Tax Credits

kinger101

CLAPTON wrote: »

on balance, and taking all things into account, do you think the current level of support of people working NMW is about right, too low or too high?

I'd say too high. In my opinion, it has become a subsidy for low wages, and is effectively state aid to corporations. As a taxpayer, I expect the deductions from my wages to be used to fund doctors, nurses, civil servants and even politicians. Not employees of Next and Tescos.

Also, if people are refusing additional work because the high level of claw back, then it implies that life (for some, at least) may to too comfortable on tax credits, and that it is providing more than a safety net. The default position as far as I'm concerned is that once children are of school age, both parents should be seeking full time employment (unless they already have sufficient of their own income that this is not needed). Something has gone wrong if this is now optional.

In the long run, it's not particularly doing the families a service either if they are subsidized into (relative) poverty. They're unlikely to get promoted if they continually refuse extra work, as they'll be seen as "bare minimum" types. And their children will grow up thinking the state owes them a living.

Mistermeaner

I wish people would bin this idea that tax credits = subsidy to business

We are all one way or another customers of these businesses , if they have to pay more in wages the increase in costs will be passed on to customers ie all of us.

Mistermeaner

Or think of it another way - if it was a subsidy and it was withdrawn would the businesses costs rise and profits fall? No is the answer (the workers would be poorer)

A subsidy is something that directly supports the business. Tax credits do not

kinger101

Mistermeaner wrote: »

I wish people would bin this idea that tax credits = subsidy to business

We are all one way or another customers of these businesses , if they have to pay more in wages the increase in costs will be passed on to customers ie all of us.

I'll stick with the idea. It's not as if these are loss making companies. There are alternatives to passing on the costs to customers, which they'll most likely take given the highly competitive nature of their businesses. Indeed, there are many companies paying the living wage that are doing just fine.

EDIT: This idea of a subsidy has even been accepted by Darling;

http://blogs.new.spectator.co.uk/2015/07/alistair-darling-why-i-changed-my-mind-on-tax-credits/

Mistermeaner

Or simply their workers will get paid the same, (but get less free money handed to them outside work) and there is no change to the cost base of the business

CLAPTON

kinger101 wrote: »

I'll stick with the idea. It's not as if these are loss making companies. There are alternatives to passing on the costs to customers, which they'll most likely take given the highly competitive nature of their businesses. Indeed, there are many companies paying the living wage that are doing just fine.

EDIT: This idea of a subsidy has even been accepted by Darling;

http://blogs.new.spectator.co.uk/2015/07/alistair-darling-why-i-changed-my-mind-on-tax-credits/

Interesting to quote Darling : some-one who freely admits he was wrong throughout the period he was in power.
He was wrong then and is wrong now.

There is no evidence or logical economic arguments that says the tax credits subsidise wages and Darling quotes none.

Companies will pay the going rate : if they can recruit easily for suitable people and retain their good workers, why would they pay more?
Unless there are other pressures (people boycotting or legal minimum wages) then why would any company increase salaries.

Rather than admit that the real problem, is that giving people an option of doing little work and still having a good income, he wants to see the issue as one of subsidising companies.

He should recognise the actual problem and not deflect the issue to company subsidy.

kinger101

CLAPTON wrote: »

Companies will pay the going rate : if they can recruit easily for suitable people and retain their good workers, why would they pay more?

Isn't the going rate the rate at which a workforce is willing to provide labour? If this isn't the same rate at which the employer remunerates the employee (because this rate has been artificially lowered by tax credits), isn't it acting as a subsidy.

To counter your argument about Darling's lack of evidence, has anyone come up with any conclusive proof that tax credits are not a wage subsidy. It's not simple to gather evidence for either argument, but I don't think any one side refute the argument as simply as that. Absence of evidence is not evidence of absence.

gadgetmind

Mistermeaner wrote: »

if they have to pay more in wages the increase in costs will be passed on to customers ie all of us.

That's fine. I have a choice regards who I buy from, which of their products I buy, and how much of them I consume, whereas I have little choice regards how much tax I pay.

Choice is good.

CLAPTON

kinger101 wrote: »

Isn't the going rate the rate at which a workforce is willing to provide labour? If this isn't the same rate at which the employer remunerates the employee (because this rate has been artificially lowered by tax credits), isn't it acting as a subsidy.

To counter your argument about Darling's lack of evidence, has anyone come up with any conclusive proof that tax credits are not a wage subsidy. It's not simple to gather evidence for either argument, but I don't think any one side refute the argument as simply as that. Absence of evidence is not evidence of absence.

yes the going rate is the rate at which suitable people are willing to work.

So let's say the tax credits were reduced.

Would people respond by not working at all ?
Unless unemployment benefits were very high then I can't see any logic that says people will respond to a reduction in income by further reducing their own income.

Maybe they could all live on savings for a while but I would doubt that they would have sufficient to hold out or that there would sufficient solidarity to do so.

kinger101

CLAPTON wrote: »

yes the going rate is the rate at which suitable people are willing to work.

So let's say the tax credits were reduced.

Would people respond by not working at all ?
Unless unemployment benefits were very high then I can't see any logic that says people will respond to a reduction in income by further reducing their own income.

Maybe they could all live on savings for a while but I would doubt that they would have sufficient to hold out or that there would sufficient solidarity to do so.

The new market rate (w/o tax credit) would establish over time. I think many workers are likely to be motivated to find better paying work if they suddenly get a drop in pay. They either need more hours or a higher hourly rate. If they find a new job, the employer then needs to fill the old one. If they can fill it at the existing pay rate, nothing changes. If they don't, they can't really offer the same one vacancy at a higher rate without increasing the pay of other employees in similar positions without falling foul of employment law. Eventually, they'll have too many vacant positions, and need to come up with a new market rate for the position.

Of course, none of this is happening in isolation, as the minimum wage is being increased. So the pay rates are increasing anyway. Osbourn could have easily got this though the Lords had he just revised the timings better (or even stuck it in a Finance Bill instead). But he didn't want anymore bad press.

There's an interesting article here on from the Economist highlighting a study that indicated that around one third of the tax credit benefited the employer.

http://www.economist.com/news/finance-and-economics/21656710-reducing-wage-subsidies-would-hurt-workers-more-their-employers-credit-where

Apparently, a similar study is being done for the UK, but they only have preliminary data.