Who pays what tax on their earnings and how has that changed over time? The answers are crammed into the chart, showing the overall level of earnings paid in income tax and national insurance. Here are the key lessons.

First, we’re all paying a lower rate of income tax than we would have done in the past – tax cuts have been political bread and butter for decades. Actual income tax revenues held up, but only because rising inequality has pushed them up (the rich pay more because they’ve got more of the income).

Second, change has come in phases. The 80s celebrated yuppies – the highest income tax rate fell from 83% to 40% in 1988. The system become a lot less progressive. Later pre-crisis tax cuts were focused on middle earners. Post-crisis, we’ve seen further cuts for middle earners, but the first increases in taxes on the top for a generation, courtesy of Alistair Darling.

Tax rate by earnings
Tax rate by earnings.

The rich do pay more tax on earnings, but far less than they did before Margaret Thatcher got involved. But that doesn’t mean they pay more tax overall – if we looked across all taxes the system is much less progressive and even close to being a flat rate. And the really rich benefit from the fact that you often pay less tax if you get your cash any way other than wages: self-employment, capital gains, dividends or plain old inheritance.

So what happens next? Big choices are coming – tax rises promised under Labour but tax cuts (largely for the top) under the Conservatives.

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Torsten Bell is chief executive of the Resolution Foundation. Read more at resolutionfoundation.org



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