Do we still have a progressive tax and benefit system?

This is an interesting pair of numbers:

In 2008/09, gross income tax receipts were £152.5 billion. In the same year, social security benefits cost the Exchequer £150.1 billion.

In 2009/10, the Treasury is expecting to take in £140.5 billion in gross income tax receipts. Social security benefits are projected to be £164.7 billion.

Or pair of pair of numbers if you prefer.

Income tax is the only one of the major revenue raisers which is progressive: VAT certainly isn\’t, excise duties aren\’t, inheritance tax raises, at this level of counting, nothing more than a rounding error.

Pretty much the rest of the tax system is regressive, not progressive. So the welfare system, that part of the spending system which is supposed to be progressive is actually being funded, in part, by regressive taxes.

That\’s something of a problem I would have thought for those arguing in favour of more redistribution. We already seem to have reached the limit of what we can do through the tax and benefit system.

Raising income tax on the rich isn\’t going to help: various reports on the new 50% rate show that we\’re around and about the Laffer Curve inflection point. Higher taxes won\’t raise much if any new revenue.

And increasing indirect, regressive, taxation doesn\’t seem to be the way to redistribute more. Taxing the poor more heavily to give to the poor just ain\’t equality producing redistribution.

So, as I say, we seem to have reached the bounds of what is possible in the tax and spend redistribution plan.

Unless, say, we were to cut huge swathes out of the other spending, so as to make redistributive spending come from that one progressive tax, the income tax.

Bit of a bind for the big state redistributionists, no?

8 thoughts on “Do we still have a progressive tax and benefit system?”

  1. “Bit of a bind for the big state redistributionists, no?”

    You forget: the redistributionists are only into redistribution in order to make society more equal, which mostly means taking money away from the rich. How much money they raise is largely irrelevant: the rich need their pips squeaked so that the poor feel more equal.

  2. “Laffer Curve inflection point” – oh Lord, you mean “turning point” don’t you? Have you forgotten all your maths and replaced it by journalistic blethers?

  3. “Have you forgotten all your maths and replaced it by journalistic blethers?”

    You ask this of a political party press officer? Hmmn..

    Tim adds: And of one who got a C at A level maths? It’s rather that I’ve remembered how to write (if badly) than forgotten the maths I never knew.

  4. You also forgot that VAT as applied in the UK *is* progressive, because things that represent large swathes of poor people’s incomes are exempt or 5%-rated.

  5. “And of one who got a C at A level maths?”

    By today’s standards, that makes you a degree-level mathematician. Don’t knock it.

  6. View from the Solent

    ” “Laffer Curve inflection point” – oh Lord, you mean “turning point” don’t you? Have you forgotten all your maths … ?”
    But inflection point *is* the mathematical term for a point on the curve where the gradient becomes zero. I doubt if most journalists would have even heard of it.

    Tim adds “But inflection point *is* the mathematical term for a point on the curve where the gradient becomes zero.”

    It is? I just wanted to use a $10 phrase where a 10 cents on would suffice……

  7. From an engineer’s consideration, “inflection point” or “turning point” usage depends on when (and maybe where) one was subjected to differential calculas. “Inflection point” was used to define a point where the 1st derivative changed sign or was equal to zero. Now, the term “turning point” has become common to indicate max/min points on continous functions. Context would rule here and I have no problem with a practice of referring to a mz or min as an “inflection point”.

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