Ritchie\’s right here you know

As the Telegraph noted this weekend:

While Chancellor George Osborne insists benefit reforms are designed to help hard-working families, new rules which take effect on Saturday will mean that some of the poorest people in the country pay marginal rates of tax that are half as high again as those paid by millionaires.

Many on the minimum wage will be left with just 27p in each additional pound they earn.

Except they got that wrong. As Paul Lewis has shown, the likely tax rate is 81%. And it may be higher when council tax charges and graduate payments are taken into account.

But apparently the 50p tax rate was a disincentive to work.

The idea that there is one rule for the rich and another for everyone else is well rooted in fact.

It is indeed an absolute scandal that marginal tax and benefit withdrawal rates are so high on the working poor. It\’s an entirely disgusting factor of our current society.

Indeed, under the Brown Terror there were several millions of poor families who faced over 60% rates, several hundred thousands over 80% rates and some unfortunates who faced rates of over 100%. The numbers are recorded in the various budgets actually.

There is a solution of course: raise the personal allowance for income tax. This means that the interplay between income tax being charged and benefits being withdrawn is at least lessened. And what has the current, Osborne, Terror been doing? Raising the personal allowance. As we disgusting neoliberal capitalist running pig dogs at the ASI hve been shouting should be done for years now.

You know, this policy that Ritchie himself vehemently opposes?

It does seem pretty simple though, doesn\’t it? If marginal tax rates on the working poor are too high then lower taxes on the working poor? Makes some sort of logical sense, no?

20 thoughts on “Ritchie\’s right here you know”

  1. You do know that if the sensible answer doesn’t mean his narrative he’ll simply make an illogical leap from his prejudices to some over-simplified economically ignorant bash-the-rich nonsense. Probably with “all Tories are neo-liberal baby-eating bastards” as garnish.

  2. Nice to see that he has, at least partially, woken up to reality.
    Only partially because he had to qualify it with ‘new rules .. will mean…’

  3. Looks to me with my abysmal knowledge of tax and mathematics that they are playing with percentages. 81% of something small is still something small, but 81% of something large is big. And correct me if I am wrong, but isn’t a marginal tax rate the difference between one band and another, and not the actual tax that someone pays?

  4. SadButMadLad

    It means the percentage of each extra pound earned that will go to support the Philpotts, rather than the wage earners own family

  5. Steady, Serf. We absolutely must make no connection whatsoever between the Philpotts and the benefit system.

    Maggie RIP.

  6. Surreptitious Evil

    Well, let’s see if the snide leftists can avoid doing the victory dances they assured us were only hyperbole, because, of course, the Right are the nasty ones.

  7. Well, let’s see if the snide leftists can avoid doing the victory dances they assured us were only hyperbole, because, of course, the Right are the nasty ones.

    After a quick shuffle around some Lefty forums, no they can’t. They’re asking “When is the party?”

  8. I think that IDS has left the marginal tax rates under Universal Credit too high BUT they will be lower than under Gordon Brown.
    The 50% tax rate was a disincentive to work for those who already had enough to live on so had the option of leisure. The disincentive to work under New Labour was an effective tax rate of more than 100% if you had to travel to work and the difference between your wage and unemployment benefit (under whatever name and including the price of school meals and council tax benefit and free prescriptions and …) was less than four or five times the fare (eight times if you had a child at university).

  9. While raising the personal allowance works, it really doesnt help much. The marginal rates are in the 60-80% range, and so removing people from the basic rate of tax isnt going to get you to a reasonable rate.

    The problem is that benefits are too high (to make work worthwhile), if they were phased out more slowly – then they would cost far more. But benefits are already at a very low level in absolute terms. Hmm. difficult.

  10. @ ken
    “The problem is that benefits are too high (to make work worthwhile), if they were phased out more slowly – then they would cost far more. But benefits are already at a very low level in absolute terms. Hmm. difficult.”
    There are lots of arguments but too complex to fit into a tabloid headline or the assumed attention span of a reader of tabloids (yes, I know that some highly intelligent women read the Daily Mail, but I *said* “assumed”). Sort out the benefit system so that those with no earnings get enough to live on (which does *not* mean enough to buy lots of things that workers cannot afford and I have never felt the need to buy when I could afford them) and still provide a reward for working that is enough to make it worth while to most guys. One result would be fewer guys on the dole because they could not afford to work and fewer immigrants coming here to do the jobs that said guys cannot afford to do; the reduction in the housing shortage would reduce the price of houses in London and the South-east, hence rents, hence the cost of housing benefit; meanwhile the increase in UK guys in work would reduce the benefits paid to them, probably by enough to offset the cost of more generous benefits and, even if not on its own, enough when combined with the lower cost of housing benefit.
    I believe that there is a moral case for making it worthwhile to work, but I have yet to see anyone refute the economic case with real numbers. Labour want us to believe that it would cost too much as it would deprive them of a vast pool of state dependents, who are expected to vote Labour, so they just shout that it will do so.

  11. ken/John77

    Whether benefits are too high or not is, to some extent, moot. The issue here is that we’re too keen to take them away once a person starts to earn, and then to confound the problem by putting income taxes on top. That would cause problematic withdrawal rates whatever the level of benefits.

    Hence, the most obvious solution (to this problem, not necessarily many others, and not necessarily without creating new ones) is the CBI (citizens basic income). With that, the withdrawal rate can be zero for everything it replaces, and income taxes (which could easily kick in at the first pound of earned income) shouldn’t be an issue (and, ref Richie’s beef, higher for those at higher earnings levels).

    If housing benefit remained outside of the CBI (which seemsinevitable in any system that has a faint chance of gaining traction) then there would be an element of withdrawal there.. but the whole thing would be far more manageable.

  12. “.. but the whole thing would be far more manageable.” TTG

    And in that you have the bug. Popular with all, except those who rule.

  13. Ideally the very high marginal tax rates will be over a very narrow band of income, so that you very quickly break through to a lower rate.

    So if you are taxed 80% on everything between

  14. Bugger, I forgot.

    Ideally the very high marginal tax rates will be over a very narrow band of income, so that you very quickly break through to a lower rate.

    So if you are taxed 80% on everything between L170 and L175 per week, but only 30% on everything above and below that, that is really only a theoretical problem. But if you are taxed 60% on everything between L100 and L500 per week then that becomes a real problem.

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