| The poverty level and tax |
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| Written by Tim Worstall | |
| Friday, 04 July 2008 | |
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Following on from Madsen's welcoming of the Joseph Rowntree Foundations report on the poverty level, one more thing that should be pointed out I think. Yes, we've got a figure for a single person of £13,400 a year: below that and they don't have the minimum level of both material goods and the ability to participate fully in society. Excellent: but it does need to be noted that this is a pre-tax figure. The report looks at what is necessary in disposable income and then upgrades that by the tax that would be paid to give us this total figure. Further, we might note that someone working full time on the minimum wage does not in fact earn this sum: so does that mean that said minimum wage should be raised? Leave aside for a moment all of the usual objections (true though they are) to such minimum wages and ponder just for a moment. What we desire to do is raise the disposable income to the level the Foundation says is needed and we can do that in one of two ways. We can increase the gross income or we can reduce the deductions made from that gross income. On £13,400 a year the total tax and NI bill is some £2,345 a year leaving a nett income of £11,055. Someone who works 37 hours a week for 52 weeks of the year (yes, they will get holiday pay) on the current minimum wage of £5.52 an hour will earn gross £10,620 (or on the higher wage coming in in October £11,024). They will then pay £1,483 (or £1609) in tax and NI on that sum. Now we can ask ourselves the interesting question. Why is it that those working full time on the minimum wage fall short of the amount the report states is necessary to live out of poverty? The answer that leaps out at me is that it's the tax system, stupid. That minimum wage worker earns gross, from October, £11,024 and this is as near as dangnit the £11,055 needed to live without poverty. So why on earth are we sucking 18% of the incomes of the poor off to pay for the exigencies of the State? Surely it would be better to simply change the tax systyem so that the poor were not paying in the first place? Strangely, I seem to remember that a think tank did suggest this, that we should raise the personal allowance to £12,000 or so. Might people start listening now? Comments (3)
Well said
written by JABITheW, July 04, 2008
Taxation of minimum wage is nonsensical. Either the minimum wage is the minimum needed for a reasonable standard for life, in which case why tax it, or it is *after tax* the minimum needed, in which case it surely makes more sense to remove the tax and lower the minimum wage. This of course leaves aside the likely solution that it's just set arbitrarily, as the tax bands are separately.
Every time the government raises minimum wage without raising the tax bands it is just voting itself more money.
tax policy and the 'poor' written by Charles D Quarles, July 05, 2008
With all due respect, Mr. Worstall, the 'poor' need to pay taxes too; unless you do not consider them to be citizens. Equality under G-d and before the law demands it. What should be done is lower the tax rate on everyone to the level that the 'poor' can afford to pay,. say 5% to 10% total, flat rate, no deductions and make it impossible for governments to increase that rate ever. Also, all business taxes and license fees above $10 per year should be eliminated, with licensing no longer being required to operate a business, craft, or occupation. Licensing should be like the Underwriter's Laboratory seal or other similar voluntary certification of quality.
The government must then be made to survive on the rest, with the police, immigration & customs enforcement, courts, armed forces, and the suppliers of the arms to the armed forces getting first dibs and having their share protected so that any cuts come from slashing bureaucrats, bureaucrat's pay, politician's pay, 'social services', and other things that are not the proper function of governments. If, then, governments must sell assets to pay their liabilities, then so be it. If, then, there may be people who are down and out, any assistance is supplied by churches and other charitable organizations or by private citizens doing so on their own time and with their own dime. Write comment
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I disagree with taking the poor out of tax. The more people experience the pain of a tax bill, the more they understand what their government is doing (i.e. pi$$ing most of it away).
What I propose is that enough money is given out as a basic income, so that the poor can then afford to pay some tax out of it. I know that it seems mad to pay people benefits, only to take it back in tax, but it will connect people with the tax system, one of the key parts of our society. Similarly I would make subsidised housing charge market rent and pay the tenant enough housing benefit to pay the high rent - then they will appreciate what they are actually getting. The poorest people do not understand that the government spends taxpayers' money - they are not tax payers, so they think it is all free and place more and more demand on the system. If everyone was a taxpayer, there might be clamour for low taxes by everyone.