Tax Credits

kinger101

zagfles wrote: »

80% when they pay tax/NI. Maybe 90% plus if they get housing benefit as well. Yes anyone with any sense is concerned, as it creates poverty traps and makes it "not worth working", which increases the cost to the taypayer.

Except the dimwits who set Labour's "child poverty" targets, they're delighted, as keeping working families' income close to out of work families' income keeps "child poverty" low. Or lower than it would be with a progressive system.

I missed the point of your post. I thought you were showing sympathy for someone on benefits complaining about marginal "tax" rates. Of course, these were supposedly introduced as the previous benefits system also didn't provide the encouragement to work.

The rates you have indicated do not apply to the majority of people on tax credits for the reasons I've indicated; many of the claimants have unused IT and NI allowance. The living wage introduction should also have coincided with the new tax credit rules, which would in effect made sure that transition to work improved income even further.

Of course there should be more stick than carrot. And the amount of child tax credit (a horrible misnomer) should be set by reference to actual poverty rather than relative. Even if people face high marginals rates when they're on benefits, working more should not be considered optional where it's available. I believe 10% of the people claiming tax credits are in households with incomes above £42K, which cannot be be right.

We were not living in some third world hell in 2002 prior to the introduction of the new tax credit system, so I'm struggling to see why the payments can't be reduced further than the £5B proposed.

michaels

The govt changes have pushed the marginal rate up by 7%.

I find it absolute hypocrisy that high marginal rates are supposed to discourage additional rate taxpayers from working but encourage those on low incomes whereas common sense would say that the marginal utility of a pound earned would be much higher for the latter than the former.

CLAPTON

michaels wrote: »

The govt changes have pushed the marginal rate up by 7%.

I find it absolute hypocrisy that high marginal rates are supposed to discourage additional rate taxpayers from working but encourage those on low incomes whereas common sense would say that the marginal utility of a pound earned would be much higher for the latter than the former.

I think the argument is that the rich will find ways of avoiding the higher rates and so there will be a reduction is total tax revenue rather than an increase


and no one claims that the margin rate encourages the poor but rather
-the reduction in take home will encourage them to work more to earn more hence reducing the benefits bill
-and it is an inevitable consequence of means tested benefits




whether the arguments are wrong or right is another matter

kinger101

michaels wrote: »

The govt changes have pushed the marginal rate up by 7%.

I find it absolute hypocrisy that high marginal rates are supposed to discourage additional rate taxpayers from working but encourage those on low incomes whereas common sense would say that the marginal utility of a pound earned would be much higher for the latter than the former.

I don't think we have a definitive answer about the maximum acceptable rate of taxation.

https://en.wikipedia.org/wiki/Laffer_curve

But the top 1 % pay one third of the income tax bill, and the top half, 90% of the income tax bill, whereas the bottom half don't even cover the housing benefit bill.

http://www.thisismoney.co.uk/money/news/article-2107031/UK-Budget-2012-Top-1-earners-contribute-income-tax.html

This would seem fair, as it somewhat reflects their proportion of the wealth. But the wealthy are more likely to avoid taxation, so without further evidence that it will improve government income, it would be unwise to further burden those whom we already rely on to a large degree. It's better to go after current tax avoiders/evaders, and at the other end, ensure that the benefits system is only a safety net.

Of course, the simple answer is that those on low incomes get to keep between 100% and 68% of their income. They just need less of everyone else's as they become more self-reliant. If they can't see that, we need a massive cultural shift.

gadgetmind

Moby wrote: »

Inequality of outcome is not the issue....It's inequality of opportunity!

If you force me to describe growing up in a mining village (with closed mine) and attending a school with class sizes of 40-45, with only parents who both left school at 14 to guide me, then I will.

But you really don't want to.

There is masses of opportunity in the UK but most people choose to ignore it and then blame others for the inevitable outcome.

zagfles

kinger101 wrote: »

I missed the point of your post. I thought you were showing sympathy for someone on benefits complaining about marginal "tax" rates. Of course, these were supposedly introduced as the previous benefits system also didn't provide the encouragement to work.

The rates you have indicated do not apply to the majority of people on tax credits for the reasons I've indicated; many of the claimants have unused IT and NI allowance. The living wage introduction should also have coincided with the new tax credit rules, which would in effect made sure that transition to work improved income even further.

Of course there should be more stick than carrot. And the amount of child tax credit (a horrible misnomer) should be set by reference to actual poverty rather than relative. Even if people face high marginals rates when they're on benefits, working more should not be considered optional where it's available. I believe 10% of the people claiming tax credits are in households with incomes above £42K, which cannot be be right.

We were not living in some third world hell in 2002 prior to the introduction of the new tax credit system, so I'm struggling to see why the payments can't be reduced further than the £5B proposed.

There's been some form of family top-up to income since 1971, with Family Income Supplement, Family Credit, WFTC and now the current tax credits. It's nothing new. And before then there were child tax allowances, married couple's tax allowance etc.

The problem we have is the hypocrisy of a tax system that assesses people as individuals but a benefits system that assesses people as couples/families. While we have that system, there will always be a need for family top-ups which go quite high on the income scale.

People on £42k should not be on any sort of benefit, agreed, not tax credits, not child benefit. And they wouldn't, if we had a tax system like most other countries, where non earners were allowed to use their tax allowance against the income which supports them. Fully transferrable allowances between couples, and allowances for children.

Not the hypocrisy of a system which says to a non-earner "you can't have any benefits, your husband/wife/parent earn a decent wage, they can support you - oh, but you can't use your tax allowance against the income we expect you to live on".

The 10% transferrable tax allowance is a tiny step in the right direction, but pretty insignificant at that level.

CLAPTON

zagfles wrote: »

There's been some form of family top-up to income since 1971, with Family Income Supplement, Family Credit, WFTC and now the current tax credits. It's nothing new. And before then there were child tax allowances, married couple's tax allowance etc.

The problem we have is the hypocrisy of a tax system that assesses people as individuals but a benefits system that assesses people as couples/families. While we have that system, there will always be a need for family top-ups which go quite high on the income scale.

People on £42k should not be on any sort of benefit, agreed, not tax credits, not child benefit. And they wouldn't, if we had a tax system like most other countries, where non earners were allowed to use their tax allowance against the income which supports them. Fully transferrable allowances between couples, and allowances for children.

Not the hypocrisy of a system which says to a non-earner "you can't have any benefits, your husband/wife/parent earn a decent wage, they can support you - oh, but you can't use your tax allowance against the income we expect you to live on".

The 10% transferrable tax allowance is a tiny step in the right direction, but pretty insignificant at that level.

would you expect the total benefit/tax relief bill to increase , deduce or stay the same


who would you see to be the winners and who the losers

zagfles

CLAPTON wrote: »

would you expect the total benefit/tax relief bill to increase , deduce or stay the same


who would you see to be the winners and who the losers

Well, without any behavioural change, benefits should decrease (since allowances means less required), overall tax should decrease (since less required to pay benefits), tax rates would have to increase to pay for allowances non-earners can now use.

But as above, people are likely to respond to financial stimuli. Last time I checked, the UK had the highest proportion of children living in workless households in the EU, despite having lower than average unemployment. This is because currently there is far less incentive for those kids to work, as the MDRs are very high for families for a long way up the income scale, whereas they aren't for single people/childless couples. So childless people have much more incentive to work.

WIth transferrable allowances, that would change, the MDRs for families would be lower than childless people, so those with kids would be more incentivised to work and those without a bit less, and since families can claim more in benefits, it's likely to reduce the welfare bill overall.

kinger101

zagfles wrote: »

There's been some form of family top-up to income since 1971, with Family Income Supplement, Family Credit, WFTC and now the current tax credits. It's nothing new. And before then there were child tax allowances, married couple's tax allowance etc.

True, but it was the Tax Credit Act of 2002 that sent the bill into the stratosphere.

Moby

Research published today indicates that there are more than 70 tory MP's with majorities smaller than number of families who will be hit by the tax credit axe. Many Tory MP's also fail to see how this way of slashing the deficit fits with Porky Dave's claim to be the workers party. Recent research also shows that one in four workers in the UK are paid less than the living wage, up from one in five two years ago. The problem of low pay in the UK is becoming a major issue and changes to tax credits are going to make things a whole lot worse.
http://www.theguardian.com/politics/2015/oct/17/tory-mps-at-risk-tax-credits

The House Of Commons library has found that some families are in line to lose up to 3k a year!