Maths For Joe

Dear Joe:

Ok.  It’s difficult, I know, but clearly you don’t just get it yet.   And it’s not too long to the exams.   So, you’d have to be worried.

Let’s put it in simple terms for you….  For a start,    there’s a reason that the top 2% of tax payers are paying a bigger share of the total tax take than other tax payers.  In fact, there are a number of other reasons, but given your problem of picking up on some of this stuff in the past, let’s just deal this week with the first one…..

The top 2% payers pay a bigger share of the tax take than other people because they earn a few squillion dollars more than other people.     It’s not too much of an exaggeration to say they earn about 10 or more times the average wage.   And at least 5 times more, most of them, than the people in the next tax bracket down.

That 2%, by the way, doesn’t actually pay half of their income in tax.   It’s actually more like 35% or so.    This is because marginal tax rates only kick in….

Ah, forget that bit… we might come back to that again later…. It’s a bit complicated — like car ownership.

So let’s see who the “top 2% people” are…      If you mean to say they’re the top 2% of all taxpayers in terms of numbers,   there are about 250,000 of them (2011-12 figures)

If they were paying 28% of all income tax as you say, that’s a total of (Federal) income tax of $64.6438 billion,  or an average of $253,505 for each taxpayer in the top 2% range.

We know that the range of tax rates paid are then between approx 35% of gross tax and say, (let’s be generous to your weird calculations earlier) 40% of gross tax — but probably more the former than the latter.

That says that the total gross income declared for the average “top 2%” taxpayers is somewhere between about $635,000 and $725,000 per annum.

Either way, the figure is either equal to or greater than, 10 times the wage of the average earner, and a deal more than 10 times greater than the wage of 50% of all income earners.

So, Joe,  with income of 10 times the average wage, the average top 2% of income earners is paying about 5% – 10% more tax than the average wage earner.

Poor buggers.

Mind you, don’t know what the fuss is all about really, anyway….   You’ve already told them they don’t have to bother really paying that much:  all they have to do is stick away any increases in income into superannuation and have no bracket creep problem…. or look at a touch of negative gearing…..     And pay what they’re “entitled” to — the same tax as the average guy.

Neat.  No worries, then.

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