Friday, January 15, 2010

Some hypotheticals and taxation philosophy

Your humble Devil did compose this as a reply to Peter's comment on theis taxation of the poor post; however, the screed that I wrote is a little long and, I think, raises some interesting points for people to consider—as such, I decided to move it into a full post. Even so, this is more a loosely strung together musings than a totally coherent post.

Anyway, Peter's original comment painted a couple of scenarios...
While I agree personal rates should be high enough to slim down the tax base by several million low earners this does not address the benefits issue.

Person a) is eighteen, lives with his parents, earns £15,000 per annum and gets by tolerably well.

Person b) is a single mother of two also earning £15k but has to meet rent, commuting, utilities and childcare costs. Why should she not get child benefit when she / her children clearly need some help? (Arguments about life style choices are a separate issue here - maybe she was widowed or something).

Working tax credits had the germ of a good idea but its implementation was poor.

Er... I'm not quite sure that I understand the point. In this scenario,
  • Person A is not entitled to any benefits.

  • Person B is entitled to Child Benefit (£18 for first child, £16 for second, pw), Child Tax Credit (around £50 pw), and Housing Benefit (depends entirely where she lives, but let's call it £150 pw).

So, despite working as hard as Person A, Person B actually takes home an extra £12,168 (tax free).

There are other issues: let us say that,
  • Person A does not wish to live with his parents (perhaps they're abusive), but cannot afford to move out.

  • Person B, on the other hand, cannot afford to live independently but refuses to move in with her parents (who have offered).

Why should everyone else have to pay for Person B's preferences? Why, in fact, should Person A not be entitled to benefits so that he can move out of his parents' home?

Anyway, I think that your question is phrased entirely wrongly: the question shouldn't be "why should this person not get benefits"; it should be "why should this person get benefits"?

Let us assume that no one gets benefits by default; let us imagine that each person must, in fact, plead their individual case in order to get benefits.

Now, let us imagine that they must plead their case to a body whose mission is to help those who cannot get by on their own; a local body that understands the needs of the person, and the environment in which they live.

This body might be called... oh... let's call it a "charity". This "charity" might have a special tax status, granted by the government, in recognition of the good that it does, etc.

This "charity", within the limits of its funds, would be able to help those who really need it. Instead of entitlement based on spurious circumstances, help would be dispensed based on individual needs and cases.

This charity would be able to help Person A get away from his abusive parents, and it would help Person B with her bills.

It would be able to do this by choosing not to fund the fags, beer and Playstation lifestyle of feckless Person C, who just cannot be bothered to get off his fat arse.

Of course, the husband of Person B might have taken out a life insurance policy which would allow her to live without receiving benefits; in an alternative society, the husband might even have bought such a policy through his local Friendly Society—this could, of course, be the same "charity" that the mother appeals to for extra help.

Should either Person A or Person B be entitled to pick the pockets of other people as a matter of course? No.

Does Person B's impoverished state give her the right to impoverish others? No: or not, at least, in any just society.

"Ah," you might say. "But we aren't impoverishing anybody: we are only going to tax the rich in order to pay for these benefits."

First, of course, in making that argument, you are agreeing with Lord Tebbit—you are agreeing that we shouldn't tax the poor, only the rich.

The second problem though, is who are you or I—or the state—to decide who is "rich" and who is not? On both a practical and moral level, who are we to decide who deserves to be taxed, and who does not?

This gets even more difficult when you start to factor in regional variations: £15,000 would be enough to get along with in Yorkshire, but not in London.

Given this, is it not totally unfair that we set taxes at a national level: why do we not raise tax at a local level? This would make local politicians more responsive to local people too, and would lead to fairer levels of taxation.

But to come back to the main point of the article: someone earning £15,000 (which is not an awful lot in this day and age) pays £1,705.00 in tax and £1,021.35 in NI—total deductions of £2,726.35 (just over 18%). And that's before we even mention the £1,188.48 paid in Employer's NICs which might—might—go to slightly increasing our wage slave's pay packet.

To put it even more starkly, let us assume someone on the National Minimum Wage of £5.83 (I think?). Working full-time at 40 hours per week, they earn £12,126.40 per year: they then lose £1,835.53 in tax and NI (roughly 15% of their wage).

This is insanity: we, as a society, have said that the NMW is the minimum that people need to get by—and then we steal 15% of this mimimum wage off them again.

"Ah," but we decide that the NMW is the minimum that they should earn after tax. Well, we might but perhaps someone should tell the government that: where is the guarantee that the state will set the level of taxation to be responsive to the requirements of these Minimum Wagers? And if you think that the government is so responsive, perhaps you should ask yourself what the effect of abolishing the 10p tax rate was on those earning only the NMW.

An employer pays our National Minimum Wage Slave (NMWS) to do a job; then the NMWS pays someone to collect his tax; then, if he's lucky, society pays someone else to assess whether NMWS is entitled to get some of his money back.

All of this is not only morally wrong, it is completely nuts in practical terms.

So, stop taxing the poor because it is a colossal waste of everybody's money.

However, what this means, of course, is that the government is running a bit short of cash. Raising the Personal Tax Threshold to just over £12,000 (so our NMWS pays no tax) would cost something in the region of £30 billion (if anyone has a more precise figure, please let me know).

SO, all other things being equal, the government's tax take this year—with that one alteration—would be about £450 billion. Servicing the National Debt is currently running at about £35 billion, which leaves us with £420 billion.

So, assuming that we make no effort to pay down the debt capital but we are also not going to borrow any more either, what would you do with the £420 billion per year?

As a indication, here are some extremely rough costings for you to consider:
  • NHS: £120 billion

  • Social Security: £180 billion

  • Education: £80 billion

  • Defence: £35 billion

  • Total: £415 billion

Now remember: there's to be no borrowing...


The Disgruntled CC said...

Get rid of NI and the NHS. Even at the minimum wage, NI contributions are no more expensive than private healthcare.. even for the most unfit/overweight smoker and frankly, I rarely use its services, so perhaps I should get a rebate?

That £120 billion could be used to invest in, oh I don't know.. say:

Overhauling the Train Network Infrastructure
Upgrading the existing copper wire infratructure to Fibre (like many other countries)
Upgrading the RTN
Shovelling more money into Education (since it is apparent that current strategy isn't working)

Those are just off the top of my head. And then perhaps, drop a few Billion into paying back our debt

Mitch said...

Too much like common sense.You cant buy votes without billions to splurge on daft projects.

Anonymous said...

If income tax rates were lowered, wouldn't some employers lower the salaries they are willing to pay seeing as the employees will be better off anyway?

Mark M said...

There's another "ahh" on the NMW to be had - namely that part time NMW workers have a higher net per hour rate than full time workers.

So someone working at NMW for 20 hours a week will pay no income tax, but someone working 40 hour weeks loses around 5op per hour on income tax (this ignores NICs that I can't be bothered to work out).

Where's the fairness in that?

The Disgruntled CC said...

so you are saying that someone who only works 20 hours per week should pay the same amount of tax as someone who works 40?

I don't know about you, but THAT seems unfair to me.

morlock said...

@Anonymous 05:25

Yes, in which case either the prices of their products go down, or they can afford to hire more people to crank out more stuff, depending on what's most wanted. What's the problem? Take-home pay doesn't change, except for the minimum wagers who get more, and can count on it.

Jason said...


Maybe this is semantics but DK and others always go on about the govt taking 20% or 30% or 40% of "our" money. If Anonymous is right then your income before tax is never really "yours" since arguably, salaries etc. are "inflated" by the requirement to pay tax

Anonymous said...

If a and b do the same work then they should be paid the same. My employer pays me to do a job not to feed and house my family. And tax credits are fundamentally wrong - why take someone's money away in tax then allow them to ask for it back in benefits. Surely my tax code could account for my having dependant children or not.

The Secret Person said...

Of course this will never happen, as both main parties have a vested interest in taxing and returning money - at least I have heard the arguments below expressed in the past.

Labour want the middle classes to support high taxes for welfare. The Fabian Society recently spoke of their desire to increase middle class welfare so that those people felt dependent on the government and would favour higher taxes - despite paying out much more than they receive. They suggested this already happens with the NHS. This argument of course extends down to the lower paid.

The Tories, it has been argued want the poor to pay taxes, even if they must get the money back through benefits etc, because those exempt from tax have no reason not to vote for higher taxes on everyone else.

So Labour want everyone on welfare and the Tories want everyone paying tax - now they have merged to an indistinguishable consensus the result is inevitable. Everyone must give the government money and beg for it back, minus the cost of civil servants to administer it.

The sensible and efficient idea of raising thesholds won't get a look in.

AD627 said...

" And that's before we even mention the £1,188.48 paid in Employer's NICs which might—might—go to slightly increasing our wage slave's pay packet."

You underplay the advantages of abolishing NICs. To the extent there was competition among companies to retain workers, then those employers NICs WOULD go into the wage packet of the workers.

If such competition did not exist, then employers would employ MORE workers, since the marginal cost of doing so would have declined, and unemployment would be lowered.

Labour's starkest failing has been to preside over sixteen consecutive years of economic growth, but to have failed to increase British employment. As a result, we are going INTO a downturn, already carrying the vast costs of mass unemployment.

Tomrat said...

Your forgetting the £100 billion in costs to the EU, nt accounting for the £50 billion in regulatory redtape. With the excess after a £12k tax band raise (Inclusive of my patent pending transferable tax credit scheme - penultimate time ill mention it I swear!) you could cover every main road in a canopy to prevent the issues we've had through this winter and probably still have enough for some other pointless extra, like fitting our soldiers in Afganistan with anime-style robo suits.

DM Andy said...

DK, I can't work out where you get your figures from.

The hypothetical Person B wouldn't be entitled to Housing Benefit (or the new version Local Housing Allowance).

Your Child Benefit figures are slightly wrong, it's £20/week for the first child (not £18) and £13.20/week for the second child (not £16).

The Child Tax Credit would only be £20.85 per week not £50. Though you did miss out that she would get Working Tax Credit of £4.91 per week.

So, Person B does receive more money than Person A but to the tune of £3,074 per year. That's rather less than the £12,168 you were claiming.

Sorry for being a pedant, but I wouldn't want your readership to get the impression that benefits and tax credits are as generous as you believe them to be.

paul said...

You forgot to mention that when they come round to spending whats left, everything is 17.5% more expensive than it really is.