We here at the ASI have been arguing for many years now that the most absurd part of our income tax system is that people working part time on the minimum wage are inside the income tax system. We've been arguing it so loudly that something is about to happen:
None of the four main UK parties are proposing a tax cut package that would predominantly benefit low earners, the Resolution Foundation thinktank said on Monday.
A report analysing the impact of the main tax cuts being proposed by the Conservatives, Labour, the Liberal Democrats and the UK Independence party (Ukip) said they would not benefit nearly 5m low-paid employees who do not pay income tax.
Although it found the Labour and Lib Dem proposals were less regressive than the Conservative and Ukip ones, it said that the poorest 50% of households would only get a quarter of the overall benefits even under the fairer plans. The foundation said a more progressive approach would be to raise the national insurance threshold and to lift the work allowance within universal credit. Even though the government is running a deficit of nearly £100bn, all the main parties will be proposing tax cuts in their election manifestoes.
The Conservaties and the Lib Dems both want to raise the basic rate income tax threshold to £12,500. The Conservatives also want to lift the higher rate threshold to £50,000. Labour wants to introduce a 10p tax band. And Ukip wants to raise the basic rate threshold to £13,500, and to introduce a new 35p tax band for those earning between £47,000 and £61,000.
Three of those four proposals to raise that personal allowance come from us here. No, not directly (in one case, yes directly) necessarily but we can point to the Lib Dem we convinced and the path of the proposal through that party. And of course the Tories are just following on. Hurrah! etc.
That the idea, that if we want the working poor to have more money we should simply stop taxing them so much, has caught on is lovely. That it annoys the Resolution Foundation so much is just icing on the cake.
However, they do make one good point:
Kelly also said it would be fairer to prioritise raising the national insurance threshold, because this would benefit the 1.2m people who earn enough to pay national insurance but not enough to pay income tax (for which the threshold is higher).
Yep, raise that NI limit (including the employers' part) to again that full time, full year, minimum wage. Sure, it would be "expensive" if you take that horribly statist attitude that all money really belongs to the State and thus that not taxing it off people is a cost. But out here in the real world most people do get the basic idea. If there is some minimum amount that it is righteous and just (an idea we're not sure about ourselves) that the State insists people are paid then it is equally righteous and just that the State doesn't dip its fingers into those wallets getting that righteous and just minimum amount.
Or, as we've been saying for these long years now. If you want the working poor to have more money then stop taxing them so bloody much.