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May 18, 2007

Comments

dearieme

"Redistribution requires cuts in state spending": very likely. Apart from the self-interest of those who suck at the public teat, that presumably means that people of all political persuasions should be able to agree to cut state spending. How much agreement might there be on what to cut?

sanbikinoraion

Would a basic income help?

Mark Wadsworth

"Redistribution requires cuts in state spending"

Brilliant. It jumbles up two unrelated topics, but brilliant nonetheless. How many decades do you think it will take you to persuade "The Left" to adopt this as a mantra?

Matthew

I never understand this argument when you make it, as it seems weird to focus on the taxes, and not the spending that those taxes pay for.

If you do that, then the combined impact of the tax and benefit system is to raise income for the poorest 10% from £3,182 to £11,876, which is more than a three-fold increase. It raises the income share of the bottom 20% from 3% to 7%, and the next 20% from 7% to 12%.

Edd

For the poorest 10% the income increases from £4,250 before tax and benefits to £5,268 after. The Government's claims of redistribution look rather thin when of the £5,167 given in cash benefits 80% of it is taken back in direct and indirect taxes.

This suggests a need to look at the way redistribution takes place if there is a real desire to decrease inequality.

chris

Matthew - there's no doubt that benefits raise equality. But that's a separate fact from the question: how can we gather taxes to finance those benefits? All I'm saying is that the tax system, in itself, isn't egalitarian - a fact which the left, I'd have thought, would lament.

Matthew

But Chris, you're saying it means old labour policies are 'unworkable', by posing the question:

These figures raise a challenge for the traditional Left: how can we combine big government with income redistribution?

But of course the impact of the tax and benefit system is going to look bad if you only focus on taxes. Your question has a simple answer - with redistributive spending - and that is what happens.

The tax system clearly could be improved, but I'd say you're always going to have tobacco and alcohol taxes, and probably some kind of sales tax on other goods (which countries don't have them?). Thus for people who spend more than they earn, it's going to be a high proportion of their income. If the direct tax system mitigates this, and they receive more in cash benefits than they pay on excise duties and VAT then it doesn't seem to me too much of a crisis.


cerebus

You're assuming fiscal sanity. Focus groups reliably inform me we should cut taxes across the board, and ramp up redistributive spending, an option you ignore.

dsquared

[Matthew - there's no doubt that benefits raise equality. But that's a separate fact from the question: how can we gather taxes to finance those benefits? ]

But this is surely a non-problem? We are paying those benefits right now, so we're financing them out of the tax system as it is currently designed. Matthew is surely right here; if we rolled up all the cash benefits together and called them a tax credit then we could put the entire progressivity of the tax-and-benefit system into the tax system and this would have answered your question.

dsquared

Actually yes - looking at that table, if I abolished housing benefit and replaced it with "housing tax credit" I could wipe out the direct taxation of the lowest quintile entirely.

Luis Enrique

so, is it just a matter of accounting convention, and you could reclassify parts of the current system (replacing benefits with tax credits), to make the tax system look more redistributive, but essentially leave things unchanged - or is there something more substantive going on? I'm confused.

Jim

What Matthew said. But if really do want to increase the progressivity of the tax system, I'm surprised you didn't mention council tax. Income taxes for the poor are very low and indirect taxes difficult to tweak, but turning council tax into a proper property tax by levying it at a flat % of (regularly revalued / indexed) property value and increasing council tax benefit (or even abolishing the tax for social rented homes) would make a very big difference to overall progressivity.

Luis Enrique

Jim, if you happen to read this again - are comments on your blog buggered? I can never leave one, I just get an error (I would have emailed you, but couldn't see an address either).

Jim

Oh god, so they are. That might explain why I haven't had one in months. Thanks Luis!

(Er, you can probably delete these comments, Chris.)

john b

Abolishing council tax for social rented homes doesn't seem like a top-notch plan: the poorest of all are people renting from private landlords because they're on social housing wait-lists...

james C

'One possibility would be to reduce indirect taxes and raise income taxes. But this wasn't part of John McDonnell's campaign (pdf). And it would tend to reduce work incentives.'

Why would they be reduced?

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