Child benefit, ideology & bias

The coalition’s plan to cut child benefit for 40% tax rate payers seems to have run into confusion. Which raises the obvious question: why bother? If you want richer folk to bear a bigger share of austerity, why not simply raise the 40% rate by 2p, and raise its starting point a little, which would bring in the same £1bn as the removal of child benefit.

Such a scheme would avoid the horizontal inequity whereby a household getting £80,000 split evenly between two earners would keep child benefit whilst a single-earner household on £45,000 would lose it. It would also avoid the problem of enormous marginal tax rates for people who get a small pay rise that puts them into the 40% band. It would also allow the government to boast about taking people out of the top tax bracket, and be administratively simpler.

So why not do this, rather than faff around with child benefit?

Some might say it’s because the coalition wants to attack the principle of universal benefits. But I’ve another theory. It’s about framing.

Tax is a burden - theft if you’re a libertarian - whereas child benefit is, well, a benefit. And it’s more comfortable - for the government and its target voters - to withdraw a benefit than to increase a burden.  So we have a messy policy rather than a neat one, even though the effects are overall pretty similar.

Which brings me to my problem. Cameron has a behavioural insight team which hopes to manipulate our cognitive biases to make us behave better. But cognitive biases aren’t something which ignorant citizens have and which wise governments are free of. Policy-makers are also prone to them - either because they are as irrational as everyone else or because they have to pander to an irrational electorate. One of my big complaints against Nudge is that it fails to appreciate this sufficiently, and so panders to the ideological fiction that policy-making is or can be entirely rational and evidence-based.

Comments

[Tony]

for genuine libertarians,tax, except for pretty limited uses is worse than theft, it's forced labour and forced labour is slavery!
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[Mark Wadsworth]

Agreed. Another idea was instead of having a parallel system of means testing for Child Benefit, just scrap ChB completely and add it to child tax credits and withdraw it that way (a terrible idea, but at least does not add to administrative costs).

PS taxation of incomes is probably theft, but taxation of land rental values most certainly is not, because collecting rents is theft in the first place.

[Jim]

Um, why should I pay more tax so middle class people with kids can go on getting child benefit? If you just raise the 40p rate/adjust allowances everyone pays more not just the ones with kids.

[Lickyalips]

Stop all Foreign Aid - simples.

[Keith]

Why worry what libertarians think about Tax, they are stupid as the above contributions illustrate. Tax is not slavery but the price people pay for living in a civilised society. Libertarians immagine they can enjoy the fruits of social order and end one of social orders necessary foundations. And Jim being a Tory must agree with his leader Mr. Cameron that we are all in it together in a "big society" which is why he should help middle class people with the costs of their children. They are the future citizens and workers so their welfare is something we all have an interest in promoting. Simples as they say. As Chris has illustrated this policy of the Government is a mess. Which is what you get with the muddle headed Tory libertarian inability to grasp simple ideas as irrational vituperation gets in the way.

[Jim]

Dear Keith, I already help all classes support their kids. I pay taxes that pay for maternity hospitals, midwives, health visitors, pre school care, schooling from age 5 to 18 (and beyond). Also benefits paid to single mothers, and tax credits to families, and child benefit to everyone. All things that directly benefit me zero, having no children. Last tax year I paid more in income taxes than the average income. So forgive me if I'm a little reticent to pay even more.

[UnlearningEcon]

Chris,

I don't think this is a problem with 'nudge' per se, I think it's just a problem with policymakers and cognitive biases. The idea of 'well policymakers are irrational too' just stems from neoclassical bizzare-o world of governments versus markets. Nobody suggests safety engineers need to be invulnerable.

Keith,

You are conceding too much ground with the 'price we pay for society' line. Even post tax, income is higher than without taxes (and by extension society).

[Mat]

"And Jim being a Tory must agree with his leader Mr. Cameron"

Seriously?

[gastro george]

I'm kind of amused that some of the middle classes are finding out the reality of high marginal tax rates because of the withdrawal of means-tested benefits. Something the poor know only too well.

If only they realised it.

[Adam]

Where did this figure of one billion saved come from?

It's wrong, see page 14 of the published spending review costing. The saving is estimated at 2.5 billion a year.

http://cdn.hm-treasury.gov.uk/sr2010_policycostings.pdf

The one billion was reported on the bbc - but I think they just made it up.

[Neil]

I'm with Jim on this. Under Cameron's policy, 40k+ earners no longer get a subsidy (which they don't need), so their net after-tax-and-benefits income falls by the value of the subsidy.

Under Chris's plan 40k+ earners without kids pay 2% more, and the extra money raised by this goes to 40k+ earners with kids, who keep the subsidy, part of which is offset by their own increased taxes.

This isn't robbing the rich to pay the poor, it's robbing one set of rich people to pay another.

[George Hallam]

@ jim

"I already help all classes support their kids. I pay taxes that pay for [list] All things that directly benefit me zero, having no children."

???

But tomorrow, when you are old, perhaps you will the need of some mother's son or daughter to help you into an ambulance, etc.

Yesterday, when you were born, you benefitted from the contributions of older generations. But of course you were too young to remember that.

[Jim]

@George Hallam: I didn't say I wasn't prepared to help pay for all those things I listed, I merely said I considered I paid more than enough already.

Anyone who has children can avail themselves of the free maternity care,education and cash benefits that the State provides for children, however much money they earn, and tax they pay. They get something back right now. Plus they get the next generation to care for them in their old age. I just get the latter. Ergo I'm paying more than my fair share to maintain the next generation right now, and I don't see why I should pay even more than that in the future.