Economics class: ‘Stealth’ raid on income tax thresholds
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Fiscal Policy, Budget 2021
Click to read the article below and then answer the questions:
The standard Personal Tax Allowance (PTA) is £12,500. Explain what this means.
Explain what happens to an individual’s PTA as their income rises above £100,000.
The 40% tax threshold is £50,001. Explain why an individual earning £60,000 will not pay income tax of 40% on all of their income.
Explain the meaning of the term ‘fiscal drag’.
Instead of increasing the tax rates, the chancellor chose to freeze both the PTA and higher rate thresholds. Analyse the micro and macroeconomic effects of this policy.
Gavin Clarke, Emmanuel College