This comparrison is a little misleading, even now updated for marginal/average rate issue. There are several issues:

1. The 'example' earning of GBP 34k is just below the threshold at which the margin rate switches to 40% (double!)

2. The UK number exlcudes National Insurance payments, whereas the Cali one includes Social Security (the US Equivalent)

3. The UK one does not have Council Tax, but the US one does have State income tax. Whilst council tax is not income based, it does correlate with income, so this the two are more comparable than not.

[UPDATE - looks like my reply crossed in the ether with your update :) when will HN get etherpad commenting ? ;]

Council tax definitely does not correlate with income in the UK.

I lived in Westminster, which covers most of the west of inner london. These are wealthy areas covering a lot of expensive real estate, including Buckingham Palace, for one.

My council tax was much lower than friends of mine who lived in commuter suburbs of London. The main reason is that wealthy areas like Westminster contain a lot of businesses, who get slugged with council taxes. They also make a lot of income from parking and things like that.

When you fold in lower transport costs for living in 'Zone 1' it actually makes more sense to live close the centre of London than further out. This is even more so when you start to factor in the value of your time lost sitting on the Tube for hours on end.

Not sure how these factors work out for Council regions in richer non-urban areas, but there's enough evidence to disprove correlation between council tax and income.

Cross-boroughs I suspect there is little correlation - you are right - but I was referring to cross-band. The context is a comparison of marginal tax rates, so the issue is: in this particular place, how much does earning an extra pound(gross) put in my pocket?' (if the comparison isnt between particular places, then I could just as well compare compare the UK to Nevada income tax - none). I would be very surprised if there isn't a strong correlation within a borough between income and band (i.e. people with higher incomes live in more valuable houses). Of course, any individual can choose to be an exception to that, but on average within a borough, those earning more pay more council tax.

So pick any particular borough in the UK that you want for the comparison, but then ask 'in this borough, do those on high incomes pay more council tax, on average?' If the answer is 'yes', then that is effectively part of your marginal tax rate, albeit indirect.

You're right, I fixed many of the issues seemingly at the same time you were writing, sorry! :-) However:

Whilst council tax is not income based, it does correlate with income

I don't think that's true. I'm a higher rate taxpayer and I'm in band A, the lowest band, whereas most of the people I know with high council tax bills are retired or otherwise coming to the ends of their career (on not much pay).

That said, council tax isn't relevant here since American homeowners typically pay property taxes as an equivalent (and property taxes tend to be higher than council tax).

You're right - property taxes (which I forgot about) probably outweigh council taxes.

But regarding the correlation, I find it very hard to believe that within a borough, those with higher income dont on average pay more council tax, no matter your two exceptions ;) (see my other comment)

In the South East and London, you're probably right. It's difficult to define, though, with the ways council tax can be divided up on a per-person basis.

In my county, I think my argument stands. Only 6% of the population is 25-35 and 40% is 60+. As a rather work poor area, nearly all of the expensive houses are owned by people who no longer work :-) This is life oop North!

Yeah, that's probably fair - when you have an unusual mix of ages the correlation probably isnt there. Whereabouts Oop Nerth are you?

Rural Lincolnshire. I believe there's one other frequent HN user around these parts :-) (I'm from London but my wife is from here, and I kinda like it now!)

The Californian would be taxed 42% of his 50,000th dollar. Overall I believe he's paying less than 26% of his entire income.

Doh, good call. I fell into the marginal vs total trap I tried to cover in my first paragraph, lol. I'll add a note.

Wouldn't fair taxes, strictly speaking, be a horizontal line?

You've just described a flat tax rate.

http://en.wikipedia.org/wiki/Flat_tax

You can count me into the people who support flat tax rates, if for no other reason to stop the pointless millions of hours of productive time wasted trying to rort the system. While people will always cheat, if all income is taxed at a flat rate, at the source, then the incentive to spend money on tax accountants falls.

The Negative Income Tax seems like an interesting flat-tax proposal that could even satisfy those in favor of progressive taxation for political reasons: http://en.wikipedia.org/wiki/Negative_income_tax

See also the Bradley X Tax, which is a value-added tax melded with an income tax. The income tax can be as progressive as you like, and the VAT is equivalent to a flat sales tax.

http://en.wikipedia.org/wiki/X_tax http://www.princeton.edu/~ceps/workingpapers/93bradford.pdf

Fair taxes is an oxymoron.

A flat tax is more fair than a progressive one. But it would be more fair with a head-tax aka. poll-tax. Everyone pays the same amount.

And what will you do with the half of the population whose total annual earnings don't meet their tax obligation? That's a lot of soylent green for the rest of us to eat.

A free trip to Canada.

In the marginal or total revenue? Ie tax = C, or tax = c * income?

How would we define fair here? Both of the above options seem somewhat fair: everyone contributes the same amount, or everyone contributes the same percentage of income. Or a third standard for fairness could be that the benefit you get from government programs is equal to what you pay in taxes.

I don't even know which of these I think is best (let alone a hope of ever changing anything). Perhaps the best way to cash out "fair" in this case would be to start with some assumptions about what taxes are supposed to do; eg solve coordination problems, support disadvantaged people, etc; and see what can be derived.

That's an interesting comparison, thanks for posting it. I'd love to see something similar for some other countries famous for high taxes and high social services, e.g., Sweden.