Is this actually workable?

[sobrique]

I was thinking, that taxation and benefits is a complicated and convoluted subject.
The difficulty of balancing relaiming enough money that essential stuff can be done, and especially funding things like benefits, but at the same time allowing people to keep enough of their pay, that they can actually a) live and b) it's worth actually trying to find a well paid job.

Now. I know that any form of serious, hardcore reform of tax and benefits is fraught with pain. And y'know, unions, and people having tantrums.

Tax brackets, and tiered taxes are primarily because the differential on quality of living of a pound when you're on 5 thousand a year, is a lot lower than when you're on 50.

But what if:

Current benefits system is scrapped. Possibly even pension system too.
Henceforth, everyone with a national insurance number, gets paid a sum of money each week. Approximately the kind of sum needed for 'basic standard of living'.

Everyone is taxed, at a flat rate, on all income. No more VAT, no more capital gains, no more ... anything. Just income. Your pay, taxed once.

And that's it.

Set the taxation threshold to whatever's needed to support the system. This might actually be 30-40%. But, offsetting your tax/compensating for your 'allowance' at lower thresholds, will be this fixed sum each month.

If you're out of work for a while, you get a baseline income, which supports you. It'll encourage you back into work, because you never lose that 'free handout' - work 80 hours, and you still get 80 hours pay (less the tax of course) as well as your baseline.

Maybe implement something similar, for children, paid to parents. I wouldn't have thought necessarily the same amount though (IIRC child benefit and tax credits aren't quite the same value as unemployment benefit, but I honestly have no idea of the _actual_ value of either).

The only other taxation, should be things that have a knock on cost associated with them. Thus you might include tobacco taxation, because it presents a health risk, to subsidise the health service. Or you might up petroleum taxation, because miles driven increases wear and tear on the roads.

For those kinds of tax though, the money should go _directly_ to the place which they're notinonally earmarked for. None of this bull about how the NHS doesn't actually see the funding from increased alcohol or tobbaco taxation. (Although you might reasonable conclude that if drunken behaviour increases policing costs, as well as presenting a health service burden, revenues collected there would be split). And of course, they 're also cut if they're _not_ needed.

Now, if we leave aside the implicit difficulty in a large scale rejig of taxation and benefits systems, for what, 65million people, does this actually look remotely workable?

Comments

[mister-jack.livejournal.com]

"Henceforth, everyone with a national insurance number, gets paid a sum of money each week. Approximately the kind of sum needed for 'basic standard of living'."

It's called a Citizen's Income, it was on the Green Party manifesto for the last election.

[purp1e-magic.livejournal.com]

The Green party have some very sensible national policies. It's a shame they're unlikely to implement them.

[purp1e-magic.livejournal.com]

can only claim if you agreed to meet reasonable state demands

That goes against the spirit of what Ed is suggesting. You pay it out to everyone, regardless, but all you get is exactly what you need, and no more or less.

Now what I would do is set up a communist-style system, when everybody can go to freely obtain life's basics: dorms, healthy balanced meals 3 times a day, basic clothing, etc. Anyone who wants more than their rations, more flexibility, or wants better quality etc can go and buy them. Whatever more people need than that, eg those who are disabled, you provide physically. But money only comes from working or fulfilling a function. So carers, for example, get paid by the government for providing the care needed.

I agree there are a lot of issues with deciding what counts as income. I like the idea of one flat rate tax. But perhaps it should be based on expenditure rather than income?

[purp1e-magic.livejournal.com]

The relationship with the international economic community can be handled. It's a separate issue, and there are a number of things you could do. But taxing expenditure also evens out some of the inequality between the classes, lessens the gap. The more you have the more you can earn. But the more of what you earnt that you try to spend, the more you pay in tax. Again, there would be some tricky bits to make sure people get taxed when exporting money.

I think people who contribute to society should be rewarded. But I also believe that someone who is not a useful member of society should not be left to die, or be malnurished or out cold on the streets. There are sometimes good reasons people can't be useful, such as depression. If a person is depressed, they have serious motivation issues, and won't go and get the help they need. If they are forced to take action rather than starve then the long-term productivity of that person is far lower than if they are sustained at cost for a couple of years and allowed to progress normally.

There will always be people who try to take advantage of any system. The point with this is that it asks no questions. You are entitled to the same, no matter who you are and what your circumstances.

[sobrique.livejournal.com]

People take 'free handouts' from the benefits system at the moment. It's only 'unemployment support' in some cases - more often it's a bribe not not go theiving.

Putting it on VAT isn't a solution unfortunately - that does almost the opposite of what the tax brackets are intended to address - higher VAT hurts lower income more.

[sobrique.livejournal.com]

The problem we've got at the moment though, is we have the opposite effect - there's a point of pay, as your weekly hours increase, where you start losing benefits, essentially meaning you have to make a 'big' leap in payscale, to make it worthwhile.

Now, I have no doubt that you have an option for 'laziness' here, but ... well I know of quite a few cases of 'long term unemployed' which follow a similar mold today.

I just think it should be worth even putting a 'few' hours of work in, if that's all you can manage (or can be bothered with) rather than the current situation.

Now, you could perhaps bully lazy people, but then you have the whole convoluted mess of figuring out who's _actually_ lazy and just good at hiding it, vs. the people who are actively unable to find a job, or medically unable, or ... whatever.

There'd be no point in 'pretending' because you'd get that money regardless, and if you did actually go do a paper round, you'd get some _more_ money.

[purp1e-magic.livejournal.com]

What you've just set out, with minor variation, is roughly what was in place in England about 50 years ago. You paid national insurance, and that covered state pensions and NHS. VAT was payable only on certain luxury things for sensible reasons, and was not very much. You had duty on tobacco and alcohol, nominally as a detterent to antisocial behaviour and to recoup losses in the system that they caused (although others would argue that it was just the government trying to cash in on things they knew people wouldn't stop doing).

Your national insurance garunteed you an income, and everyone would be provided for. You still lost benefits as your income increased, and the catch 22 was one of the glitches that needed ironing out.

Unfortunately, this system has little to no flexibility for major economic changes. So when we started on the boom and bust trends and you had massive recessions and large-scale redundancies, the amount being earnt (and therefore the percentage of which was being paid in tax) was too small for the amount going out in benefits. Suddenly the government needed a lot of money, and needed not to be paying out quite so much. That's when you add poll tax, increase VAT and a whole lot else. It's also when you introduce job-seeker's allowance rather than income support.

The details of your system aren't quite the same, but I think you'd have similar problems.

[sobrique.livejournal.com]

Surely though, in that situation, you have exactly the same problem with unemployment benefit - more people not paying, and more people claiming?

[queex.livejournal.com]

Feasible, yes. Fair, no.

The rate of return on money invested goes up with the quantity you invest, for various reasons. A flat tax rate is some commentators' wet dream but it would actually widen the rich/poor divide.

That said, I've often thought a continuous function mapping income to income tax/dole would be a good idea, as it also avoids the thresholding issues.

[feanelwa.livejournal.com]

And you can hide large sums of money in e.g. property, overseas trust funds, much more easily than small sums of money, so the system would still be more easily cheated by the rich.

[sobrique.livejournal.com]

The current system is also easily cheated by the rich. There's so many loopholes and 'funds' and allowances in our tax system, that the 'rich' really don't pay anywhere near that upper tax bracket rate anyway.

But ... at the end of the day, no system will actually prevent people trying to manipulate it. Deduction at source is about the best way of achieving it.

[linamishima.livejournal.com]

The benefits system replacement, whereby everyone receives money, would be a bad idea. Rather than just enforcing a minimum level of income, it would also shift the overall average income up, which would have all kinds of effects on the economy and the poor/rich divide.

As for providing a similar system for children, the current child benefit and council housing rules in this regard are part of the problem some areas now face. The easiest route to housing is to pop out a child, and couples are actively being encouraged to do just that.

Handouts without work are a bad idea. Not only does it breed resentment in those who do work, but as you correctly point out, it also results in working for your money requiring more effort per pound. As someone who has been forced to collect JSA in the past, it also causes a loss of hope and the inactivity makes getting work increasingly hard. Whilst collecting benefits you are not gaining experience, which work would otherwise provide.

My own solution to the current benefits system would be to provide an income in a similar manner to at the moment (but simplify some parts and remove the necessity to burn small savings). However, to receive this money there is a requirement to attend a number of hours of assisting sessions per week. Choice over which sessions to attend should be left up to the claimant. Doctors' appointments, counciling and other talking therapies all count, and the benefits office actively helps in making sure these happen as needed (as rapid medical help restores people to work from incapacity benefit much sooner). Then there is CV training, confidence workshops, and numerous courses for learning new skills and qualifications.

All these sessions are open to all the public, not just benefits claimants (meaning everyone can benefit), however they would be income assessed for those in work. Means should be in place to allow companies to pay for these services for their employees.

The problem with the concept outlined above is that the short term costs are extremely high, requiring many skilled trainers to be employed and teaching rooms rented. The long term effects on the economy would be staggering, but governments are so concerned with re-election that only short term costs are ever considered.

As for taxation, I wholeheartedly agree with you with respect to making every tax equivalent to income tax. It's interesting to note that I'd much rather pay a local arts, entertainment and education income tax than pay for a TV licence.
However I do disagree with the idea of a single flat rate tax for everyone. A flat rate tax does not take into account the difference in effect on different income brackets. The effective cost to your personal finances of a meal out, for example, is less the more you earn. I can't find the words to describe what this means, unfortunately.

[sobrique.livejournal.com]

But... isn't this more or less what we have from our benefits system? I mean, 'pure capitalism' means work, or get no money.

We take a little more ... friendly an approach, and give money to those that do not currently work.

Handouts do breed a measure of resentment (in both directions I find) but ... well, the alternative isn't much better. This way, everyone gets their 'fixed rate' even if it does get soaked up in taxation again afterwards.

I had considered 'mandatory' employment by the state - if you're unemployed, the the state can require 40 hours a week from you, in return for your benefits. The idea being that that at least bring a margin of employability.

Flat rate taxation is primarily there to iron out the loopholes - the fixed payment is intended to substitute as your 'tax bracket' - At the moment, I think it's something like 0% up to 5000 ish, and 22% up to about 35k?

So if we were to pay 'unemployment' isn't that about £200/month?

Which'd mean that if the 'flat rate' tax was 24%, that'd work out as 0%. You could push up to a 35% tax rate, with 200/month in 'flat rate', and still be at very nearly the same amount paid on 10,000 income.

Those are just illustrative numbers, but the general aim was to set them such that you create a similar effect on the taxation system - lower incomes effectively pay less, both because it's the same percentage of a lower amount, and because the proportion that the 'fixed sum' represents is higher.

[cthulahoops.livejournal.com]

I ran some simplified numbers which give a qualitative view of this but don't take the numbers too seriously.

http://www.cthulahoops.org/tax.png

The solid line is the current system, the dotted line your proposed system.

The basic wage is a massive benefit to those on low earnings, while the flat rate tax is a massive benefit to those on high earnings. This is paid for by those on medium incomes, ie those of us who are taxed at the ~20% level on the majority of our income. (Assuming that the flat tax is higher than the lower band.)

I've always been a bit of a fan of the basic wage idea, though I have to wonder how affordable it is. The most interesting element to consider is that it would automatically help out with the student loan/grant issue.

I'm all for simplifying the tax system.

[jorune.livejournal.com]

You're stuck with the politics of the opinions of one part of society to another, the poor/rich can't be allowed to have that, it's unfair on the poor/rich.

A governing party is formed of a wide degree of interest groups who are to a lesser degree self supporting. This enables them to gather the supporter base to be voted in and to be funded.

There's always people in those interest groups who can find a way to spend more taxes, spend future taxes and plan more taxation on those areas of society they deem suitable, i.e. the poor/rich should be taxed this way. This is part of the price they charge for being in the winning interest group. If they can't get what they want for Party A then perhaps Party B will be more willing to help.

[stelas.livejournal.com]

Just whack the tax rate up to 25%, request loans until you rollover the interest rate to -1,000,000%, then when you're raking in millions a month set tax back to 0% and subsidise everyone.