The 100% (and above) marginal deduction rates.

chem1st

If a person is on means tested benefits, for example JSA, and he earns £1, he loses £1 in JSA. This is an 'marginal deduction rate', it is also known as an 'effective tax'.

In this case it is 100%.

Working tax credits were brought in to address this problem, but unfortunately they are not available to the under 25s.

For many under 25s, there is an effective income tax of 117% over a particular band of income.

That is to say, for each £1 they earn they lose £1.17, and that is before transport costs and other work associated costs are taken into account.

This arises due to various cumulative MDRs, namely 20% tax, 12% NI, 20% council tax benefit MDR and 65% housing benefit MDR.

The cumulative MDR is thus 117%.

The top rate of 'income tax' is being reduced to 45% form 50%, it should be noted however that these people also pay NI (although the NI they pay in this band of income is only 2%).

Thus the MDR for income over £150k for example is 47%.

Universal Credit is supposed to address this problem. The MDR will be set at 65-74%. This is regressive. Surely it should be 47% or less.

You may say that JSA, housing benefit and council tax benefit is 'free money'. But whom benefits from this free money?

It is not the unemployed person claiming it, it is the supermarkets, his landlord and the local council.

JSA, housing benefit and the oxymoronic council tax benefit distort prices. Just take a look at the amount of LHA (Local housing allowance - housing benefit for private rentals) in your local area. Then look at the cost of renting in your local area.

You shall see that the cost of renting is at or above the local LHA rates. This is market manipulation of the price system.

It is in effect a 'minimum rent'. These high minimum rents reinforce the 'effective taxes'.

Would you like to work for me for £1, if I were to charge you £1.17 for the privilege of earning said £1?

Have you heard of 'effective taxes' or 'marginal deduction rates' before?

What do you think to the MDR for under 25s of 117%?

What effect do you think the 100% and above MDRs have on employment?

And what do you think is a fair MDR for the poorest in our society?

an9i77

May be better on the debate board?

chem1st

Probably, how would I get it moved there? I'm not used to this forum just yet.

ILW

Are you a student?

chrisotherwise

What do you think to the MDR for under 25s of 117%?

I think that the pride of making your own way in the world and not relying on others to support you makes such an MDR irrelevant.

an9i77

chem1st wrote: »

Probably, how would I get it moved there? I'm not used to this forum just yet.

Just repost in the 'debate house prices and economy board'....don't be put off by the house prices in the title, there is room for debating on anything to do with the economy. Just thought it may get a better response there. Although you 've already had a few responses here so maybe leave it here. Or post in both.

k12479

chem1st wrote: »

You may say that JSA, housing benefit and council tax benefit is 'free money'. But whom benefits from this free money?

It is not the unemployed person claiming it, it is the supermarkets, his landlord and the local council.

err...food, shelter and municipal services would be the benefit that the unemployed person receives.

chem1st wrote: »

Would you like to work for me for £1, if I were to charge you £1.17 for the privilege of earning said £1?

Stating it like that somewhat twists the arguement, suggesting that the individual would be paying for the privilege themselves, when in effect it is a reduction in subsidy. Which, like most subsidies (cheap fuel in Iran, EU farming subsidies, etc.) does distort the market as you suggest.

chem1st wrote: »

You shall see that the cost of renting is at or above the local LHA rates. This is market manipulation of the price system.?

So not only do tax payers have to pay for benefits to others they then have to pay more due to the distortions that result.

chem1st

ILW wrote: »

Are you a student?

I have been one in the past. I now consider myself to be an autodidact.

chem1st

chrisotherwise wrote: »

I think that the pride of making your own way in the world and not relying on others to support you makes such an MDR irrelevant.

There is no pride in going out to work and coming home poorer than what you would be if you were out of work. Especially when your neighbours and peers are better off not working, whilst you work yourself into deeper poverty.

Not only are you worse off financially, you have little free time, you cannot spend time doing enjoyable things, nor can you save money by utilising your time. "Opportunity cost of time".

That is to say you can brew your own beer for 30p a pint, or you can go out and work for an effective rate of negative £1.03 per hour and be unable to afford to drink a pint of beer whatsoever. It becomes infinitely unaffordable. (This is the real world scenario)

A easier to understand example would be to say Job X rate is 1, job Y rate is 2 and job Z rate is 3.
If doing job Y, it makes sense to employ somebody else to do job X for you, but to do job Z yourself.

There is no pride in it. Such behaviour is soul destroying and breeds contempt for your fellow man. Dark thoughts begin to occur and you soon become aggressive and violent, you jeopardise your future freedom. You become distrusting of fellow members of your community, hate is bred.

There is no dignity in becoming hateful towards your fellow man.

chem1st

k12479 wrote: »

err...food, shelter and municipal services would be the benefit that the unemployed person receives.

Society denies people from growing their own food, building their own shelter and providing their own services.

There is nothing I would like more than to build a dwelling upon the land, work the land and provide services. But these things are prohibited by the state in various ways.

Because of this, society needs welfare to function. If we did not have welfare we would descend into civil war and the people would rise up against the state and provide these things.

Stating it like that somewhat twists the arguement, suggesting that the individual would be paying for the privilege themselves, when in effect it is a reduction in subsidy. Which, like most subsidies (cheap fuel in Iran, EU farming subsidies, etc.) does distort the market as you suggest.

The subsidy is not really a subsidy though. It is price distortion of common goods for the poorest of our society.

Cheap fuel in Iran no longer exists (the subsidy applied to cost price has been removed), last year Iran became the first country to pay it's citizens an unconditional 'citizen income' - paid for out of the revenue from the fuel.
-This was because the 'cheap cheap fuel benefited only the rich, the poor could not afford it in the first place. Iran has come up with the most progressive solution and applied it. It is a massive leap forward in the way humanity conducts it's affairs and is for the social good. (Unfortunately TPTB in the West oppose this and have banned imports of Iranian oil, after securing Libyan oil resources for itself through aggressive war tactics - Spain and Italy will pay dearly for this in the months to come - as they are the ones relying on Iranian imports currently.)

Wrt EU farming subsidies these are a joke, over half of the money the UK sends to the EU is sent back as CAP payments. So called farming subsidies, yet to qualify as a farmer one need not produce food, one merely needs to own land and is paid on a per hectare basis.

The fact remains, if a person on JSA earns £1 he loses £1. They face an effective tax of 100%
Some under 25s face an effective tax of 117%.

Seeing as the subsidy and price distortion exists, a person claiming it is not benefiting, he is merely competing on an equal ground with others claiming said subsidy. More to the point, he is on unequal ground, and he has very little incentive to work - for monopoly currency at least, in this country it being FIAT £.

So not only do tax payers have to pay for benefits to others they then have to pay more due to the distortions that result.

On this I agree, but it is not the fault of the poorest in our society who are products of the system. They did not set it up. It is the fault of those whom created the system. It is the system itself that is at fault.

The poor people are also taxpayers, and more often than not pay more taxes as a proportion of their income (be their income earned - or in the form of price distorting benefits). What with all the regressive taxes we have... DUTY this DUTY that.