Thoughts On Benefits & A Living Wage

Currently I work in a field not unrelated to benefits and it has got me thinking about possible solution.

First let us state a few facts:

1. Barring massive funding and MSM airplay LPUK is unlikely to get the momentum it needs to win seats and push it's zero income tax policies into law.
2. Currently income tax receipts are now outstripped by the cost of our benefits system.
3. Corporate tax, VAT and all the other forms of sales taxes that are more the product of the deranged minds of exchequers from the last 2 centuries with far too much time on their hands are, whilst regressive, currently more than sufficient income for a government exercising it true reasons for existence; e.g. Provision of some public goods, defence of the realm etc.
4. Libertarians (the majority of) want a situation where we move ultimately to low/no taxation but ultimately to self-determination and responsibility; hence the existence of LPUK as a political body to meet the transition to a libertarian future.

Now let's say for one way of guaranteeing this transition and stopping the elderly, the poor and the feckless from dying in the streets we need to rely on a benefit system gauranteeing some income in ways in which private charity or private insurance cannot: how much income? The Adam Smith institute have set out various figures for taxation and, more importantly a guaranteed tax free income of £12000, currently just under twice the current level. For reasoms that should become clear my tax free income (remember, under a non-LPUK government,) is £15000.

Now my idea; imagine your tax free income as a tradeable commodity redeemable against any type of tax receipt. You could use it yourself and instantly keep £15000 of your income completely tax free; couples could have one stay at home parent or who works part time and they could offset the remaining tax free income against their partners income or the unemployed could trade this with brokers within companies trying to lower their companies corpration tax take (hence a slightly higher rate than the ASI's to account for the difference offered). Combined with a flat tax and a robust National Insurance Scheme so tax receipts are more easily traceable and quantified this would enable the benefits system to be abolished over night; extending it indefinately to all beyond the age of 16 (with tapered tax free incomes up to that age) could mean we could eventually wind down our state pension liabilities over time also.

At a stroke we have abolished welfare, set state pensions in permanent decline, encouraged personal responsibilty, voluntary community and increased the fairness of welfare; and best of all we've removed the need for vastly complicated state intervention and the incentive for favouring lifestyle choices by complex tax breaks/benefits to choice groups a la NuLabour single mums/Glasgow East or Tory yummy mums/Surrey.

What do people think?


sickofit said...

Perfectly logical but the 645 currently in the shit hole of parliaments have to go first.
I say 645 not 646 because Douglas Carswell is attempting to shaft broon, cleggy and 'call me dave' by tabling a motion for a in or out EU referendum.

Anonymous said...

Apart from being gratuitously complicated, how does this scheme differ from a relatively simple citizen's income?

Tomrat said...

Anon 22:00,

A fair point I do tend to waffle - the tax credit itself is treated as a commodity, the only value it would have being what the market is willing to pay for it or what you could use the commodity for yourself (in this instance reducing the amount of money you hand over to the state).

We could abolish welfare, tax credits, student loans etc.; the market rate, your own personal use or that agreed on between 2 consenting adults would enable a roaring market, enabling mothers/fathers to stay at home enabling their spouse to bring home more money without unecessary work or state interference, kids to fund their way through college or university and a wealth of benefits systems to compete, utilising private insurance plans, friendly societies and growth industries in many of these areas.

I don't like the underlying pretense; that govt. allows you to keep some of the money you earned but in reality this is at their suffrence; this is the one area I dislike; however, the one thing about libertarian ideals when it comes to freedom is eventually people want more - why if I can achieve X lifestyle does the govt. deem it ok to prevent me from affording Y lifestyle? If I can fund university through a voucher system making it's products better what would using cold hard cash do? Imagine what friendly societies and charities could do if provided with cash rather than an intrinsically worthless currency in the form of tax credits...

Rational Anarchist said...

Sorry - this may be a bit of a necro-post but I stumbled across this post and thought it warranted a reply:

I think the problem is that £15k of tax free income is worth different amounts to different people.

Someone with no earnings may as well get rid of it, so will sell it for as much as they can get.

Someone earning enough to put them in the 20% tax band would probably see it as worth (£15k x 0.2 = ) £3k.

Someone earning enough to be in the 40% tax band would see it as being worth £6k, and someone in the 50% tax band would value it at £7.5k.

So the people with the most reason to buy it would be those with the most income. Of course, if they paid £7.5k for the allowance, they'd be no better off - so allowing 10% or so for time and admin, they'd probably pay around £6.7k. This is enough that everyone else would have reason to sell it to them - even those paying 40% tax only value the allowance at £6k.

Assuming that everyone did the most efficient thing, everyone who paid less than 50% tax would sell their allowance to 50% tax-payers. This would have a net effect of reducing the top rate of tax to 45% instead of 50% and gain everyone else about £5.5k.

Now, bear in mind that the money to fund this has to come from somewhere, and that it wouldn't be all that easy to keep track of where all those allowances are - so the cost of administering this would not be small. Why not just give everyone £6.7k CBI, abolish the tax free allowance, abolish employees NI and set a flat tax rate of 41%? Everyone would be better off than they are now and it would cost a lot less to administer...