
eliminate unlawful discriminationadvance equality of opportunityfoster good relations
Three aims to be considered together
Common TIIN statement for income tax
“Equalities impacts will reflect the composition of the income tax-paying population”
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Gender impact assessment - Treasury
Discuss:
TTA (married couples, one spouse below PTA, other non-high earner)
“Couples will benefit as a unit, but the majority (84 per cent) of individual gainers will be male. This reflects earning patterns in the population more generally.”
Excise duty (end of escalator, freeze in cider and spirit duty, cut in beer duty by 1p)
“Men are more likely to drink beer and women more likely to drink wine”
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Gender impact assessment - Treasury
Discuss:
40-year rolling exemption from Vehicle Excise Duty for classic cars (about 10,000 owners of classic car)
“There will be no significant impacts as a result of these changes.”
Capital gains business asset roll-over relief (mainly farmers benefit)
“The gender split for CGT payers is relatively stable over time, with around 60 per cent of filers male and 40 per cent female. It is not known how this pattern might change for farmers but we do not expect this measure to create a disproportionate impact on a particular group of people.”
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Further readingTaxation and gender equity analysis of different countries
(explicit and implicit biases)
Grown, C. and Valodia, I. (eds) (2010) Taxation and gender equity. A Comparative Analysis of Direct and Indirect Taxes in Developing and Developed Countries, New York: Routledge
IFS summary of tax system (not gendered but good explanation, especially all the minor taxes)
Pope, T. And Roantree, B (2014) “A Survey of the UK tax system”, Institute for Fiscal Studies, Briefing Note 09, November
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