A premise in The Guardian I agree with

This is what makes me a lefty of course:

But guaranteeing a decent standard of living for those at the bottom of the heap should be the mark of a decent society.

I\’ve no problem with that idea: agree with it.

Having done so there\’s a few interesting little questions that we need to grapple with.

1) What is a decent standard of living?

2) How do we provide it?

3) How do we pay for it?

And the answers to those are what make people think I\’m a rightie even while I insist I\’m a lefty.

For my definition of a decent standard of living isn\’t in fact all that high. Not the decent standard of living that everyone else should pay for for you it isn\’t. In that sense I\’m rather Grandgrind.

How we provide it, I would much rather one simple payment to everyone, taxed back at higher income levels, rather than the current mish mash of what, 34 different possible payments is it? Further, once that basic citizens\’ income is paid, there\’s a decent tax free allowance above it. So that it makes sense for those doing the work to go and do even four hours somewhere at just about any wage. They get all of whatever is paid, whatever is considered to be the value of that work they do.

And it\’s how we pay for it that really makes me a righty in the eyes of the British Left. For the higher we make the amount of money being reshuffled then the more we have to go to a classically liberal system of taxation. If we have a highly progressive tax system trying to pay for high redistribution then we\’re going to kill off all hopw of economic growth. We\’re going to do right by the poor and unfortunate today at the cost and expense of all our children and grandchildren in the future.

The only way out of this is to pay for lots of redistribution through a less progressive tax system than the one we already have. That is, after all, how they do it in the Scandies. You know, the only places that manage high redistribution and economic growth?

Within the constraints of the tax system we currently have that means a high VAT on almost everything, the income tax system isn\’t hugely out of whack and much lower taxation of corporates and returns to capital.

Yes, this would be a more regressive tax system than we have: as is true of the tax system of Sweden just as an example.

So, the Worstall plan.

A cbi of £7,300 a year per adult. A £13,000 or so tax free allowance per adult. 40% income tax on all income over that. Abolition of corporation tax, NI, all and every scheme such as the old age pension, disability allowance, unemployment pay, housing benefit, the lot.

One complicating wrinkle: income tax becomes a consumption tax. That\’s how we tax returns to capital: you put money into your savings, that comes off your income before taxable income is calculated. You take money out of your savings (ie, spend capital) then that is added to your income to create your taxable income. One further complication: if you insist on retaining an inheritance tax then it\’s income (or capital) to the recipients, not taxed as an estate.

No, I\’ve not done the sums. Thjis might well blow a massive hole in the budget. But then that\’s what makes me a lefty: we need some fiscal stimulus, don\’t we? Might as well get it by reforming the system properly.

 

 

35 comments on “A premise in The Guardian I agree with

  1. 1. I’m not sure what the point is without doing the sums? Why not give everyone £10,000, and make the personal allowance £20,000? That sounds better.

    2. Isn’t it distorting of consumption/saving decisions? If you save it is taxed at 0%. If you consume it is taxed at 52% (if we assume VAT is 25%).

    3. Is it simple? There seems enormous potential here for tax avoidance/evasion.

    Tim adds: Not doing the sums proves I’m a lefty. As to 2) Yes, in the long run (but perhaps not the short, in a recession) we would like to privilege saving over consumption.

  2. I hate VAT and the like because it is so easy to hike the rates without anyone noticing. It is tax by stealth. So wouldn’t it be better to have a reasonable income tax – and 40% is quite high – but exempt savings? Suppose people could save their money in special retirement accounts and it would not count towards their tax. Income tax would be paid on the rest of their income and on what they saved when they withdrew it.

    Wouldn’t that encourage high levels of savings, retain a direct link between what they demand and what we see go out of our pay cheques, and be a hell of a lot simpler to administer?

    Tim adds: That’s what the consumption tax buit is. Think of it as a giant ISA for all your savings. Whatever goes in there or stays in there is tax free. Whatever you take out is income taxed at normal rate.

  3. Tim, a question to which there may be no answer (I don’t know – this isn’t my field – but I do think it would be interesting to know). What is the ballpark tax take, expressed as a percentage, for an average professional person who is an employee rather than someone with an accountant? This would include all consumption taxes and things like the TV licence. Does such a person even exist? My guess is that it would be nudging the middle 40s if they drove to work, smoked and drank and had recently moved house, which does seem too much. My breath is bated.

    Tim adds: Good starting point here with links to the official publications.

    http://www.fcablog.org.uk/2011/09/the-tax-paid-by-billionaires-and-secretaries-the-view-from-the-uk/

    Fags and booze change the picture but on average, top 10% are paying around 35% or so of total income in all taxes.

  4. Sorry, Tim

    I like the general idea, but it would be impossible to survive if you were, say, an unemployed single parent with a couple of kids renting a home.

  5. “…but it would be impossible to survive if you were, say, an unemployed single parent with a couple of kids renting a home.”

    Well, there’s a clue there, no?

    “…or people have to think before getting into that situation.”

    Heh! Personal responsibility? In the UK? In 2011?

  6. “Nick // Nov 24, 2011 at 10:56 am

    Sorry, Tim

    I like the general idea, but it would be impossible to survive if you were, say, an unemployed single parent with a couple of kids renting a home.

    Surely you could just about survive if you were in a very cheap home in somewhere like Burnley.

  7. I did the sums on this a few years ago and I seem to recall that if you abolished the Dept of Education and left the EU then the sums would (more or less, E&OE) add up. Or at least they would add up no worse than the current mess where they persistently don’t add up.

    Here’s one of the posts FWIW – http://www.di2.nu/200701/19a.htm

  8. Why are you so keen to promote investment over consumption? Doesn’t the rate of interest do that? Is this part of the devalue and inflate mercantilist approach?

  9. Cheapest place I could quickly find on Rightmove is £45/week for a studio flat. £2,340p.a.

    Say you can keep the electricity bills down to £40/month. What’s water – £10/month for a tiny flat? I assume Tim’s abolished council tax. So that’s another £600/year, almost £3,000 for somewhere warmish to live & cook.

    Leaves £4,360 for food and so on; £84/week. That sounds possible.

    OK, you’re clothing yourselves from charity shops, but we are looking at the cheapest possible.

  10. Plus of course rents at the bottom end will probably come down once they’re no longer subsidised by housing benefit.

  11. Nice, but surely still too complex.

    £12,500 personal tax allowance.
    25% flat tax (abolish NI etc)
    25% VAT

    Here’s the kicker.

    First year unemployed? Benefits paid in cash
    Second year unemployed? Benefits paid in cash if you do voluntary work (paid in green food/rentstamps otherwise)
    Third year unemployed? Benefits paid in cash if you do voluntary work (paid in yellow food/rentstamps otherwise)
    More than three years unemployed? Benefits paid in cash if you do voluntary work (paid in glowing red food/rentstamps otherwise)

    We need to re-introduce stigma.

    *disclaimer*

    I’ve not done the maths either and no I don’t care that a black market might emerge in foodstamps – the benefits outweigh etc etc.

  12. Tim said £7,300 per adult, maybe there is also a similar (smaller?) allowance for children in his manifesto?

    Warren, if we need stigma, perhaps we should force them to wear shell-suits or something? 🙂

  13. don’t make tax 40%, make NI 10% and tax 25% – helps with the savings bit. No upper limit on NI so those earning over 75k already pay more back than they get out. Make CBI appear linked to NI. Second give all children under 16 the same “allowance” as a school voucher, deduct from DoE budget. Over 18 effectively tuition fees. All Pensioners receive it , deduct from curent Soc sec budget. No means testing. Index to rolling average of nominal GDP growth. No political interference. Automatic “tithe” of 10% to local authority – no education or benefit costs so easily enough and you have the proper type of poll tax, no longer subverting democracy with representation without taxation. Lose allowance if you go to prison,(add to prison budget) Mothers can claim half of fathers CPI to support children., If he already has a family, half of the half. Just like the real world. End of baby father concept. No child benefit, end of teenage motherhood lifestyle. Set council house rent at 10% of CBI of all eligible residents.

  14. Dammit Tim, you’ve made the same mistake Robert Frank made in his talk at the LSE!! Your proposed tax is not a “consumption tax” unless you exempt investment income. It’s a production tax. Saving is for future consumption, and if future consumption is taxed at the same rate as present consumption, your proposed tax will be more or less neutral with regard to consumption/investment decisions (defined here as the savings rate on cash income – in reality consumption of leisure will increase dramatically, and “real savings” will fall.). You’d have to make the tax “progressive” to get an increase in the savings rate, and only then in the special case where my expected future income is zero.

  15. @Richard Allen: thats exactly I thought. Its just deferred taxation, so how is that going incentivise people to save, if they know they’ll have to pay exactly the same amount of tax when they spend it decades later anyway? Might as well pay the tax now and spend it now rather than wait.

    Far better to tax the income when received from work, but make the savings income tax free later.

    Tim adds: It’s the same as pension tax allowances. You get to invest the money gross, not net. So you ge the appreciation on the gross amount, not the net.

  16. Jim, you’re assuming a stable system and trustworthy politicians.

    The disadvantage of tax exemption later is that by the time later comes, the rules might have changed.

    Yes they can, and have, buggered about with pensions as well, but at least with up-front tax relief you’ve got your tax benefit and banked it.

  17. “Your proposed tax is not a “consumption tax” unless you exempt investment income”

    Obviously false. It is only the act of turning income (of any form) into current consumption (rather than more capital) that triggers taxation in Tim’s scheme. Any type of income can be turned into more capital without facing taxation.

    Therefore it is a consumption tax. I, for one, embrace our new Worstall Tax.

  18. @dearieme
    Yes where is Wadders? or more to the point where’s the tax on land that he proposes and that TW is supposed to support being an Adam Smith fan?(Amazing how the ASI manages to downplay that Adam Smith ,far from being a pro-business bonehead,was the great advocate of LVT.)

  19. The really important thing is to make sure the CBI has no strings but is exchangeable for the tax allowance. The poorest people today are prevented from working at all without fighting through sheaves of paperwork and attending interview after interview. That’s insane.

    Take the CBI or take the tax allowance. Up to you. But you can work all you like.

  20. BTW, that would be real stimulus. Bring lots of black-economy stuff into the light and release the legion of poor so they can work, even if it’s just doing the neighbours’ hair or garden.

  21. Should we not be asking why these people are “at the bottom of the heap”? If it’s because they’re too idle to work, then please explain why they should have any of my money at all.

  22. 1. Raising money via LVT, i.e. where the state as referee charges people for the benefits it bestows on them and uses the money to compensate those on whom the burden is placed (via a Citizen’s Income) is better than income tax, on a moral, practical, economic or any other level, but hey.

    2. The fact that some recipients of CI might be lazy buggers and others might be ‘hard working families’ is irrelevant. The burden placed on either group is the same. And anybody who claims to ‘own’ land ought to admit that actually, they are just beneficiaries of an agreement between himself and ‘everybody else’ which is enforced and policed by the state. Without a state, no land ‘ownership’ and vice versa.

    Moving on…

    3. What nobody can explain to me is how this bit is supposed to work:

    ” income tax becomes a consumption tax. That’s how we tax returns to capital: you put money into your savings, that comes off your income before taxable income is calculated. You take money out of your savings (ie, spend capital) then that is added to your income to create your taxable income. “

    a) If somebody takes out a mortgage to buy a house, is the receipt of the money taxed as income?

    b) If somebody invests £100 into shares, that counts as savings, so is knocked off income. The shares go up to £1,000 and he sells them and spends the money, that is now added to income. So capital gains are taxed in full, which is double taxation of the underlying income?

    c) Conversely, somebody buys shares for £1,000 and sells them for £100, saving income tax on £900, presumably? I can see a massive scope for fraud here right from the start.

    d) A hair dresser would stop charging £10 for haircuts, because that triggers tax. So what he does is issue £10 in shares to people, and instead of paying a dividend, gives them a ‘free’ haircut.

    e) What if I buy a car? Does that count as a tax-favoured capital investment or as taxable spending? If it counts as capital investment, does the depreciation get added back to my income? So the more the car falls in value, the more you pay? So people are taxed on becoming poorer?

    f) What if I buy a car for my business? Under normal rules, the cash outlay is ignored and the depreciation* is allowed an expense? Would you maintain this rule but apply the exact opposite to private individuals?

    g) What if I use my car 50% business and 50% private? Would I apply two diametrically opposed sets of rules to each part of the car?

    h) Why would I buy a new car, I’d just subscribe for £25,000’s worth of shares in Ford (tax-favoured) and they’d lend me a new car in return. After ten years, the shares are redeemed for £1.

    i) And so on. This whole idea that you can completely ignore one half of a transaction (the production) and just tax the other half (the consumption) has never been explained properly, not even how it would work on an administrative level. And if anybody dreamed up rules, I’d need about half an hour to explain how people could structure their transactions so as to avoid tax entirely, which seems a bit pointless.

    * yes I know we have twatty capital allowance rules in this country, but most other civilised countries, they just allow depreciation.

  23. I totally agree with the premise (but that is because/why I support Disraeli and SuperMac, respect Attlee and despise Blair/Brown).
    What IS a “decent standard of living”?
    I started work (as an assistant/trainee computer programmer at 17) at £6 per week: the BoE data on the debasement of the currency says that is below the Minimum Wage for a 17-year-old.
    What?!? As well as buying some non-school clothes, and living decently (according to our lights) I saved up money to spend during my three years as an undergraduate (books, of course, but I could even afford regular haircuts).

  24. @ Ian Bennett
    In some towns there aren’t any jobs because of the **** mess Labour made of the economy. When John Humphrys went to Middlesbrough which has 20% unemployment since Tony’s friend Mittal closed the steelworks, he found *one* guy who didn’t want to work. When (I forget which) shop advertised it had jobs, they queued round the block before it opened in the morning to apply.
    There are some lazy individuals, but the vast majority of these guys are looking for jobs. I was lucky to have “talents” that were in demand down south but I can remember being told (in my different northern town) by a woman that her son had hand-written (I’m older than Steve Jobs – in those days letters were hand-written) 100 job application letters and was still trying.
    People like you who pontificate while showing their utter ignorance really, really annoy me.

  25. TimW: “That’s what the consumption tax buit is. Think of it as a giant ISA for all your savings. Whatever goes in there or stays in there is tax free. Whatever you take out is income taxed at normal rate.”

    Sure. But that does not eliminate the other problems with the VAT. It is a hidden tax so we pay it without being aware. That means it is a painless way to jack up the tax rates and raise more. The little bastards need to be held accountable for the way they raise and spend our money. The less we notice them doing it, the less accountable they are. It is also a total nightmare to administer – and easily avoidable.

    So all in all, wouldn’t it be better just to stick with an income tax but exempt savings?

    4 Nick – “I like the general idea, but it would be impossible to survive if you were, say, an unemployed single parent with a couple of kids renting a home.”

    And this would be bad because …. ?

    Or to put it another way, living alone is bad for everyone. No one likes it when they are doing it. It is bad for children. It is bad for society. So why the f**k would we want to subsidise it? If it is too expensive to live alone, here’s a small suggestion – get married. Or find someone else to share with. Why is this a life style choice that I should pay for?

  26. John77, did I say that the vast majority are not looking for jobs? And do you deny that some, however few, are not? (I personally know someone who is perfectly able to work but chooses to live on benefits instead.) As you concede, “There are some lazy individuals”; please explain why these individuals should have any of my money at all.

  27. @ Ian Bennett
    If you did not mean that “the vast majority are not looking for jobs”, then your understanding of people is better and your ability to write English is worse than I could reasonably assume. What you actually wrote was “Should we not be asking why these people are “at the bottom of the heap”? If it’s because they’re too idle to work, then please explain why they should have any of my money at all.” which a typical reader will understand refers to all the people “at the bottom of the heap”. If you choose to explain that you only meant to say that a few of the millions without jobs are idle by choice (John Humphrys found one, you know a second – that is two so far…), then I shall be pleased to note that you are not an ignorant bastard, merely callous.
    You “personally know someone who is perfectly able to work but chooses to live on benefits instead” – well I know *several* people who cannot get a paying job and have no reasonable prospect of ever doing so, and work for nothing for charities or the community. I also have a friend who chose to retire in his fifties – does that make him lazy in your book? – he isn’t, he works pretty hard helping to run a local amateur sports club.
    “please explain why these individuals should have any of my money at all.” – because they are human beings and this is supposed a democratic country where the will of the majority is that we should not leave people to starve in the gutter. That is why the state old age pension was invented.

  28. Yes John77

    and this classic drivel

    “Or to put it another way, living alone is bad for everyone. No one likes it when they are doing it. It is bad for children. It is bad for society. So why the f**k would we want to subsidise it? If it is too expensive to live alone, here’s a small suggestion – get married. Or find someone else to share with. ..”

    Yep, folks. This is yer libertarianist Utopia. Well done.

    Try again, maybe?

  29. Arnald – “and this classic drivel”

    That is interesting Arnald, but could you please explain why you think it is drivel? You think that living alone is not bad for children? Not bad for the rest of society, what?

    “Yep, folks. This is yer libertarianist Utopia. Well done.”

    What on Earth makes you think I am in any way a libertarian?

    “Try again, maybe?”

    Why? How about you try to make a substantive comment for once? Then perhaps we might, you know, have a conversation? Like grown ups.

  30. @ Nick
    If the Child Support Agency was able to run a whelk stall, 90% of that problem would go away.
    When I was a young actuarial student we were very keen on “Family Protection” insurance which cost very little but if the policyholder died provided an income to his wife and family until the children were grown up. That would cope with a useful %age of the cases where there is no father and a widow is struggling – sadly it didn’t work as effectively as we hoped because we hadn’t anticipated that Wilson would bring hyperinflation to Britain halving the value of payments in less than five years. [No, we could not have inflation-linked the payments because inflation-linked gilts were only invented after the Wilson-Healey inflation to discourage the next Labour government from repeating it]

  31. John77 – “If the Child Support Agency was able to run a whelk stall, 90% of that problem would go away.”

    I am not sure that is true. It depends on what the laws are. In America Child Support is an estimate of your probable income. If your income changes, because you’re called up to go to Iraq for instance, they don’t give a damn. They will still go after you for the full amount – and seek to jail you the minute you step off the plane in the USA once more.

    A lot of the non-payment appears to be a gap between what they demand and what men can actually pay. I don’t see that any amount of hounding is going to change that.

    The only question is whether Britain’s scheme is as bad. I would think so. The solution to single mothers is to make divorce less attractive.

  32. @SMFS
    In the UK the solution to single mothers is NOT to make divorce less attractive as around one-third of children are now born to unmarried mothers, despite a high rate of abortions. One female MP has suggested that continence/celibacy should be mentioned as an option in sex education classes and has in consequence been misrepresented and vilified by the left-wing media.
    The UK scheme *should* not be as bad as the US as it is supposed to take account of changes in income.

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