I caught a bit of yesterday's Wales debate on BBC Parliament yesterday evening. Labour backbenchers were lining up to ask set piece questions about Tax Credits, which Peter Hain smugly answered as follows (Hansard, Column 860):
Tax credits have made work pay (1), lifted hundreds of thousands of people out of poverty (2), and encouraged people to get off benefits and into work (3).
1) Maybe Tax Credits do 'make work pay', but surely the main reason people go to work is to earn money? So it's the employer who 'makes work pay' by, er, paying wages.
2) Don't forget that the income-tax free personal allowance is only £6,475 (and the National Insurance threshold is even lower than that), so you start paying income tax and National Insurance (total 31% of your wages) long before you have reached a level which could be fairly considered to be 'out of poverty'. So the impact of this is the equal and opposite of 'making work pay' and pushes as many back into poverty as Tax Credits claim to lift out.
3) What he means is "encouraged people to get off out-of-work benefits and on to in-work benefits", if we see Tax Credits as a benefit rather than negative tax. Let's agree that people working rather than not working is usually A Good Thing for the sake of this discussion.
There is little correlation between Tax Credits and tax paid, but as ever, let me point out that a single earner claiming the 30-hour Tax Credits rate who is earning £195 a week is paying £23.45 a week in income tax and National Insurance and is, in theory, entitled to £23.14 a week in Tax Credits (TBMT, Table 1.1b).
That seems a bit of a long way round to me - would increasing the tax-free personal allowance/National Insurance threshold to £195 a week (or £10,140 a year) not be a better place to start?
Saturday, 20 March 2010
False comparison
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14 comments:
Oh, Mark!
Why must you talk sense. Someone might listen to you and then where would it end?
NM, ta. Where would it end? I dunno, but it's got to be somewhere better than where we are now.
That wouldn't be hard...
I suppose, with the current system, i) people don't realise they are getting their own money back, so feel better about tax credits, ii) there are the very low earners (part-timers) who get back more than they pay and iii) employment is provided for the Right Sort of People (TM) in administering the taking and giving back.
B, I agree with i) and iii) but your ii) misses the point that if we agreed to hike the PA to £10,140 certain other changes follow almost automatically, i.e. we could merge out-of-work and in-work benefits into one, let's say income support at £64 a week and set the taper rate/income based withdrawal rate so that at £195 a week, your Income Support is tapered to £nil.
In other words, "the very low earners (part-timers) [would] get back more than they pay", which is the general idea.
The taper rate would be £64/£195 = 33%, which is so close the the basic rate of tax + Employee's NI (31%) as to make no difference, so then you realise that you can deal with income-based withdrawal via the ordinary PAYE system (by simply not giving benefit claimants a personal allowance, i.e. a BR code for PAYE). Hey presto, even fewer of The Right Sort Of People (TM).
*** Alert! ***
False battle between labour and capital
*** Alert! ***
"So it's the employer who 'makes work pay' by, er, paying wages."
The employer does not pay wages.
Wages come from the fruits of labor -- not the advance of capital.
You may call me a pedant here. But there is a great danger in thought to allude that wages are paid from employers capital. Both socialists and capitalists think this way. It is not true when you examine the facts carefully.
Logic and reason here:
http://www.henrygeorge.org/pchp3.htm
RS, I'm talking in cash terms. You exchange your labour for the employer's cash. I fail to see what the government hopes to achieve by taking random amounts of cash away from the parties and then giving some of it back to one of them (which probably subsidises the cost to the other).
MW, the main man agreed with you 131 years ago:
"The people who work for another and are paid in money, work under a contract of exchange. They, too, create their wages as they render their labor. But they only collect them at stated times, in stated amounts, and in a different form. In performing the labor, they are advancing on this exchange. When they get their wages, the exchange is completed. During the time they are earning wages, the workers are advancing capital to their employer. At no time (unless wages are paid before work is started) is the employer advancing capital to them."
Workers advance Capital to employers, in fact, contrary to popular economic myth. Workers are the worlds biggest creditors. But yes, cash is your point I see, thx for clarification.
"So it's the employer who 'makes work pay' by, er, paying wages."
No offence Mark, but this is a monstrous economic fallacy. You seem to be saying that wages are paid by the employer? Apologies if not.
Wages are paid out of the product of the worker producing them. They need no prior employer earnings to pay them, not ever, even for a moment.
Implying wages are paid out of 'capital' is suggesting that there is a limit to the total amount of wages available. And that this limited total must be shared between the total working population.
Its monstrous because it plays right into the hands of those saying we are running out of everything, so we must either cull the population or reduce wages to fix it.
Rather than point straight at the mortgage and landowners actually making this so.
Apologies if I read you wrong.
RS, yes fair point.
But you are changing the topic. I was merely pointing out that the ideal cash flow* is from employer to employee and not from welfare system to employee. That is the 'false comparison" I meant.
* Clearly, there is an equal and opposite flow from employee to employer, being "value of services supplied". Btu that is not a cash flow.
OK thanks granted agreed.
I did not change the topic deliberately. Its just hugely dangerous ground this one. Being a pedant is a virtue in this case.
Cash flow? But what is money exactly? It doesn't really exist nor is it worth anything. It does represent real things such as goods and services produced, making their exchange that much easier. So its these things that are really flowing.
Yeah, so what. No one agrees with anything anyway. So what is true is irrelevant.
RS, OK
1. Each citizen provides 'services' to the community, this creates land values which can be taxed and returned to him as a 'Citizen's Dividend'. That is a fair and sensible system.
2. Most people also provide 'services' to their employer, and the employer in turn provides 'services or goods' to his customers. In return, the employer and the employees get cash. That is also a fair and sensible system.
3. How people spend these two sources of cash is up to them. Of course the cash goes back into the system and is spent on rent or goods and services. It's all nice and tidy.
4. Tax Credits are shit. It is a weird diagonal transfer of income tax from higher paid workers to lower paid workers, subsidising employers who pay low wages and adding to the marginal tax rate of lower earners, thus discouraging them from becoming medium earners, with no reciprocal flow of services.
Agreed except for 1)
Instead of a CI, wouldn't higher wages be simpler, cheaper, more natural?
If we understand fully the effects of an LVT, which I do not support either, CI would be moot.
CI is only better instead of means tested benefits, in a system where rents are not yet being collected fully.
If tax was abolished and the rents taxed 100%, wages and rents would both rise absolutely and wages would rise in proportion to rents.
"It's all relative" which is often overlooked.
What would have been a CI is now these higher wages - what one has truly earned, there being nothing left beyond the rent to fund the community infrastructure, which incidentally must develop itself, to support, secure and protect from corruption the more powerful community it now protects. Libertarians refuse to consider this. I sympathise.
The problem for LVT fans is they do not look further than their own agenda. And see how things would really change in the end. Or can see it and are too scared to go there because that requires renewed commitment to the cause.
This is why I do not support an LVT directly. It's an extremely dangerous idea, if not fully understood.
RS, even though UK site only rental values are significantly depressed by existing taxes, the simple fact is they are £250 billion a year.
The costs of the core functions of the state (including 'infrastructure') is barely £70 billion.
That leaves us with £180 billion to chuck around as a Citizen's Dividend, which conveniently also acts as a 'personal allowance' for LVT, so half of households would end up paying net nothing and the other half would be paying net less than the full rental value.
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