Is Income Tax Too High in the UK Compared to the USA?

Comparing income tax rates between the UK and the USA involves several factors including the structure of the tax systems, the rates themselves, and what those taxes fund. This article delves into the details of each country’s tax system to provide a comprehensive overview.

Income Tax Rates

United Kingdom

The UK has a progressive tax system with the following income tax brackets for the 2023/2024 tax year:

Personal Allowance: ￡12,570
Tax free on income up to ￡12,570 Basic Rate: 20% on income between ￡12,571 and ￡50,270
Applies to income in the range ￡12,571 to ￡50,270 Higher Rate: 40% on income between ￡50,271 and ￡150,000
Applies to income in the range ￡50,271 to ￡150,000 Additional Rate: 45% on income over ￡150,000
Applies to income above ￡150,000

United States

The US also has a progressive tax system with federal income tax brackets for 2023 as follows:

10%: On income up to $11,000 for single filers
Applies to income up to $11,000 for single filers 12%: On income over $11,000 to $44,725
Applies to income in the range $11,001 to $44,725 22%: On income over $44,725 to $95,375
Applies to income in the range $44,726 to $95,375 24%: On income over $95,375 to $182,100
Applies to income in the range $95,376 to $182,100 32%: On income over $182,100 to $231,250
Applies to income in the range $182,101 to $231,250 35%: On income over $231,250 to $578,125
Applies to income in the range $231,251 to $578,125 37%: On income over $578,125
Applies to income above $578,125

Other Considerations

State Taxes

In the US, many states impose their own income taxes which can significantly affect the overall tax burden. Some states have no income tax while others have rates that can be quite high. This variation can lead to substantial differences in the total tax impact, depending on where one lives within the country.

National Insurance and Other Taxes

In the UK, National Insurance contributions are also deducted from income which can add to the overall tax burden. These contributions are used to fund social security benefits, such as pension and unemployment insurance.

Public Services

The UK's tax system funds a wide range of public services including the National Health Service (NHS), which provides healthcare largely free at the point of use. In contrast, healthcare costs in the US are often borne by individuals through private insurance, leading to higher out-of-pocket expenses.

Conclusion

Whether income tax is too high in one country compared to the other is a highly subjective opinion and depends on various factors, including individual economic situations and the level of public services provided. Government spending priorities also play a crucial role. The UK’s higher income tax rates reflect a different approach to funding essential public services.

Public Opinion:

Public opinion on whether income tax is too high in the UK compared to the USA can vary widely. On one hand, some argue that the more social programs a country offers, the more taxes are needed to fund them. On the other hand, others might argue that the higher out-of-pocket costs in the US due to the lack of public healthcare and social programs make the effective tax rates different from the reported percentages.

Unemployment Benefits and Property Taxes:

In the UK, unemployed people who own a house worth ￡10 million pounds can still claim unemployment benefits, provided they do not have more than ￡16,000 in savings or own more than one property. This system might be seen as generous by some, but others argue it might be better for these individuals to rent out a room in their high-value property.