Friday 15 June 2012

Something else which really pisses me off.

Janet Daley in The Telegraph highlights typical Tory muddled thinking:

In around six months’ time, £200 of unearned cash will plop into my bank account: an unsolicited gift from HM Treasury because, in spite of being a highly paid journalist, I am over 60 years old and therefore must be in need of a Winter Fuel Payment. This is clearly ridiculous. I would happily hand over my rights to this sum – as well as the value of my free prescriptions, eye tests and (unclaimed) bus pass – to those who actually need them. Perhaps more to the point, I would be particularly delighted to give them up in return for my daughters being allowed to keep the Child Benefit which the Chancellor has decided they can do without.

But what seems patently outrageous about these arrangements is precisely the fact that they are cash handouts: one is (and I am) receiving other people’s money. And ironically, it is money that has been mostly contributed by people like me – possibly even the same age as me – through tax. We are all paying in, and then we are all receiving dollops of money, or freebies. This is crazy. As Mr Duncan Smith has put it, "It’s rather daft to take tax off the middle classes and pay them a little bit back."


I do wonder how thick these people are. This sort of thing is actually very sensible. What is the point of taking away universal entitlements from the better off (as defined) if merely to fund tax cuts for the better off (as defined)?

Agreed, people don't like paying tax; but people do like claiming benefits. There are indeed some better off pensioners who genuinely say that they don't need the £200 Winter Fuel Allowance and would be happy to go without it, but I bet that most of these would gladly accept a £200 tax cut in lieu.

So let's imagine that the £200 Winter Fuel allowance were all-or-nothing. If your gross income is less than an arbitrary figure like £20,000, then you get it; and if your income is over £20,000 then you don't - but you can tick a box on your tax return to say that you'd like a £200 tax reduction instead.

Why is this system any different from just giving everybody the £200? Why do people think that the £200 tax reduction is "their" money but a £200 cash handout is "other people's money"? Doesn't Ms Daley herself [almost] say that she is getting her own money back? Would she really not tick that box and reduce her own tax bill by £200?

Or you could means-test the £200, so that for every £100 gross income a pensioner has in excess of an arbitrary figure like £15,000, the £200 cash allowance is reduced by £4. In which case, this just pushes up the marginal tax rate on pensioners with an income of between £15,000 and £20,000 to 24%, leading to a regressive tax system; pensioners with gross income above £20,000 would only pay 20% marginal.

Where people trip up is seeing the tax system (where the government takes money off you) and the welfare system (where the government gives you money) as two entirely separate things. They are not. They are quite clearly exactly the same thing, and yes, nearly everybody pays something and nearly everybody gets something but for most people there are transfers in each direction.

It would of course be much better, and would throw the issue into focus, if there were one single bureaucracy which dealt with the whole thing, then they could net off your entitlements and liabilities to give one single net figure to be either paid in tax or to be received in benefits or public-sector salary, and have done with it, in which case it would be perfectly clear that the £200 Winter Fuel Allowance is conceptually no different to the personal allowance for tax purposes, and I don't think anybody would complain if personal allowances were increased (even though higher earners would be better off if these were scrapped and tax rates reduced accordingly).

15 comments:

Anonymous said...

or a citizen's income, and adjust the income tax rates according to the desired "progressiveness". If it's truly a citizen's income then it solves the Tories' daily mail immigration problem too.

Mark Wadsworth said...

J, correct.

Lola said...

I think JD is basically trying to get there, but she just fails to take the final step. What is galling is that some considerable fraction of all this taxing and benefiting goes to millions of functionaries, who as you already point out are largely redundant if viewed from the perspective of a sane system.

Mark Wadsworth said...

JD, I don't think she'll ever get there, IDS is now heading firmly in the wrong direction as well, I've heard this argument time and time again from know-it-alls "Oh we're quite well off, so to be honest we don't need the child benefit, but I don't want it to be paid to single mothers either." which is the worst of all worlds as it needs to be monitored and rationed at both ends.

Lola said...

MW - Agreed. It's all this pointless bureaucracy in between. 'Of course' that makes the bureaucrats s much on benefits as everyone else...

Bayard said...

Public finance is full of such sillies: Government departments paying VAT, civil servants on PAYE, pensioners paying income tax on their state pension etc. At least civil servants have non-contributory "pensions", but I bet that will be phased out at some point. However, "it all makes work for the bureaucrat to do" and that, I suppose, is the point of it.

"Would she really not tick that box and reduce her own tax bill by £200?"
As I read the article, that's exactly what she's saying she ought to be able to do, but the government doesn't want us to be able to do that, it wants to tax us stealthily, so we don't notice, then give us the money back as cash, so that we feel grateful to them and vote for them at the next election.

Mark Wadsworth said...

L, no they're more on benefits because they get paid more.

B, those are more good examples. I just thought I'd explain it using a simple example like Winter Fuel Allowance.

And the point is that Janet Daley would feel MORE grateful about being able to tick the box and save £200 of her "own" cash than she would for getting a cheque in the post.

Lola said...

MW - Quite.

B. Since I consider all the state FS pension schemes as ponzi schemes (as they are currently run), it'd be no bad thing to shut them down. Personally I'd make all schemes money purchase, not by 'banning' FS Schemes (can't do 'banning') but by challenging them on the basis of their Ponzi qualities. FWIW I think you need to have state employees in money purchase schemes so it makes them have some skin in the game. Mind you you'd have to cap employer contributions somehow...

Bayard said...

"Personally I'd make all schemes money purchase"

As Mark has pointed out in a previous post, there just aren't enough investments to go round for everyone to have a money purchase pension. Non-contributory pensions make sense, as the government will always have enough money to pay the pensions when they come due, in exactly the same way that the government, amazingly, still doesn't carry any insurance, nor does the Queen, nor, I doubt, do people like Lord Rothschild or the Duke of Westminster; if you have the money to cover any eventuality, it's cheaper that way.
And anyway, non-contributory schemes aren't Ponzi schemes by definition, because the payouts cannot be being made from the contributions as there are no contributions.

Bayard said...

"And the point is that Janet Daley would feel MORE grateful about being able to tick the box and save £200 of her "own" cash than she would for getting a cheque in the post."

She probably would, since she's taken the trouble to write an article about it, but most wouldn't. Most of the electorate are happy to be bribed with their own money.

Mark Wadsworth said...

L, I'm with B on this one. The problem is the pension promises and the amounts paid out, far more than how they are funded.

B, but how is it bribing people with their own money?

I'm a higher rate taxpayer and I get Child Benefit. That's not me getting "other people's money" it's just a tax rebate. If they stop Child Benefit payments to higher rate taxpayers, I do not see that as a reduction in benefits (or a cut in the benefit bill) I see that as an increase in my tax bill.

And isn't giving people a tax cut still bribing them with their own money? The notion that a government should be popular because it generously "allows" people to keep more of their own money?

Sarton Bander said...

Young people apparently don't feel the cold.

Bayard said...

"B, but how is it bribing people with their own money?"

Because, unlike you, most people don't see taxpayers' money as "their" money. (In a way it isn't, because of the political disconnect between taxation and spending and the fact that £1Bn not spent on pointless foreign wars tends not to be £1Bn off taxation or even £1Bn off the national debt, but £1Bn wasted somewhere else, but that's another story). Child Benefit is different, in that it was designed, when socitey was differently ordered, to be removed from the father as taxes and handed to the mother as cash.

Derek said...

Janet Daley would be pleased with the system in Canada. Here most of us are overtaxed all year then receive a tax rebate after we submit a tax return. As a result nearly everyone eagerly submits a tax return.

One of the "universal" benefits available is a refund of the tax paid on season tickets for transport. It's not a big amount and only really makes a difference to people on low incomes but do the equivalents to JD claim it? You betcha. Because they think of it as a tax rebate rather than as a subsidy.

Angelic tax cut or Demonic handout? It's all in the way you spin it.

Lola said...

MW @ 11.29 - isn't that what a Ponzi scheme is?

I think what I am really saying is that the ambition to retire is being confused with the ambition for financial independence. In the case of the current State employee schemes financial independence at a relatively early age compared to those in private business is bought at the price of those in private business. A pension is a sort of insurance policy, in other words if you don't save enough by say age 65, then the state (in our case via LVT/CD) will provide you with an income. Furthermore, in a properly capitalist free market society prices would tend to fall and money hold its value. Currently 90% (I estimate) of the purpose of 'pension investing' is just to try and defend you from inflation (in the Austrian sense). In which there will be adequate quantity of 'investments' available to fund 'retirement/financial independence.