A Comparison of British and U.S. Income Taxes in 1930
THE heavy burden of the British tax-payer is a matter of general knowledge. But it is interesting to find a careful comparison, between the income tax paid by the Britisher and that paid by the American of the same financial standing. Such a comparison is made by the British journalist, P. W. Wilson, in the New York Times.
Of course, the tax schedules have their complications on both sides of the Atlantic, and there are various detailed adjustments to be made. But Mr. Wilson finds it possible to make certain broad comparisons. Take first the question of exemptions:
In the United States the limit of tax is $1,500 for single persons and $3,500 for a head of a family. It is a high limit and very favorable to the small man.
In Great Britain the limit of exemption for an unmarried man is $675 and for married persons $1,125. The married man may also claim exemption up to one-sixth of his earned income, but not exceeding $1,250. For a married man with a salary of 13,500, at which figure he is exempt in the United States, the exemption in Great Britain would be $1,125 added to $583 or $1,708, and he would pay on income amounting to $1,792.
Turning to the number of taxpayers, Mr. Wilson points out that in Great Britain about 4,600,000, or one in ten of the population, pay income tax; in the United States about 2,500,000 pay, or about one in forty-four. On the average in the last fiscal year the average rate of tax paid on British incomes worked out at about one-eighth or about 12 1/2 per cent. of income return. In the United States the average rate has been about one-twentieth, or 5 per cent. of income.
Allowing for the increases recently announced by Philip Snowden in his new budget, "Britain, with two-fifths of the population of the United States, pays three times the income tax." Or, to put it on a basis of per capita population, "the United States pays $10 in income tax, and Great Britain, with a lower wealth per capita, pays about $35."
Next Mr. Wilson proceeds to make individual comparisons. He takes first the case of a married man whose income is 800 pounds sterling in Great Britain or $4,000 in the United States. Now, what do these men pay? As we are told:
In Great Britain the tax last year was about $325 if the income were earned and about $460 if the income were unearned. In the United States the tax works out at 1/2 of 1 per cent. on $4,000 less $3,500, or $500; that is $2.50, for which there is a deduction of 25 per cent., bringing the figure below $2!
Of course, in these lower tax levels the very large exemption allowed in this country is enormously important. Here there is an exemption of $400 for each child, whereas in Great Britain it is $180 for the first child and $135 for other children. Now Mr. Wilson jumps to another salary level:
Take two married men with incomes respectively of 2,000 pounds in Great Britain and $10,000 in the United States. On an earned salary of that amount the Briton paid last year $1,400 or on an unearned income about $1,650.
In the United States the Federal tax works out at something over $50. In addition the State income tax of New York works out at $60.
When we come to the higher incomes, of course the exemptions are not so important:
On an income of 20,000 pounds or $100,000, the Englishman has paid more than $35,000 and less than $40,000 a year. The American has paid about one-third of the amount paid by the Briton. On very high incomes, the British rate has risen to, say, 47 per cent. approximately. But the United States schedule does not exceed 20 per cent. on income above $100,000, however high that income may be.
Of course exemptions and deductions vary, but in general, according to Mr. Wilson, the American is able to cut down his tax by such means to a much larger extent than the Britisher.
On the other hand, many States in this country have their separate income taxes. Still, continues Mr. Wilson, even in the case of the New Yorker with $10,000 a year who pays a $60 State income tax, "we are a long way from the $1,650 paid by the Briton on a similar income and under similar circumstances."
Even when we count in all taxes, Federal, State, local, the American taxpayer is much better off than the British taxpayer of equal income.
To quote a few concluding observations by Mr. Wilson:
Broadly, we may say that the total taxation in the United States, Federal, State and local, is $12,000,000,000, a figure which includes the corporation tax and the customs duties. In Great Britain the corresponding figure is $5,000,000,000. Per capita, this works out at $100 for the United States and $110 for Great Britain. If the total income of the United States be $90,000,000,000, and of Great Britain $15,000,000,000, this works out at a tax of 13 per cent. on income in the United States, compared with 33 per cent. on income in Great Britain.
An important difference between the two countries is that Great Britain controls four-fifths of her taxation through the Treasury and only one-fifth through local authorities, while in the United States only one-third of the taxation is Federal, two-thirds being levied by States and authorities within the States.
Source: The Literary Digest for May 24, 1930