The Department for Work and Pensions has today released a report which strongly supports the principle of a flat tax and citizen’s basic income.
Well, it hasn’t done so explicitly. But its latest Tax Benefit Model Tables (big pdf) are the next best thing.
Here’s a question: Take a married couple with two children under 11 and pre-tax earnings of £200 a week. If they get a better job, raising their earnings to £300 a week, by how much does their net income rise?
£60? £50? £40?
Yes. £8.52. That’s a marginal deduction rate of 91.5 per cent.
The extra £100 this couple earns before taxes are swallowed up by higher income tax and National Insurance Contributions (£33); lower Working Tax Credits (£37) and less Housing Benefit (£19.50).
Higher earners face only slightly lower deduction rates. If a couple’s income rises from £500 to £600, they get to keep all of £23.45.
In the range £630-£710, the marginal tax rate drops to 23 per cent. But beyond then, it rises to 41 per cent.
Of course, things are different for different family types. But the fact remains. Marginal deduction rates for many people on lower earnings are horrifically high; 89.5 per cent for a single parent with one child earning less than £400 a week, for example.
For millions of people, it’s a bad idea to work harder.
Is this either economically efficient or a good thing for low earners?
Is this really the best tax system anyone can think of?