Any excuse Nick, any excuse

Coalition plans to raise the income tax allowance to £10,000 should be accelerated to tackle the growing economic crisis, Nick Clegg will say.


Actually
, you need to be even braver than this. And steal a real political march on those to the left of you.

Annouce that the minimum wage, full time, full year, is to be the new personal allowance. One changes, both change.

This is just and right: if it is immoral that someone earns less than x then it is immoral that someone earning less than x is taxed.

It also entirely kills the living wage argument. For the difference between the minimum wage and the living wage, post tax, is almost entirely the tax and NI that people pay on the minimum wage.

And then there\’s still an aspiration to go for: raising the NI limit to being the same as the income tax personal allowance.

To pay for this? Lower the qualifying income for the 40% tax bracket.

Without doing the calculations I would expect that you could do this leaving post tax incomes at that current 40% limit equal to today\’s, higher taxes for those over it, lower for those under it.

Even if you cannot, yes, I do think making the top 10% to 15% of income earners (heck I\’d support the top 50% paying more so that people working part time on min wage pay no tax) pay more tax so that the poor pay no tax is a good idea.

34 comments on “Any excuse Nick, any excuse

  1. Also…

    No eers NI for those on min wage – makes ’em more employable, esp the young. Pay for that by scrapping all the other employment ‘support’ schemes which are costly to administer and provide little action.

    What’s not to like

  2. Oh dear. However right and reasonable you may be, you know there is just next to no chance, yes? A British politician doing something rational? Coalition or otherwise?

    And, if it did happen, all that would happen is the numbers claimed by the Islington mafia as necessary for the “living wage” would mysteriously increase. As we have just seen with the benefits cap.

  3. Cut taxes for the poor yes. Pay for them by taxing the most productive members of society even more, nonsense!

    Cut wasteful public spending, stop paying people the equivalent of £35k a year to sit at home and watch TV, stop HS2, cut politicians meal subsidies, stop paying for pointless quangos, stop paying for bureaucrats to cover enterprise in red tape, etc, etc, etc.

  4. Citizens should pay tax, citizens should be seen to pay tax and should see others paying tax.

    Low paid citizens should pay less, but all citizens should pay tax.

    Citizenship is a right and a privilege and it comes with responsibilities and duties.

    Citizens should see the deduction on their pay packet and know that they are contributing.

    If you earn 80 quid, then the tax should be say 5, but you should not get a free ride. Not because the state needs the 5 but because the citizen needs to pay.

    That way the poor citizen and the rich citizen can stand as equals, each pays their share.

    This is obvious stuff – why would anyone allow their enthusiasm for lower taxes to cloud the self evident truth that we should all pay it, and that it is good for the citizen to see that they have paid it.

    Rich man, poor man, tax paying citizens alike, else the poor man might start to feel he has no pride and the rich man that he is abused.

    Low tax for all, no tax for none.

  5. @SE, Coalition tax policy is not that bad. They have done some sensible things – increasing consumption taxes and reducing corporation taxes; the bank tax is exactly right, LibDem moves to raise the PA are commendable. Osborne wants to merge NI & income taxes, pretty sensible. It’s all a mess still of course, but it is moving in the right direction.

  6. @Johnny Bonk,

    With respect, nonsense. If someone “pays tax”, but then gets it back via the benefits system which is what currently happens – then they are not really paying tax. It makes no sense to pay an army of bureaucrats to take tax off of poor people, and another army to give it back simply to maintain some fiction that you personally like.

  7. “Rich man, poor man, tax paying citizens alike, else the poor man might start to feel he has no pride and the rich man that he is abused.”

    So a poor man who earns a crust, has a chunk taken off of him, and gets it back via benefits and he will feel pride at getting benefits, whereas a poor man who pays his own way in life, not taking benefits will feel shame at not paying tax? No, sorry, I don’t buy this at all.

  8. What ChrisM said. It makes no sense to take with one hand and give with the other. If it is a moral imperative that an income of £x is necessary to live on, then we should not tax people on less than £x and then give them some benefits back to make it up to £x again. Its nonsense.

  9. The difficulty I have with reducing taxes for those earning less than annual minimum wage of say £12,646 (assuming £6.08 * 40 hours * 52) is that they are then disconnected from the consequences of taxation.

    Having an annual allowance at this level means that those earning at or below it are able to vote for a party supporting tax rises for those earning above the threshold without any fear of being hit by it themselves.

    This would seem to reinforce aspects of the Labour client state trap.

    Better to do away with PAYE completely and replace it with a flat tax payable 3-months after the end of the tax year.

    Taking tax should be painful, then there would be pressure on governments to reduce spending to reduce tax.

    Then maybe we can get people out of the welfare dependancy that the previous Labour administration trapped them in.

  10. A chunk of the saving would come from employing fewer people in HMRC to administer taking tax from and paying income-related benefits to the same people.
    Simpler tax system, fewer mistakes by HMRC staff overwhelmed by its complexity, less waste

  11. Having fixed national tax bands seems reasonable, but having a national minimum wage is silly: it costs far more to live in London than in Hull.

  12. John Galt the solution is no representation without taxation (although I concede there are mundane practical difficulties with this).

  13. Tim,

    Very rough figures, but Treasury ones:

    Cost of increasing the personal allowance by £100 = £500m
    Revenue from dropping the start of the 40% bracket by £100 = ~£10m

    So you can’t pay for increasing the first by dropping the 2nd.

    OK, it’s not quite that simple, because the cost of each extra £100 increase in the PA is less than the one before (because each time some people drop out of tax), and the revenue from each £100 cut in the 40% threshold is more than the one before (because there are more people in your 40% net). But that effect is nowhere near big enough to square the circle.

  14. You’re looking at something like £20bn to get the personal allowance up to the minimum wage.

    To raise that sort of money, you’d need to change the 40% and 50% rates to 51% and 61%. And that’s without any behavioural effects.

    Once you factor in behavioural effects you’d definitely be over the peak of the Laffer curve, so you’d never get there.

    And that’s without raising the national insurance threshold to the minimum wage. Say another £15bn for that.

    To get that sort of money, you have to either seriously cut spending or make more radical changes to the tax system. Both are definitely possible, but we’re talking about big changes.

  15. “To pay for this? Lower the qualifying income for the 40% tax bracket.

    Without doing the calculations I would expect that you could do this leaving post tax incomes at that current 40% limit equal to today’s, higher taxes for those over it, lower for those under it.”

    As a 29 year old paying what he believes to be an outrageous amount of tax can I say how objectionable the idea of lowering the upper tax starting point (again) is.

    Has anyone ever determined what this should in fact be were it not for repeated fiscal drag by successive governments? I’m simply appalled that well within the first decade of my career the government can help itself to 40% of my subsequent payrises, while at the same time I utilise the square root of bugger all of government ‘services’.

  16. Do we want a situation where, say, half of the population pay little or no tax and can so vote for whatever goodies they want from the State?

    How can you have a small state when a significant proportion of the population can vote to extend it without consequences to them?

  17. Has anyone ever determined what this should in fact be were it not for repeated fiscal drag by successive governments?

    As always with these things, it depends where you measure from as the further back you go, the greater the effects of fiscal drag.

    The rates over 60% were abolished by the Conservatives in the 1988/1989 Tax year. If you take the fiscal effect from then using average earnings, then the 40% band should start at £60,100.00.

    i.e. the 40% tax band in 1988/1989 was £19,300. Adjusting for average earnings over the period would give you an equivelent of £60,100.00 in 2012 pounds.

    If you use RPI as a basis, then you get £44,100.

    http://www.measuringworth.com/ukcompare/

  18. Oh dear.
    Have you thought this through, Tim? Or thought as much as even Clegg?

    Suppose 51% of the electorate paid no tax, but were still entitled to all the goodies such as our “envy of the world” NHS and comprehensives.
    What do you think the tax rates on the other 49% would be?

    While I agree with others that taking tax with one hand and giving benefits with the other seems absurd, I’m with Jonny Bonk on this one.

  19. Proposed personal allowance is 10K, median salary is over 20K. I am not sure how 51% of the electorate will not be paying (income) tax.

  20. I think it comes back to what Edward Lud and others have been saying for a while.

    No Representation without Taxation.

    Specifically, if you are a net contributor to HM Treasury you get a vote, if you are a net recipiant from HM Treasury you don’t get a vote.

    The problem with this line of logic is that it would effectively and immediately disenfranchise half the population (especially if you consider all state employees to be net recipiants).

    Alternately, implement a simple flat tax which everybody pays from £0 upwards. This would mean that any vote for a tax increase WOULD ALWAYS mean that you are voting to have your own taxes raised too.

    It’s the only way to stop the “Alexander Tytler” problem – although I’m not convinced he ever said this or that it was said before the 1950’s.

    “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury.

    From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.”

  21. Several people here are arguing that everyone should pay tax because otherwise they will vote for more tax and spending.

    This sounds good in principle, but I don’t think it works in reality.

    First, we have multiple tax rates, so basic rate taxpayers can (and do) vote for extra spending to be paid for by “the rich”.

    Second, we have lots of voters who don’t have any income at all, other than benefits, so do not pay income tax.

    Third, there are lots of voters who get far more from the government than they put in. Indeed for this group, paying taxes may encourage them to vote for more government spending, because they see themselves as entitled to something in return.

    These are big political problems, which are not really affected by whether the personal allowance is set at £7,475, £10,000 or £12,000.

  22. You’re looking at something like £20bn to get the personal allowance up to the minimum wage.

    er… reduce the minimum wage.

  23. I argued for dropping the start of the 40% band right down to the median income (26k gross, so about 18.5k of taxable income) as opposed to the current 35k of taxable. That should comfortably allow us to up the start of the 20% band by a fair bit.

    Any effect on the public spending inclinations of swing voters in the marginal constituencies is unknown but would be interesting to see.

  24. @Richard (25): You’re ignoring the possibility of raising the basic rate as well as the higher ones.
    @bif (21): People earning will still be paying VAT, fuel duty, booze duty etc. Perhaps an American style system whereby taxes paid show up on receipts would counteract your concerns…

  25. TomJ, no I’m not.

    I’m saying that basic rate taxpayers can support higher state spending whilst thinking that they won’t have to pay for it, because politicians tell them they’ll collect all the necessary money from the higher rate taxpayers.

    Whether it’s actually possible to finance higher spending that way doesn’t matter. What matters is that 90% of income tax payers can believe that they won’t have to pay for higher State spending, just like the non income tax payers.

  26. “Proposed personal allowance is 10K, median salary is over 20K. I am not sure how 51% of the electorate will not be paying (income) tax.” – total UK employment approx 30 million, UK electorate roughly 45 million, would be starting point for this sort of number crunching.

  27. while at the same time I utilise the square root of bugger all of government ‘services’.

    The government defends your personal and property rights, and those of your employer, and those of your employer’s customers. Unless your skills are very niche (broadly, mercenary/organised criminal), without it, you wouldn’t make a cent. So, erm, no, your prosperity is entirely dependent on your use of government.

    You have the absolute 100% freedom to try your luck in Somalia and see how your take-home pay works out. Or, less sarcastically, Dubai.

  28. @ John B:

    The government defends your personal and property rights, and those of your employer, and those of your employer’s customers.

    Agreed. They partially and poorly defend these things, only after the fact. The payment required for this service (along with a myriad of things we don’t need or want) is approximately 50% of GDP.

    The core functions of government (National Defence, Prosecution of crimes of aggression, theft, breach of contract, and fraud) could be paid for through either consumption taxes or a Land Value Tax @ around 5% of GDP or less.

    Give the money back to the people.

  29. That isn’t the point (also, you’re conflating prosecuting crimes with providing a civil legal system – breach of contract isn’t and shouldn’t be a crime).

    The point is that, compared to a situation where there isn’t a government, the chap whinging above (who gets to take home several tens of thousands of pounds after tax) is vastly better off under the UK system – indeed, he benefits *more* from a government that lays the groundwork for whatever high-skilled job he does than would a (single, childless) dole claimant who only gets a few thousand a year.

  30. @ john b
    “The government defends your personal and property rights, and those of your employer, and those of your employer’s customers. Unless your skills are very niche (broadly, mercenary/organised criminal), without it, you wouldn’t make a cent. So, erm, no, your prosperity is entirely dependent on your use of government.”
    Bullshit. What protects my property rights is, as for everyone else, fear of retribution and, currently in my case a CCTV system which appears to deter attacks, unlike the local police force. Physical attacks on my children – with impunity in state-run institutions, cease when I am present (or when the elder ran over to stop a gang of six persecuting the younger).
    I *do* think that the national government should provide defence and police and I am willing to pay taxes for that end but don’t try to tell me that the government is my sure and only protector.
    In the absence of the incompetent police force a householder wouldn’t the skills of a mercenary/organised criminal, just membership of a clay pigeon shooting club, which would scare most burglars away.

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