Tax Credits

zagfles

setmefree2 wrote: »

Zagles I take your point but have lost track of where you stand on this issue. Going back to the bigger picture - which is the uncontrollable size of the welfare budget. In the seven years since the economic crisis began, the UK’s national debt has risen by more than £900 billion – more than doubling.

Why? It would seem the answer is the soaring welfare budget, which now funds widespread under-employment. More than half of households now take more money from the Government than they contribute leaving a minority of not overly rich taxpayers – working people as well – to fund the bill.

Surely you must agree that generous tax credits came about because Gordon Brown (however well intended) extravagantly overstretched the system and turned support away from being a safety net to a way of life for many?

The original system cost £4 billion in its first full year, reaching £30 billion in 2015. As former Labour Chancellor Alistair Darling has said tax credits were "subsidising lower wages in a way that was never intended". In contrast only 2 percent of welfare spending nowadays is given to those out of work.

Tax credits need to be reformed for numerous reasons not only because they are complicated and prone to error but because they encourage employers to keep wages low because they know the state will top up their wages bill; in effect they are being given a license to pay less. More importantly tax credits discourage recipients from working harder and longer hours for more pay so productivity and aspiration suffer. An example of this is a single parent with three children who works 16 hours a week on the minimum wage – earning them roughly £5,400 per year. Adding together child tax credit, working tax credit and support for childcare, he/she could receive an additional £23,885 a year. They would effectively receive around 80 per cent of their income via benefits. However there is little incentive to switch to a job working more than 16 hours a week. The tax credits drop sharply; net income increases more slowly and recipients can face a high marginal tax rate.

To put it into perspective in 2010, a staggering nine in ten families with children were eligible for tax credits, the last coalition government reduced it down to six in ten and with the current reforms it is hoped to reduce this further to five in ten. As has been discussed tax credits are not just paid to the lower percentages of income earners but right up the scale to the middle classes. This can’t be right.

So what's the alternative to cutting tax credits? Cutting the NHS, cutting working people’s pay by putting up taxes, or borrowing more and burdening our children with yet more debt.

Don't get me wrong, I'm not making an argument to keep or not to cut tax credits. And you're right about the disincentive to work. The recent sidetrack was just a reaction to the usual clueless "why should I support other peoples' children" whinge.

Personally I'd scrap tax credits completely and have a French style tax system, where non earners including children get a tax allowance they can use against the family income. This reduces MDRs on families rather than increases them, and being tax allowances, they also mean you have to earn money to take advantage of them. So the financial incentives to have children aren't aimed just at those on the lowest incomes.

zagfles

lisyloo wrote: »

Just playing devils advocate for a minute



What about the social issue of parents staying home to bring up their own children (no particular axe to grind, just debating).
If there aren't enough jobs to go around then doesn't it make sense to incentivise those people with children to stay home and let childless people take the work? I'm assuming we think parents spending time with their own children is a good thing.

I understand the budgetary constraints but if we take away tax credits it won't make there be more jobs to go around.
Why have single parents with 3 kids working all the hours god sends and other people getting depressed because they have nothing to do.
i.e. I'm asking what about the social aspects?

I don't think it's constructed perfectly and I do think there are some unintended consequences, but I'm not 100% convince that it's not a good idea to incentivise some people to not go to work on the assumption that there jsut isn't enough work for everyone.

Indeed - particularly when the govt subsidises childcare which can cost more than the wage the single parent brings in!

setmefree2

Add to that the perennial curse of government welfare programmes: they lend themselves to misuse. Wherever there is a universal entitlement available there will be ways of gaming the system. One particularly ingenious (and perfectly legal) way to become eligible for tax credits is to be self-employed but earn no profit on your business. By being a registered self-employed person who earns little or nothing, you are entitled to have your income supplemented by government both in the form of the Working Tax Credit and, if you have a family, Child Tax Credits. What, you may wonder, could be the point of continuing in such self-employment when it is earning nothing? Exactly this: were you to be unemployed, the new benefit rules would see to it that you were continually pressured into seeking work.

The local Job Centre would be calling you in for regular appointments, wanting to send you on interviews or training schemes and demanding to know how much effort you were making to find a job. But if you are unprofitably self-employed, nobody pesters you at all. In effect, your entire income is coming from the state without any of the hassle of being officially unemployed.

http://www.telegraph.co.uk/news/politics/georgeosborne/11967860/Theres-a-strong-moral-case-against-tax-credits-why-didnt-George-Osborne-make-it.html

Nuts.

Selling "The Big Issue" gets you classed as self-employed, which is why many people sell it apparently.

zagfles

setmefree2 wrote: »

Tony (& Cherie) Blair & Gordon Brown never thought SAHMs were a good thing. Whether this was for economic reasons - more workers makes for larger economies/ GDP - or ideological reasons - they just believed women should work - I never quite understood.

70% of tax credit recipients are women.

It really was a core New Labour ideology. They kept going on about "choice" but when you look at the speeches and the changes they made, it was only ever about the "choice" to live your life in the New Labour approved way.

If they wanted to subside childcare, then why not subside (arguably) the best form of childcare there is, ie a child being looked after by someone who loves them, rather than someone with a certificate doing it for the money. For instance by allowing a SAHP to use their tax allowance against the family income.

michaels

setmefree2 wrote: »

Tony (& Cherie) Blair & Gordon Brown never thought SAHMs were a good thing. Whether this was for economic reasons - more workers makes for larger economies/ GDP - or ideological reasons - they just believed women should work - I never quite understood.

70% of tax credit recipients are women.

If you socialise children's upbringing you can make sure that they are not taught anything that might lead them to question the politically correct consensus.

lisyloo

Add to that the perennial curse of government welfare programmes: they lend themselves to misuse.

Cynically, one might say they lend themselves to keeping the unemployment figures low.

Sapphire

lisyloo wrote: »

Cynically, one might say they lend themselves to keeping the unemployment figures low.

Well, it's all going to explode anyway before long. Too many human beings in ever-increasing numbers are going to destroy the planet, with the ever-greater demands on resources and destruction of the environment. Competition for such resources will bring war – that's what generally happens, except now the world population is much higher than it's ever been. It tends to be the strongest and most ruthless who survive under such circumstances._pale_

Looking at the history of the world, and the way people can start to behave to each other as soon as they feel threatened, doesn't fill me with optimism. Doesn't look as though we are going to colonise other planets in the near future, either. :think:

Oh, well… let's party. :T :j:beer:

CLAPTON

Sapphire wrote: »

Well, it's all going to explode anyway before long. Too many human beings in ever-increasing numbers are going to destroy the planet, with the ever-greater demands on resources and destruction of the environment. Competition for such resources will bring war – that's what generally happens, except now the world population is much higher than it's ever been. It tends to be the strongest and most ruthless who survive under such circumstances._pale_

Looking at the history of the world, and the way people can start to behave to each other as soon as they feel threatened, doesn't fill me with optimism. Doesn't look as though we are going to colonise other planets in the near future, either. :think:

Oh, well… let's party. :T :j:beer:

increasing population is certainly unwelcome and has, I'm sure caused wars.

However, there is every reason to think technology will solve many of the issues

try reading 'the rational optimist' by matt ridley ; even if you don't agree with him it's a good read.

Sapphire

CLAPTON wrote: »

increasing population is certainly unwelcome and has, I'm sure caused wars.

However, there is every reason to think technology will solve many of the issues

try reading 'the rational optimist' by matt ridley ; even if you don't agree with him it's a good read.

Thank you – I'll try to do that. However, I work on natural history texts (mostly written by experts who work in the field), which deal with various parts of the world, and what is happening to the world's forests and other habitats, and consequently animal life, is truly terrible and distressing. It is very much to do with constant increases in population, and I just don't know how technology could save the day.

I would like to be optimistic and believe that we are not heading towards something truly horrible, but the evidence around me (in various respects) does not point to this. I've actually had to stop reviewing the news – though I realise the media do try to exaggerate things and put a pessimistic slant on everything…:cool:

CLAPTON

Sapphire wrote: »

Thank you – I'll try to do that. However, I work on natural history texts (mostly written by experts who work in the field), which deal with various parts of the world, and what is happening to the world's forests and other habitats, and consequently animal life, is truly terrible and distressing. It is very much to do with constant increases in population, and I just don't know how technology could save the day.

I would like to be optimistic and believe that we are not heading towards something truly horrible, but the evidence around me (in various respects) does not point to this. I've actually had to stop reviewing the news – though I realise the media do try to exaggerate things and put a pessimistic slant on everything…:cool:

whilst I regret the population growth, we have had huge disruptions in the past ever since the first great pollution : virtual disappearance of the rain forests, huge clearance of forests for 10,000 years etc
we have the knowledge (but not yet the will) to undo much of the damage