Tories put my achievement at risk

There are two political/economic achievements I can claim. Not that I achieved them alone, but there was very definitely a part in them for me. Suggesting, convincing people at the right points in the policy development process. And one of them is at risk:

It is understood that a freeze on tax thresholds is being considered as one option to pay for up to £10bn of the extra annual cash injection. This would, however, mean another big policy U-turn by the Tories, who are committed to raising the tax-free threshold to £12,500 and increasing the level at which people pay high-rate tax to £50,000 by April 2020.

The point I made was quite simple. The difference between the Living Wage and the minimum wage is, pretty much entirely, down to the taxation of low wages. If people received the minimum wage free of income tax (and it’s a slam dunk if it’s free of both NIs) then they would, in their hands, have what the Living Wage insists they should get. We’d also reduce the far too high marginal tax and benefit withdrawal rates, increasing labour supply, make the poor better off and so on.

Plus there’s that moral point, if minimum wage is the minimum that it’s just and righteous that people should gain for their labour then what in buggery are you doing taxing it?

So, the tax allowance should be whatever the minimum wage is. That’s why the aim is that £12,500, that’s what the full year, full time, minimum wage was when the policy was adopted.

Working against that we’ve the fact that fiscal drag is just too tempting a place to go get tax money. Which is why we ended up in this ludicrous situation in the first place, with people working part time on minimum wage playing taxes upon labour income in the first place. Several decades of such fiscal drag.

So, of course I think they’re doing the wrong thing here. But then I’m also right, they are doing the wrong thing. Because if you want the poor to be better off you have to stop taxing them.

51 comments on “Tories put my achievement at risk

  1. I haven’t a problem with redistribution per se, nor higher thresholds for the low paid. But don’t you think everyone should pay something, even a nominal amount, towards services such as the NHS? Free at the point of delivery is an open invitation to misuse it.

  2. One aspect of the higher thresholds I like is that people in the Shadow economy are far less likely to be evading income tax ( despite Snippa’s insistence that the missing tax take from them is at the same level of the overall take ).
    If you’re a student selling drugs, your body, trading at a car boot, trading whatever, serving at a few music gigs, then the amounts earned are not worth investigating.

  3. How is the minimum wage determine? It cannot be set based on providing a wage that provides the bare necessities because it applies to all, those doing a few hours for pin money and those working all the hours god made. I think that every employee should pay some tax. Seeing a difference between gross and net pay is a reminder that government services are paid for by taxes and not the magic money tree.

  4. “Seeing a difference between gross and net pay” – I doubt very much that most low-wage people will “see” that. They will take whatever pittance they get and run. Too many government docs are not so easy to decipher.

  5. Yup, the moral hazard of poor people not paying tax yet getting to vote for more free shit outweighs this technically sensible method of lessening their poverty.

  6. Well, this is what Tim Worstall says. On the other hand we have Professor Richard Murphy – a tax expert and professor to boot, neither of which Tim Worstall claims to be – who tells is that imposing income tax on poor people ENFRANCHISES THEM.

    And nobody cares for the poor as much as Richard Murphy.

  7. While we’re on all the problems that are caused by hiding taxes from plain view, how about insisting on the explicit showing of VAT, alcohol duties and so forth on bills, receipts, adverts and so on. It could be adopted in the Tory manifesto for the next election. Let Labour explain why censoring tax facts is a grand idea.

    Yay, there’s a name for the policy: Taxfacts.

  8. It’s too complex to go into detail – but counter to your argument Tim, I like the idea of a flat tax that substantially gets rid of huge swathes of payroll and other admin?

    Ie, a company pays “someone” for something. If it’s not to another corporate, just withhold 20% (or whatever the number is). Don’t bother with PAs or tax codes. Some initial gradual adjustment and especially in the low paid sectors. Higher rates only affect a smaller percentage.

    The monthly witholding payment to HMRC (both finance and HMRC just got rid of a load of admin) is sort of a reverse of supplier’s VAT – and hence there may be scope to integrate this more widely (including corporates), whilst hugely simplifying VAT? What’s the point of VAT deducted / added through the supply chain, it’s retail where you want the “sales” tax take?

    What I also like about a general 20% witholding tax is that you could also apply it to dividends – to avoid the problem of overseas investors making off like bandits when you get round to scrapping corporation tax..;)

  9. Wages and salaries could be published with the deduction of NICs shown. (Not income tax, obviously, though that will show up on payslips.)

  10. You are correct, DocBud. Minimum wage is arbitrary.

    Note that Tim’s proposition is that government fix people’s ‘poverty.’ Or at least help them with it. Again, ‘poverty’ and ‘poor’ are relativistic. Arbitrary.

    Liberty: Freedom from arbitrary or despotic government.

    Flat tax does address the arbitrariness, the treating of people differently under the law. They tax me at 20%, my neighbor pays 40%. Cos reasons.

  11. And perhaps, rather than use the word “corporate”, call it a registered business (carrying on a material trade).

    Registered business to registered business, no sales or witholding taxes needed.

    Business pay to non business, withold 20%. Business sells to non business, add 20%.

    Outside of the registered B2B process, workers (income tax) and consumers (sales tax) just coughed up a sizeable % of GDP, and with far less admin than currently.

    Yes, I can see a few issues, where some businesses sell to “lots” of other businesses (evidence of customer identity to avoid adding 20%), but it’s a start?

    And let’s further simplify the tax codes whilst we’re about it.

  12. I agree with several commentators (DocBud, Bernie G. et al.) that making some people entirely free of income taxes mean that they lose their ‘skin in the game’. PJF is right. If we decided that when income tax rose, it would rise for everyone (and vice versa) then that would be a start. A falt tax would be great, but what would be the rate?.
    And to Gamecock, I would add that if you get £10k tax free, and earn £20k, you are taxed at 20% on £10k, which is 10% on the lot. Few people pay 20% overall, and few 40%, although those appear to be the marginal tax rates, they aren’t even that, because NI is deliberately arranged to make it difficult for the ordinary punter to work out what they are paying for what.
    I used to be – and still am – a supporter of the idea that the tax should be clearly identified on everything, but even that is sometimes counterproductive. For example, if you pay £5 a week for the NHS, you might see it as great value – you won’t if you pay a lot, but still aren’t rich enough to go private all the time. Ditto anything you can think of in the tax line.
    I’m a big enthusiast for less tax all round, but I wonder how much less I’d need to be paying to want to provide everything for myself.What I’d like to see is better value for money in everything, e.g. a local authority that gets the potholes fixed without having multiple troughers on £200k salaries.

  13. The problem with “the poor” not being taxed is, while they don’t get less money when said taxes are increased and fail to mention it, they moan like buggery when said taxes go down and they don’t get any benefit and thus “the tax system is unjust.”

    Exemplified by the 10 men at a bar/restaurant analogy (one example here.

  14. “Because if you want the poor to be better off you have to stop taxing them.”

    If you want the poor to be better off you have to get them into more productive work. Does not taxing them do that?

    If, for example, it allowed a reduction in minimum wage or an expansion in other ways of saving employment expenses, it might make it easier for businesses to employ them. It might give them more time and resources to get education and training. On the other hand, it might reduce their motivation to look for better work. It might allow the government to reduce means-tested benefits.

    On the one hand, I’m always in favour of reducing taxes. On the other hand, I agree with the moral hazard argument. If you tell the voters that they can only fund the NHS by taxing the poor, the conflict might trigger a bit less enthusiasm for the idea. If you ringfence the poor’s tax threshold and take it all out of the more productive instead, there’s no downside as far as they’re concerned.

    The only ‘right’ answer is to reduce government spending. Arguing about the best way to deal with the fallout of *increasing* spending is to risk conceding the debate.

  15. More bollocks from Murphy.

    “There can be little doubt that HMRC’s work on the tax gap was prepared in response to the work of Richard Brooks and myself on tax gaps from about 2006”

    HMRC first published figures for their estimate of the tax gap alongside the pre budget report in 2001.

    What’s the mental illness at play here, with Murphy constantly claiming to have invented and started things he demonstrably hasn’t?

  16. @ Excavator Man: “What I’d like to see is better value for money in everything, e.g. a local authority that gets the potholes fixed without having multiple troughers on £200k salaries”

    That’s the dream, isn’t it? Round my way I’ve learned off by heart where the main potholes are and usually manage to dodge them. That’s my little contribution towards protecting those £200,000 salaries 🙁

  17. Noel: wow! One of the questions (through the bad grammer) is: would you like the same wages for the same job across the whole EU?

    Woo hoo! Move to Greece, get paid London Wages.

  18. I completed the survey (thanks, Noel!). My responses were clearly those of an extremist, and will certainly be ignored 🙂

  19. @ Bernie G
    NHS free at the point of use has nothing to do with the level of the tax threshold. Paying fees to the NHS is at right angles to paying so that other can use the NHS.
    [One of the useful mathematical concepts I learned at university was the multi-dimensional vector space, where any number of factors up to umpteen can have zero correlation to each other or, on the other hand, can interact positively or negatively]
    Despite being a payer of income tax I am strongly in favour of abolishing it for those below the median household income for a household of that size and demanding more tax from those of us who can afford it.
    I see no justification of taking money from the poor in order to redistribute it.

  20. @ NiV
    Or you could them earn more for the same work?
    Or you could let them earn a little from work with low economic value without totally confiscating their dole? That might involve abolishing the minimum wage as they have in Leicester.
    Tim thinks option 4 – not taxing them – works either on its own or in combination with any of options 1, 2 0r 3.

  21. Thanks Noel! That survey is fun. Hopefully some apparatchik’s mind just got blown.

  22. May’s virue signaling voter bribe of an extra £20 Billion pa of tax payers money will achieve nothing, zilch in NHS except higher salaries and more bureaucrats.

    A Mr Gordon “Cyclops” Brown threw shed-loads of extra money into NHS in 2000-2010.

    Did anyone see any improvement?

    A £20 Billion pa Tax Cut would achieve much more.

    .
    New Stealth Tax – every death to be investigated, £100 fee to next of kin for NHS inspection (not free at point of use) H/T DM/MoS

  23. Filled in the survey that Noel pointed to. Was honest. For some reason, though many of the answers offered by the survey were not ones I would use, I kept having to provide my own – such as “Disbandment of the EU”

  24. “I see no justification of taking money from the poor in order to redistribute it.” The quick way to achieve that is to remove taxes on hooch, fags, and betting. And the TV licence. In fact, start with the TV licence.

  25. I felt that mere abandonment of the EU wasn’t really going to cut the mustard in terms of making me proud of the EU. I went for “boil the commission president in a vat of custard, then declare war on the French”…

  26. Thanks Noel, did that survey too. Half my answers were ‘devolve entirely to member States’.

  27. Bernie G. said:
    “don’t you think everyone should pay something, even a nominal amount, towards services such as the NHS?”

    There are two conflicting factors:
    – first, that if everyone pays tax, everyone has a stake in keeping costs under control and getting value for money, which is beneficial;
    – second, if people on low incomes pay a tiny amount of tax, that gives them a disproportionate sense of entitlement to first-rate public services in return for their pittance, which leads to ever-increasing costs.

    The focus is usually on the first, but I think the second is also valid; “I’ve paid my taxes, I want X, Y and Z”.

    (In the old days, it was “I’ve paid my stamp”, which I heard long after the old physical National Insurance stamps had been abandoned.)

  28. Dr. Madsen Pirie: “…It is inconceivable that the additional funds announced will not, after all, be delivered, because the EU is to get them instead. This is simply not going to happen. It means we’re coming out…

    Absolute balderdash and wishful thinking. The £20 Billion pa bung to the black-hole of NHS inefficiency, bureaucracy, waste, incompetence and “jobs for life” will be paid for with more tax – Murphy will be ecstatic

    Nothing will change [other than pay rises & more bureaucrats to allocate the £20Bn): no improvement, no shroud wavers silenced – MSM will continue “NHS needs more, £20Bn not enough”.

  29. @ dearieme
    Well, OK – but taxes on fags and booze are social engineering rather than fund-raising

  30. ‘demanding more tax from those of us who can afford it.’

    WTF does that mean?

    How much I make and what I can afford are TWO DIFFERENT SUBJECTS!

    If you can afford it, pay more. No one is stopping you. Report back to us when you have paid more, so you can preen. Your virtue signaling is cheesy.

  31. Two pennies. My potential problem with those well meaning (including our good host) who don’t wish to tax those at the low end is that tax doesn’t just cover the necessities of state?

    It covers ~40% or more of GDP, and includes many “services” (to link to the other thread), ie education, health, pensions, and lots more.

    Let’s hypothetically imagine that the state now manages say some 70% or more of GDP – including food, clothes, housing, transport etc.

    If one was still to suggest no tax for the low end, then we are heading towards a horribly ‘utopian’ state of affairs that history unequivocally tells us simply doesn’t work (at least, not at the nation state level, obviously it works to some extent at the “family” unit level).

    Hence, to advocate no tax for those at the lower end, is there an argument for suggesting that it might make sense first to reduce somewhat the involvement of the state to that which it should be doing?

    BTW, for the avoidance of doubt, I’m not suggesting that the “redistribution” (#) concept shouldn’t include things such as health (I firmly believe that it should, individually health is potentially the most destructive “lottery” ticket item of all), or that there shouldm’t be some lower base level at which we guarantee support.

    It’s simply that “the larger that state managed GDP % number is” the more difficulty I have with the notion that the lower paid should not also be contributing? As our host never tires of reminding us, incentives do matter?

    # – I mean “redistribution” in this context, rather than “providing / managing the service”.

  32. “There are two political/economic achievements I can claim.”

    Tim, this puts you about 436 behind the claims made by Spud.

  33. “– second, if people on low incomes pay a tiny amount of tax, that gives them a disproportionate sense of entitlement to first-rate public services in return for their pittance, which leads to ever-increasing costs.”

    Yes, but then many seem perfectly prone to that sense of entitlement whilst sat on benefits contributing sweet fa, let alone whilst making some effort. Not sure it’s as big a social ill as the representation without taxation thing.

    Logistical realities aside, I’d like to see everyone who earns money pay tax (and at the same rate as everyone else). The kid doing the paper round should feel the sting of the parasite. That way, everyone has an interest in parasite control.

  34. @ Gamecock
    You know exactly where you can put it.
    I have opinions and I am just as entitled to mine as you are to yours. I added that comment to avoid snarky remarks like yours about people asking others but not themselves for more money (and there are several examples on this thread if you bother to look).
    I pay my taxes and if I want to do some good with some of my spare cash I do so but they are two separate operations because I can do more good via a well-chosen charity than by paying more tax. That is NOT incompatible with saying that income tax should only be levied on those with above-median incomes as the loss of value caused by the reduction in my charitable contributions (and those of the rest of the minority who make them) will be outweighed by the benefits to those who no longer pay tax and benefits to the community of cutting out millions, yes millions, of tax returns and compensating payments through tax credits to those below median income but paying tax.
    Your countrymen moan about taxes while we suffer from them!

  35. @ PF
    If we scrap income tax (which generates a significant minority but still a minority of government revenue) then we immediately cut down the amount of tax credits that we have to pay lower-income taxpayers so it does *not* follow that the state would run out of money. Too bloody much of transfer payments are recycled to the taxpayer who paid the money in the first place. “Those whom the gods wish to destroy, they first make mad” [I shall accept correction from anyone who can read Greek]

  36. “Logistical realities aside, I’d like to see everyone who earns money pay tax (and at the same rate as everyone else). The kid doing the paper round should feel the sting of the parasite. That way, everyone has an interest in parasite control.”

    Agreed. Taxes should be levied in equal amounts or equal rates. No one should be treated differently before the law.

    Income tax is fine, because it is general, applying to most people. The rate should be low, like 5%. For everybody. Note that 5% of £10k is less than 5% of £100k. The ‘rich’ will pay more.

  37. “I added that comment to avoid snarky remarks like yours about people asking others but not themselves for more money”

    “I’m a good rich person, unlike those others!”

    You are creepy.

  38. @ Gamecock
    I’m not rich. But I do have a brain, and I do know how income tax started and the sound economic logic for only taxing surplus income i.e. that in excess of what is needed to live in decency. If you do not may I suggest that you learn?

  39. “…the sound economic logic for only taxing surplus income i.e. that in excess of what is needed to live in decency.”

    The “moral hazard” mentioned earlier is also an issue of economic logic (assuming economics applies to real, actual people and not economic textbook versions thereof). Just because something might be more efficient in the short term doesn’t make it economically logical in the long term.

    After all, there’s no short term point in collecting taxes from those who are paid out of taxes (entire public sector, etc). It’s quite inefficient. And if we stopped, what could possibly go wrong?

  40. “I see no justification of taking money from the poor in order to redistribute it.”

    Ah, but it’s not just a question of robbing every Peter to pay the collective Pauls, is it? A lot of tax goes to pay for the common good, not just to redistribute wealth.

    Why shouldn’t everyone who benefits from the common defence pay for the common defence – especially if they get to contribute to the decision of what constitutes the common defence?

  41. “After all, there’s no short term point in collecting taxes from those who are paid out of taxes (entire public sector, etc). It’s quite inefficient. And if we stopped, what could possibly go wrong?”

    It would be an interesting test of the way a fiat currency gets into circulation…

  42. @ PJF
    Income tax is not the only tax, just the biggest one. Anyone who is not a hair-shirted Franciscan will pay VAT

  43. @ NiV
    Negative income tax has marked advantages, somewhat offset by the administration costs and the mess made by the DWP in rolling out the more limited UC suggests that these would be substantial.
    UBI would be either a major income cut to those with most needs or involve clawback rates high enough to disincentivise many people (although it might be a good idea to discincentivise mothers who earn less after tax and fares than the cost of childcare).
    I should like a major reform but, while we wait for someone to do the homework so that the reform actually works and is not ruined by civil service incompetence, I want the tax and NI threshold to be raised to £20k, taking the bottom half out of the tax net.

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