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Progressive income tax rate only way to balance income inequality

Taxpayers in the bottom 99 per cent pay more tax than the top one per cent

by Amy Ripley (Senior Communications Officer)

New research from Cass Business School, Queen Mary, University of London and the Universitat Autònoma de Barcelona argues that a progressive income tax rate is the only way to balance income inequality.

The researchers developed a novel and holistic index which tracks the ratio of the effective income tax rate per income group divided by the percentage of total personal wealth (or the percentage of national income) owned by the same income group.

Using this metric, instead of focusing on the absolute income tax contribution, the researchers discovered that the bottom 99 per cent pays in relative terms at least 10 times (1,000 per cent) more tax than the top one per cent.

Used together with other direct/indirect taxes, insurance contributions and government borrowing, the researchers argue that a progressive income tax rate should help balance the UK’s highly polarised and divided economy.

Professor John Hatgioannides, Cass Business School, said:

“Vast income inequality, appropriation of huge chunks of wealth by the top one per cent and systematic public underinvestment due to relatively low direct income tax rates for the highest earners, have all contributed to the unequal UK economy.

“If the richest one per cent paid a higher and fairer income tax rate it would have a significant impact on quality of life for some of our poorest citizens.  For example, it could mean that high-quality universal services, a guaranteed state pension; a thriving free health service and free childcare and elderly care would be within reach for all.”

This research was undertaken with Dr Marika Karanassou, Queen Mary, University of London and Associate Professor Hector Sala of the Universitat Autònoma de Barcelona and IZA in Bonn.  You can read the full paper here.

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