low paid, pensioners, savings and tax

typistretired

epicurate wrote: »

I love how the idea of any tax increase for a group is described as "penalising". (1) it really isn't. (2) If we want to help pensioners, I would happily support a significantly increased personal allowance (that doesn't get clawed back!) for retirees. Simple and (crucially) transparent. As it is, the system is utterly labyrinthine, which makes for poor levels of public understanding, and bad quality public debate.

They have just taken our age related allowance off us, can't see them ever giving it back. I paid my NI contributions for 40 years so I certainly don't want the tax allowance and NI contributions combined. There really would be a grey revolt then.

zagfles

typistretired wrote: »

They have just taken our age related allowance off us, can't see them ever giving it back. I paid my NI contributions for 40 years so I certainly don't want the tax allowance and NI contributions combined. There really would be a grey revolt then.

Won't happen. The govt are talking about combining the operation of tax and NI, maybe renaming NI an "earnings tax", which is a greater step towards honesty, and basing it on annual income like tax rather than the silly situation with NI where it's paid on a pay period basis but the benefits are accrued on an annual basis.

But they're not going to extend it to stuff which hasn't got NI on now like savings and pensions. That would be political suicide.

epicurate

typistretired wrote: »

They have just taken our age related allowance off us, can't see them ever giving it back. I paid my NI contributions for 40 years so I certainly don't want the tax allowance and NI contributions combined. There really would be a grey revolt then.

I'm not arguing for more tinkering - I'm in favour of complete overhaul. But you do realise that those NICs didn't pay for your retirement? Many retirees are living off, or substantially supported by, current taxation paid by younger working people. And that's absolutely fine. I wholeheartedly support it. I think the tax and benefits system should make it significantly easier for retirees to live for all sorts of reasons, but I don't think past NIC payment history should be a significant one, personally.

gadgetmind

zagfles wrote: »

The system is no different to what we have now - except benefit withdrawal is incorpated into tax and withdrawal rates evened out.

Agreed. If done properly, it could combine state pension, all benefits and all personal tax allowances. You give every adult £8k pa and say "that's your lot, mate", if you want more, work for it. But everyone then pays tax from £1 at (ideally) a flat rate of perhaps 30%.

Archi_Bald

zagfles wrote: »

Do you think Switzerland is a hotbed of Marxism? Because they're seriously considering it. http://www.bbc.co.uk/news/business-25415501

Just because the Swiss are thinking about it doesn't mean it is a great idea.

I am with ColdIron - it absolutely sounds seriously marxist and I am not buying it either.

zagfles

gadgetmind wrote: »

Agreed. If done properly, it could combine state pension, all benefits and all personal tax allowances. You give every adult £8k pa and say "that's your lot, mate", if you want more, work for it. But everyone then pays tax from £1 at (ideally) a flat rate of perhaps 30%.

That's the general idea. Though the tax rate would probably have to be higher to be fiscally neutral.

How people equate that with Marxism is beyond me - you could still earn £1,000,000 pa and keep most of it, in fact probably more of it that now!

gadgetmind

zagfles wrote: »

Though the tax rate would probably have to be higher to be fiscally neutral

ISTR the green party suggested something along these lines and perhaps they even got as far as costing it. I guess the difficulty would be modelling those making the modal shift from relying to benefits for everything to actually doing a bit of work now and then.
.

How people equate that with Marxism is beyond me

Well, quite. I find every aspect of Marxism deeply abhorrent but can see the merit in a single payment from state to every adult. That we'd be able to lay off the vast majority of civil servants is an additional benefit that pleases me greatly.

bowlhead99

zagfles wrote: »

This is wrong. Families have a higher marginal rate, not a lower one. Support to families is not via the tax system, it's not via lower tax rates (as it is in most other EU countries) it's via payable benefits which generally have income related withdrawal rates, which add to income tax.

Maybe I mis-explained it. Whether you give someone on relatively low income a payable benefit for having a child (pay their normal tax with one hand, receive a kickback with the other), or give them a tax credit (pay a bit less tax, no kickback), they are going to face a larger effective tax bill on the pounds of income they earn between that level of income and some higher level of income just beyond the withdrawal level of income at which we want them to stop receiving this benefit/ kickback/ tax credit at

So they will inevitably face a higher effective marginal rate as they approach and go through the withdrawal level. When they initially received the benefit, they had a lower effective marginal rate.

Maybe not as blatantly as literally paying 17% instead of 20% on every pound earned. But when a guy wakes up one day and he suddenly has a baby that qualifies him for government support: while earning his next penny he pays a negative amount of tax (or pays the same tax and gets a "benefit" on the side; do it however you like). The marginal rate of tax, for a moment, is negative infinity. That's lower than my tax rate (I didn't wake up and find myself with a baby and didn't get the break). At some point if we want to get him to pay the same total annual tax as me because we are both earning 70k and well beyond the point of needing special government support, he will need to have paid more tax on pounds earned, to catch up.

You only eliminate it if you say he never needs to catch up because you are happy for him to receive goverment assistance for his circumstances even if he happily earns a million pounds a week.

It's trivially easy. We already have a mechanism to take money off people as their income increases. It's called income tax. So why do we need lots of other mechanisms to take money off people as income increases?

Some people we need to take more money off, because they no longer need what we had previously given them (whether given through tax system, or on the side) for their circumstances.

Their circumstances (being old or disabled or having a young family) still apply. Their needs for government support do not still apply as they get personally wealthier / earn more. The government needs to target its support and if someone doesn't need it (because they are earning massive money themselves) then the support should be withdrawn. The income tax system which exists to take money off people, can be used to take this money off people.

Simply give everyone a citizen's income which is based on circumstances (family, disabilities, housing, age, residence, but not income). Basically give everyone what someone in their circumstances on out of work benefits gets.

Then set a flat tax rate with no personal allowance at whatever rate is fiscally neutral. Simply incorporate benefit/allowance withdrawal rates into income tax.

Marginal rates identical for everyone. Everyone gets enough to live on, everyone is incentivised to increase their income. No means testing.

Having a baby when you are a billionaire, or becoming an OAP when you are a billionaire, is not putting you in a hardship situation and there is no need to tax everyone in the country to help you get through the day. If people want to help OAP or baby-bearing or disabled people who earn or have millions, they can set up charities to help, so that people who volunteer to donate will pay for it, but people who form part of the general population will not have tax collected from them to pay for it.

Bill Gates, between age 40 and 47, had 3 babies. By certain measures, he was the richest man on the planet during that entire time, and when having his second son in 1999 (dotcom boom time) his wealth was reputed to be over $100bn. If his wealth was invested to produce 3% income a year, it would be $95 per second whether he was in the office or home asleep.

Under your system, I would be taxed to a level that allows him to get $95 a week "Citizen's Income" on top of his other age-related, disability-related "Citizen's Incomes" to support his 3 kids. Does he really need that support? Or should we have withdrawn it from him when we realised his income meant that he was perfectly capable of finding the $95 for himself once a week, during a spare blink of an eye?

So, IMHO, we need a mechanism to withdraw benefits based on income and/or wealth. If you give someone a benefit and then take it from them as they get wealthier, their net payments to the goverment through whatever mechanism (e.g. tax payments minus any benefits, citizen income or whatever being paid the other direction) per pound earned, will increase. A higher marginal rate, at that particular threshold.

The only way to avoid it, is to not withdraw benefits from people who have no financial need. Keep taxing the country as a whole and sending the cash to the people who qualify, with income not a factor in qualification. "Ah well, y'know Bill, he's got kids, wouldn't want them to go hungry". "Ah, y'know Bill, he's 60 in 2015, we should probably get him a bus pass and an extra bit of Citizen's Income so he can afford to get out and about. Let's increase taxes in 2014 for everyone, so we have the money when the time comes".

You may need to make the CI conditional on working or seeking work for those of working age who are capable of work, but with far lower marginal rates you may not need to.

I'd be generally opposed to giving money for free to someone who doesn't want to actually earn it. And the blended average 'flat tax' rate you come up with (which would be somewhere between 10 and 40%) is not really going to be 'far lower' enough to make all capable persons go out and earn if your CI already keeps them above the breadline.

*edit* just spotted you said to Gadgetmind that the flat tax would have to be north of 30%. So I'm not sure how you equate that with "far lower marginal rates"?

But it obviously won't happen. Tax rates would have to rise. And people generally are too dim to understand that higher headline tax rates don't necessarily mean you're worse off. Which is why successive govts have been obsessed with lowering tax rates, which means we get all these daft anomalies.

If your assertion that people are generally too dim to understand what the headline rates mean is true, and people just want to see lower headline rates, there is no wonder the successive governments have tried to deliver that. The governments' mission is to sell what people will buy, and in doing so collect the tax they need.

Obviously they still need the same amount of money coming in the door, so in an endeavour to knock down headline rates, allowances and other tangential things get tweaked along the way. To the extent that such marketing works, and the people buy it, and money comes in the door, we are OK. However you will never get everyone agreeing the tax and wealth distribution system 'works' and 'is fair', because there are some people whose personal philosophies and capabilities lead them to prefer capitalism and light taxation and others who lean towards communism.

zagfles

bowlhead99 wrote: »

Maybe I mis-explained it. Whether you give someone on relatively low income a payable benefit for having a child (pay their normal tax with one hand, receive a kickback with the other), or give them a tax credit (pay a bit less tax, no kickback), they are going to face a larger effective tax bill on the pounds of income they earn between that level of income and some higher level of income just beyond the withdrawal level of income at which we want them to stop receiving this benefit/ kickback/ tax credit at

So they will inevitably face a higher effective marginal rate as they approach and go through the withdrawal level. When they initially received the benefit, they had a lower effective marginal rate.

They never had a "lower marginal rate". The payable benefits don't increase with income, the tax rates are the same, so how can they have a lower marginal rate? It's higher. Period.

Having a baby when you are a billionaire, or becoming an OAP when you are a billionaire, is not putting you in a hardship situation and there is no need to tax everyone in the country to help you get through the day. If people want to help OAP or baby-bearing or disabled people who earn or have millions, they can set up charities to help, so that people who volunteer to donate will pay for it, but people who form part of the general population will not have tax collected from them to pay for it.

Bill Gates, between age 40 and 47, had 3 babies. By certain measures, he was the richest man on the planet during that entire time, and when having his second son in 1999 (dotcom boom time) his wealth was reputed to be over $100bn. If his wealth was invested to produce 3% income a year, it would be $95 per second whether he was in the office or home asleep.

Under your system, I would be taxed to a level that allows him to get $95 a week "Citizen's Income" on top of his other age-related, disability-related "Citizen's Incomes" to support his 3 kids. Does he really need that support? Or should we have withdrawn it from him when we realised his income meant that he was perfectly capable of finding the $95 for himself once a week, during a spare blink of an eye?

You just don't get it, do you? He would pay far more tax into the pot that pays out CI, so he would lose from it overall. Is that not blatently obvious? If you tax people a percentage of what they earn, and give people a flat rate in the form of CI, then the richest will pay far more in that they take out.

By means testing a benefit, you transfer from middle income to the rich (both lose the benefit, but the rich gain more by making it cheaper for the taxpayer). It would be neutral for those as the bottom, since they'd get it anyway if means tested.

By making it universal, you transfer from the rich to the middle (they both gain the same cash amount in CI, but the cost to the taxpayer increases which means a bigger tax increase for higher earners).

You need to think more and type less, to be frank I'm bored of this, ta ta.

bowlhead99

zagfles wrote: »

You just don't get it, do you? He would pay far more tax into the pot that pays out CI, so he would lose from it overall. Is that not blatently obvious? If you tax people a percentage of what they earn, and give people a flat rate in the form of CI, then the richest will pay far more in that they take out.

The rich already pay far more in income tax than they take out in welfare.

However I can't really say I approve of them dropping their top marginal rate to a mean flat rate and taking out more welfare for themselves on the grounds that this will redistribute wealth to the middle. The middle do not need the benefits. The poor need the benefits. The rich have a higher overall rate than the middle which is further above the flat rate that we will end up at, than the middle's is. So unless the citizen income / welfare for all is very high, they may gain more than you think.

If Bill and I both earn £400k per year ("more than adequate for anyone to get by"), and he receives a larger, non means tested, "citizen's income" on the basis of his personal circumstances (greater headcount of children in his house, and maybe he's aged 60 vs my 50): he gets more take home than me. If he does not take the citizen's income, because he does not need it, the overall tax take for the country can afford to be lower. Perhaps the flat tax rate for all could drop to 29.999999% instead of 30.000000%.

So as you are proposing that he *should* take the extra assistance, you are giving me, and him, and a middle-income-er on 40k, a greater tax rate than we could otherwise have. Sure, he is also paying towards his welfare and he pays in more than he takes out. But by taking out anything at all, he is costing me and the 40k-er and everyone else, some cash, yes? He does not personally pay more than 1% of the total tax taken across the country from his income bracket. So when he takes a non means tested citizen's income based on his circumstances, 99% of the money is being funded by others (including other 400k-ers and 40k-ers and some £4000k-ers).

If he is on £400k I would contend we should not necessarily buy 99% of his nappies or bus pass for him.

By means testing a benefit, you transfer from middle income to the rich (both lose the benefit, but the rich gain more by making it cheaper for the taxpayer).

Sure, if the rich pay most of the country's tax take, they will suffer more if we give more benefits and gain more if we reduce benefits. However if you give a rich person a benefit and they only pay "most of" the country's tax take, they are a net winner.

If you give a middle income-er a benefit, the rich pay most of it, but maybe not so much of it in a flat system as they would have done in a progressive system where the richest paid 40% of their total salary in taxes instead of 25-35% flat rate.

You need to think more and type less, to be frank I'm bored of this, ta ta.

Well maybe if you thought about things from more angles rather than assuming you had the definitive perfect system, you would need to type more to explain it to someone who unable to grasp those angles.

As I suggested earlier, you will never get to a universally accepted "fairest" system because some people are naturally capitalist, some naturally communist and there are infinite positions and special interest viewpoints in between. You can certainly find a system that you believe "simpler", but whether it is fairer or caters for all the things the average man on the street wants from a tax system, is up for debate.

As the "average man on the street" is not in the top five percent of earners and is not generally unemployed or disabled or extremely poor, it's unlikely that his views will get you to the "best" position from the perspective of those groups. It stands to reason however, that governments will tend to target the middle. Lobbying from the rich will help that group pull back some ground. And compassion for the poor will help that group get more than inherently self-interested voters would otherwise go for. But it will remain imperfect.