Home Economics It's not right to make the poorest pay tax

It’s not right to make the poorest pay tax

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In the Telegraph is this claim:

We have created a weird, through-the-looking-glass tax system where a tiny number of the highest earners have paid most of the bills and a bare majority paid a little bit, but for close on half the population the Government, the welfare state and the health service have all been essentially “free”.

That was a serious mistake. By constantly taking people out of the tax net, successive chancellors removed any link between what the government does and what you have to pay for it. Why not vote for more and more state spending, higher public sector salaries, more generous pensions, lavish infrastructure projects, and endless bail-outs if you won’t be expected to meet any of the bills?

This is a moral vileness. This part is not so much wrong as incomplete:

In effect, Sunak is bringing to an end one of the key policies of the Cameron-Osborne era. Raising the basic rate threshold well ahead of the rate of inflation was imposed on the Coalition government by the Lib Dems – remember them? – as the most efficient way of reducing the tax paid by the poorest.

It was the CPS that convinced Osborne, it was me that convinced the Lib Dems. I even know the name of the individual I convinced who get it made into policy with Clegg.

The actual point being the following.

We have a minimum wage. Perhaps we shouldn’t, I don;t think so, but we do. The only justification for a minimum wage is that there is some minimum amount that an hour of labour is worth. Without that justification there is no justification.

So, here’s what we’ve, societally even if wrongly, decided an hour of labour is worth. £8.91 for labour sourced from someone 23 years or older.

So, why does that now get clipped to pay for diversity advisers? We’ve just said that it’s immoral to have it clipped to pay for profits, or HR power skirts, or internal to the workplace diversity advisers. So, it’s immoral to have it clipped for external to the workplace diversity advisers, isn’t it?

That means that the personal allowance should be £17,374.50 this year given that minimum wage and a 37.5 hour work week. Anything less than that is an immoral clipping of the minimum value of labour.

That was actually the argument made way back when. Which is why the current personal allowance is £12,500, because that’s what the full year, full time, minimum wage was back in 2008/09 when the argument was being made and accepted.

You can be against the very idea of a minimum wage, as I am. You can indeed argue that poor folks should pay for the upper middle classes in the state apparatus. But the argument that there should be a minimum wage and also that it should be taxed fails. Because the only justification for a minimum wage is the same reason it should not be taxed – that’s the minimum labour is morally worth.

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7 COMMENTS

  1. Disagree.
    Democracy fails if too many of the people voting don’t have to pay for their decisions.

    If that means setting a minimum wage high enough that the initial post-tax amount is what it now is, then so be it.
    The vital thing is that anyone voting for MORETAX gets hit in the take-home pay.

    But it’s angels on a pin really. Government mandated minimum pay is a stupid idea. The work is either worth that amount or it isn’t. If it is, no brain-dead politico is needed to say so, the market decides. If it isn’t, the job will be done by a machine (or a sweat shop worker abroad and the result imported).
    Either way, a mandated minimum wage is irrelevant: except for a brief transition period while the jobs are offshored or automated.

  2. I agree with Tim. There is such a thing as a free lunch in a welfare state, but in the long run, that lunch will prove not to be all that satisfying.
    In a society where there is income tax, it matters not what the rates are, or even what the relative rates are. What matters is that everyone is in the same boat. If taxes rise, they have to rise for everyone.
    Frankly, the NHS costs too much, but it’s a fantastic bargain if it is free. And for a majority of the population, it’s either free or very nearly free. There’s a small minority to whom it doesn’t matter what it costs, as they go private anyway. The people who pay over the odds for it are there jammed in the middle. If everyone paid exactly what it costs, then that would be the end of the ‘envy of the world’ bullshit.

  3. The disconnect between tax and gov.spend starts with PAYE; now if HMRC had to come knocking on doors week-in, week-out we might see a change in attitude.

    PS.
    How much should a self-employed person charge for their time? A rule-of-thumb is an hourly rate 1/1,000 of what you expect to make in a year, or a daily rate 1/100 of the desired annual income. By that reckoning the minimum wage would yield less than £9,000 pa.

  4. @djc,

    That’s very much a rule of thumb.

    Suppose that the notionally self-employed person works a 52 week year in which he/she doesn’t work weekends: that’s 104 days off the 365. Then, there are (I think) 8 statutory holidays, and they’ll need some vacation, which I might be another 10 for 2 weeks. That leaves 233 days. At 7.5 hours per day, it will be more than 1000 hours – 1747.5 to be precise. The question now is how much do they have to earn to cover on-costs like premises, heating and lighting, phone and internet, assistants (who might be chargeable in respect of fees or they might not), insurances, transport, stationery, computers and a whole lot else. Then there’s income tax – hard to calculate, but for the self-employed a lot of things are offsettable. But I don’t know if your calculation was based on a gross or nett. Then, of course, you might not fill every hour with fee-earning work.

    However, it looks to me that the hourly rate for someone self-employed needs to be rather more than 1/1000th of what you hope to make in a year, perhaps 1/500th.

    Someone on the minimum wage doesn’t have those costs, but then they can’t set much off against tax. I suspect that they have to work more than 7.5 hours a day as well. But, to work around 1750 hours doesn’t give them much of a living standard at the minimum wage.

    Other than me niggling about the details, your point is well made.

    • “However, it looks to me that the hourly rate for someone self-employed needs to be rather more than 1/1000th of what you hope to make in a year, perhaps 1/500th.”

      I think there is a confusion or at least ambiguity in ‘more’ rather than less there or perhaps multiplication rather than division.

      Anyway, yes there are potentially ~233 working days or ~1700 working hours in a year, but not all of those are chargeable, There is the time taken by touting for business and providing estimates —if everyone wants three quotes for a job then only one in three quotes can lead to chargeable work. Then there is time needed to keep the books, training and certification, sick days, days lost because not everything happens on schedule, breakdowns, repairs, remedial work… All in all, though a plumber may require a minimum £50 for to change a tap washer it is probably unfair to assume he is a higher rate taxpayer.

  5. Redefine (and increase) minimum wage to include a pittance for income tax so that everyone is aware, no matter how dimly, that someone has to pay for the “gifts” of government. The poverty industry in the US has taken a couple generations but has now successfully disassociated the entitlements from any sense of knowledge or responsibility.

  6. The poor pay on general net negative tax, I don’t think it is unreasonable that they make a small contribution to government services (and I am sure that health for example costs more than diversity advisers)

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expunct

in British English
expunct (ɪkˈspʌŋkt)
VERB (transitive)
1. to delete or erase; blot out; obliterate
2. to wipe out or destroy

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