Dear God I despise this argument

The idea of earning £10,000 of income tax, as anyone who\’s working will do from next April, sounds utopian in its generosity. For HMRC it\’s the public relations opportunity of a lifetime. Imagine the adverts: your first £10,000 – tax-free! And you don\’t even have to worry about how we\’re going to pay for your denuded public services.

Yet isn\’t the idea of 3 million people working hard and not being required to pay tax a recipe for their disenfranchisement? The Liberal Democrat segment of the coalition is most likely to see a high tax-free allowance, which goes up to £9,440 on 6 April, as a step towards the goal of a \”citizen\’s income\” – a no-strings basic payment from state to individual over and above any earned (and therefore taxable) income.

A fundamental component of citizenship, however, is paying towards the ongoing work of building and maintaining resources for everyone to use.

All inside the State and nothing outside the State.

Let\’s take this argument to its logical conclusion. The existence of any form of personal tax free allowance disenfranchises people. Not that they lose their vote or anything, they just lose that warm glow of contributing to Islingtonian diversity adviser salaries.

Complete cock of course.

Tax is a necessary but painful corollary of having government. And yes, we do need to have that. In a just and righteous world the rich would pay all the taxes to provide the government. This would of course mean that we could only have enough government that the rich could afford to pay for: that\’s where our Laffer Curve comes in. You do get to a tax rate where higher rates bring in less cash. Thus there is a limit to the size of government you can have if the rich are paying for it all.

And as the running dog capitalist pig dog that I am I\’m just fine with the idea that we should tax those on above median incomes at that Laffer Curve peak rate. Which is around that 45% or so of income that the rate is at currently. And then exempt all income below median income (mid £20ks somewhere) from both income tax and NI. Works for me. That there will be fewer Islingtonian diversity advisers is a feature not a bug of the plan. Let\’s have the government that the rich can afford to pay for.

But I\’m afraid that I really do hate this appalling argument that the poor must pay income tax because……well, because all must worship the State I think it is, isn\’t it?

Which leads me to a data request. I cannot immediately see that this is out there via Google. So if anyone is bored, or bedridden or something, would they like to dig around to produce it? Britmouse maybe?

What we want is a plot of median wages against the income tax and NI allowance. The income tax allowance was 50% (or whatever) of median wages in 2008, say, and it was 100% of median wages in 1950 (or whatever, say). And the same for each year post war (that would be enough I think).

For the basic fact of what has happened is that successive Chancellors have used fiscal drag to pull ever more poor people into the tax net. This current rise to £10k, the hoped for rise to £12.5k, this is just remedying the thievery of generations of politicians.

Anyone care to make up that chart?

38 thoughts on “Dear God I despise this argument”

  1. Doesn’t VAT & NI help them feel enfranchised?

    On the chart thing, IIRC going back far enough gets you to the point where only 100 people paid income tax or something doesn’t it? But certainly there’s been narrative round the RTI blurb on birth of PAYE that they needed it precisely because successive governments had pulled basic salary earners into IT when they’d not previously been.

  2. Surreptitious Evil

    I thought that the quote was one of the usual artifacts of your blind rage at the stupidity coupled with this blog’s unfortunate tendency to automated gobbledegook generation.

    But she really did miss out the word ‘free’.

    Sighs …

  3. In Guardian world, it’s better to tax the working poor, allow tax receipts to percolate through the nomenklatura of diversity outreach coordinators and whatnot, and then give money back to the poor via a bewildering pick and mix of benefits controlled by that aforementioned Brahmin caste of public sector employees.

    Only then will poor people feel enfranchised.

    Of course, when it was Maggie’s government trying to get poor people to contribute towards the finance of local government via the poll tax, it was not enfranchisement but evil Tory bastardy.

    Who? Whom? Etc.

  4. “But I’m afraid that I really do hate this appalling argument that the poor must pay income tax because……well, because all must worship the State I think it is, isn’t it?”

    I don’t think it’s about worshipping the state.
    The article you quote above gets the argument the wrong way round, as does that summary of it I’ve quoted. A better argument for a broad tax base in a system with a universal franchise is that without a broad tax base, you can easily have people voting for much, much more than taxing the rich can afford to pay for. If I vote for someone who promises sunshine and moonbeams (and let’s be honest, given the recent weather, sunshine would be nice), I won’t have to think twice before voting if I know that *I* never have to pay for it. Some time ago there were polls that asked “should the government spend much more on X?” (often X=”the health service”), which always got the answer “yes, definitely”; followed by the question “do you want your own taxes to increase to pay for it?”, which got the answer “what? certainly not!”

    The focus on income tax ignores the need still to pay VAT, though, which is a big chunk of government income.

  5. Nigel Lawson makes the essentially similar right-wing version of this argument, that everyone should pay income tax so that they will vote for lower taxes.

  6. Surreptitious Evil

    I’ve given Tim the tax figures back to 1952 when “Small Income Relief” appears to have been introduced or re-introduced.

    Historical note – the original 1799 “Personal Allowance” appears to have been

  7. Surreptitious Evil

    Sorry, pound signs …

    I’ve given Tim the tax figures back to 1952 when “Small Income Relief” appears to have been introduced or re-introduced. I’ve asked ONS for the income stats – they’re not on the website or readily available from them.

    Historical note – the original 1799 “Personal Allowance” appears to have been 60 quid (equivalent to about 60k now). I can’t trace a copy of the 1803 Act’s Schedule D but it had risen (through various abolishments and re-instatements) to 150 by 1842, but only then to 250 by 1952.

  8. It would be nice if we could set up some sort of budget committee – on a tight leash – genuinely separate from the government which gave the government its annual allowance and told it to get on with it.

    It’s linking the politicians to the tax raising which causes a lot of our problems.

    Re the Guardian piece, it really is the case that a large chunk of the Guardian’s income, and therefore the money that is used to pay this writer, comes from the public sector via tax. Reducing the public sector, significantly, means reducing the Guardian’s income.

    The same goes for most of the commenters lambasting the ‘vile’ Tories – I suspect the majority are receiving all or most of their income via other people’s tax.

  9. exactly the argument for universal benefits like child benefit – commit everyone to feeling like part of the state and the turkeys will never vote for Christmas

  10. @CHF
    ” A better argument for a broad tax base in a system with a universal franchise is that without a broad tax base, you can easily have people voting for much, much more than taxing the rich can afford to pay for. ”
    But if people get more than they pay then they will still vote for the moon whether they pay

  11. “But if people get more than they pay then they will still vote for the moon whether they pay”

    They’ll still see their tax increase slightly each time to help pay for the goods, so there will be some feedback to provide error correction (in the sense of control systems).

  12. “exactly the argument for universal benefits like child benefit”

    Child benefit is a little different (like the “bedroom tax” that’s not a tax, “child benefit” isn’t really a benefit; see http://goo.gl/zX2to for Lilico’s discussion of it)

  13. interesting to read the comments under that article and see the usually-compliant CiF posters giving the writer a thoroughly-deserved kicking for talking shite

  14. Really depends on what you think taxes are for.
    If taxes are to pay for the things the state does for the individual, then expecting the individual to contribute to taxes in return for benefiting from them is logical. As is the right to have a say in how they are raised & spent through the democratic system.
    If taxes are to redistribute wealth from the rich to the poor there s not much point in the poor paying taxes. It is just a book keeping exercise. But there is no logical reason why they should have a voice in a process they are not part of. They may be the beneficiaries of the system but that doesn t make them part of the system that brings those benefits about.

  15. Given the State currently taxes and spend c. 50% of the economy, I would hazard a guess that well in excess of 50% of the population are net recipients of State largesse in one form or other. If one tallies up all the tax revenue any one person receives, in direct payments as wages or benefits, in goods and services (such as free education and healthcare), or working for private sector contractors in State sectors, then we are well past the point where the the majority are net recipients of tax revenues. The number of net payers in is increasingly small, and thus will always be outvoted by the majority. Its why we are in the situation we are in now.

  16. Everyone does pay taxes. The rich pay progressive income taxes and wealth taxes. The poor pay regressive consumption taxes.

  17. Surreptitious Evil

    Just to make the point about fiscal drag – that 1799 lower limit for income tax? That, measuringwealth has equivalent to some 60,000 quid in 2011 pounds?

    Well, the SPI has 95%-ile income, for tax year 2010-11, as 62,600. So, absent fiscal drag, only 4% or so of us would be paying income tax (note several horrid simplifications in that ‘calculation’.)

    Even the 250 allowance from 1952 comes in about the 70%-ile (HMRC blocks jump from 50 to 75, so I’m guessing a bit here.)

  18. True IanB, but the wealthy also pay those regressive consumption taxes, of course.

    There’s 20 per cent VAT on a new car, whereas the poorer buy second hand and essentially VAT free (I think the dealer charges VAT on his margin?).

    More expensive cars tend to use more petrol than smaller and cheaper ones. Of course, the car tax is also higher.

    If you live in a two-up two-down, there’s a limit to the extension you can build; not so a nice pad with a two acre garden.

    The furniture and white goods a wealthy wife wants are more expensive and changed more often, too; ditto clothes, and restaurants, and holidays.

    Stamp duty, council tax, flight taxes… all much higher on the wealthier (which is fair enough, I think, though I’d rather we all paid less tax and the government spent less).

    I bet my VAT and other similar payments are several times those of a person on the average wage.

  19. Obviously an April Fool’s edition: she describes Ed Millionaireband as “the right-leaning press”

  20. @ #18 Ian B
    If you would care to look at the coverage of VAT you might find that rent, food, public transport, children’s clothes were zero-rated and that domestic fuel was at a special low rate. The only really regressive tax is tobacco duty.

  21. Poor people wear children’s clothes, do they?

    I was just pointing out that we all pay taxes, whether directly or indirectly.

  22. Does it make any difference whether you tax the poor or the rich? In a competitive market economy the effects are going to be roughly the same either way, logically. In a competitive market, increases in productivity go to the workers, and not taxing those who own/run businesses as much as previously is directly comparable to an increase in productivity of those businesses.

    Anyway, that aside, what we’re talking about here is the idea that we’re all doing something together. The argument is over what different people see as the something. Broadly, one group, as above, can’t see past the whole ‘working and paying taxes to the state’, where the other would term it ‘living in a country’ or whatnot.

    Personally I think it’s ridiculously right-wing to suggest that not paying tax means people aren’t contributing to society, so it seems an odd view for the Graun to espouse.

  23. Surreptitious Evil

    Does it make any difference whether you tax the poor or the rich?

    Yes, there aren’t enough of ‘the rich’. The argument here seems to be “how poor do you have to be before we don’t tax you.”

    For income tax / NI, Tim’s consistent opinion has been “full time worker on minimum wage” as the breakpoint. He might not have the ideal point but it is a logical and defensible one.

    Obviously, a scheme where ‘the poor’ didn’t pay consumption taxes would be ridiculously easy to game – so all you can do is exempt some of the things we might deem (correctly or otherwise) ‘essential’ rather than luxury items. As per the discussion above.

    I must admit that I don’t quite get the “they must pay or they’ll vote for fleecing the rich” argument. Because, even if you are taxed, you can vote for reducing your burden or increasing somebody else’s – it is quite clearly, for the usual lack of understanding of knock-on effects, the Laffer cure, etc- apparently in your economic interest. It is another one of these reductio ad not-quite absurdum simplifications I am becoming increasingly irritated by.

  24. SE>

    The number of ‘rich’ doesn’t matter. The point is that the taxes on them are effectively taxes on the profits of their enterprises, and so a tax on productivity, and we know that in a competitive market increases in productivity benefit the workers.

    If you’re judging how good an investment (of your time or money) is, you’ll be interested in the return to you, ultimately. Where in the chain the tax is paid is immaterial; all taxes reduce the return on investment.

  25. Surreptitious Evil

    The number of -rich- doesn-t matter.

    I’m afraid, it does. Not least because of the Laffer curve, reasonably free movement of capital and the practicalities of our (and pretty much everbody else’s) over-complicated tax system restricting your ability to fleece the rich.

    You are over-simplifying, I’m afraid. For a start, we aren’t anywhere close to a perfectly competitive market for labour.

    Although I probably could have better phrased it “the rich don’t have enough”.

  26. Surreptitious Evil

    Oh, and I’d strongly suggest that “reasonably free movement of capital” only applies to people with a significant amount of capital. Which has a tendency, even in a rich country, to exclude the poor.

    Except in the case of emigration.

  27. Jim (17).

    Not so long ago I read an article that claimed that 53% (plus change) were nett recipients after allowing for tax and bennies.

    Sadly, I can’t remember where it was I saw it but it was no more than 2-3 months ago.

  28. I’ve made this point before, but here I go again…

    If tax is to be understood as a contributory system – that is, the citizen pays in money against both real benefits (e.g. streetlighting) and potential benefits (e.g. unemployment) – then social cohesion, not to mention willingness to pay, demands that this link be explicit.

    And that’s the reason for taxing the poor.

  29. SE>

    I haven’t a clue what you’re on about there. I’m saying it makes no (or little) difference to the poor whether you tax them directly or indirectly – they have the same amount of money (in terms of spending power) in their pockets. All the ‘complications’ you mention occur whichever way around you do things. If the poor are heavily taxed, a company’s wage bill will have to be higher to compensate. If the poor workers aren’t taxed, but the profits are, where’s the difference?

  30. Rincewind>

    As I said before, that’s a very narrow view. Society is a contributory system, and taxes are only one way in which people can contribute.

    The fact is that the very phrase ‘taxing the poor’ is on the face of it ludicrous, straight out of Alice in Wonderland, and no amount of verbal gymnastics will change that.

    Do people genuinely need to be told that taxing the poor is one of those things that’s simply wrong? That’s like needing to be told that murder is wrong – we’re all supposed to know that deep down.

  31. @ Dave: Fair point. And maybe my phrase “taxing the poor” was needlessly inflammatory. Perhaps I should have said “taxing everyone”.

    And I agree that there are many ways in which people can contribute to society – the greater good.

    Where I part company with you is your view that it makes no difference in the end of the day wheter tax is direct or indirect. Yes the bottom line remains constant. Yes I agree with this blog’s undercurrent view that the state is not altogether a responsible custodian of tax revenues. And yes I agree that the actual link between between tax paid and benefits accrued, whether actual or potential, is a weak one.

    My point is about perception. For example, if I’ve paid National Insurance on the basis that it’s actually insurance against future eventualities, then it’s reasonable to complain if an immigrant who has not contributed can claim against “my” contributions.

    This is not an argument against immigration. It’s an argument about seeming to be fair.

  32. P.S. I should perhaps add that I’m not wholly convinced by the argument I’m making. But I’ve yet to see a convincing refutation. Saying “I despise this argument” doesn’t count.

  33. “It’s an argument about seeming”

    Well then, make things seem different. How about an ad campaign? I wouldn’t disagree with the view that we don’t sufficiently value the contribution the low-paid sector of the workforce makes to our society as a whole, but it seems odd to say we should remedy that by making them pay taxes rather than just by making the nation as a whole more aware of what’s actually being contributed.

    Incidentally, your point about NI is, again, one of perceptions sometimes being wrong, and the best thing to do being to correct them. You pay for your house to be insured against fire every year, and the insurance company pays out if you have a fire in the first year you’re paying or the fiftieth. As long as someone comes here to work, they’re covered as soon as they get here – that’s only fair.

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