Lib Dem tax policy “fails the fairness test”


Nick Clegg’s planned policy of “tax cuts for people and families on low and middle incomes” would be deeply regressive according to a detailed analysis by Tim Horton and Howard Reed for Left Foot Forward.

In December, the Liberal Democrats set out a policy to “raise the threshold at which people start paying income tax from current levels to £10,000″. They have made this policy one of four central “tests” for cooperation with a minority government in the event of a hung parliament and Nick Clegg has said:

“This will be a huge change to our society, to make the tax system fair. Offering real help – and hope – to millions of low income families. A vital step towards delivering real social justice for all.”

But a detailed report, ‘Think again, Nick! Why spending £17 billion to raise tax thresholds would not help the poorest’ (pdf) by Tim Horton and Howard Reed for Left Foot Forward shows that:

• the measure would do nothing to help the very poorest, who don’t have income large enough to pay tax;

only around £1 billion of the £17 billion cost (6 per cent) actually goes toward the stated aim of lifting low-income households out of tax;

• households in the second richest decile would gain on average four times the amount than those in the poorest decile; and

• the policy would increase socially damaging inequalities between the bottom and middle.

Horton and Reed conclude that:

“the Liberal Democrats’ proposed tax cut fails the fairness test.

“Spending £17 billion on increasing the personal allowance is a very poor way to help those on low incomes. It could actually harm the welfare of low-income households by increasing inequality and relative poverty.”

While debates about tax and spend will no doubt be animated at the Lib Dems’ conference in Birmingham, Left Foot Forward hopes that this factual analysis will assist the discussion.

Download the report by clicking here.

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  • http://twitter.com/nextleft/status/10396942793 Sunder Katwala

    RT @leftfootfwd: Lib Dem tax policy "fails the fairness test": only 6% goes to poorest families http://cli.gs/BynM9

  • http://twitter.com/duncanstott/status/10400910617 Duncan Stott

    Reading @leftfootfwd's case against raising personal allowance http://bit.ly/bCo4V4

  • http://twitter.com/firstincomes/status/10402166118 First Income

    Lib Dem tax policy "fails the fairness test" | Left Foot Forward http://bit.ly/9veG2B

  • http://twitter.com/tradeincomes/status/10402168045 Trade Income

    Lib Dem tax policy "fails the fairness test" | Left Foot Forward http://bit.ly/9veG2B

  • http://www.johnband.org/blog john b

    Things that the LFF report doesn’t contain:
    * any analysis at all of the impact on marginal tax rates (which are a key problem for the working poor in terms of disincentivisation)
    * any discussion at all of the enormous deadweight administration costs of the proposed alternative solution, tax credits
    * any discussion at all of the fact that tax credits are so complex that millions of people fail to claim them, as opposed to a simple, automatic cut in PAYE that would require no extra work for the individual in question

  • http://twitter.com/johnb78/status/10402345211 john band

    Not very impressed by @leftfootfwd's report attacking LD plans to raise tax allowance – see my comment at http://bit.ly/bCo4V4

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  • http://twitter.com/duncanstott/status/10402855869 Duncan Stott

    Who's our biggest personal allowance increase cheerleader? @alixmortimer? http://bit.ly/bCo4V4

  • http://twitter.com/nextleft/status/10409347551 Sunder Katwala

    @krishgm Why Lib Dem plan to raise tax thresholds increases inequality http://cli.gs/BynM9 … if you have LibDems on, this may be useful

  • topsy_top20k

    Lib Dem tax policy "fails the fairness test": only 6% goes to poorest families http://cli.gs/BynM9

  • Matthew

    Is there not an easy solution to this, which is to raise the personal allowance to £10k, but then increase the basic rate of income tax sufficiently to ensure higher rate taxpayers don’t gain? I can’t remember what the figures are but if we’re talking something like £3,500 extra on the allowance at whatever the basis rate is – 20%? – so every higher rate taxpayer is gaining £700, the basic rate needs to rise by something like 2% to offset this. This will also mean all basic rate taxpayers gaining.

    I sometimes wonder whether a much higher personal allowance will lead to a lot more tax avoidance, but I have no evidence for that.

  • Sunder Katwala

    John B

    Thanks for your comments and critique. I don’t think they address the central point of the paper – which was to assess the impact of the tax threshold change, and which shows that the threshold change is regressive. But they do they raise some interesting points about other parts of the tax and benefits system, outside of the LibDem proposal.

    (1) The critique of the LibDem proposal does not depend on any alternative use of the £17 billion it costs.

    If £17 billion is available to be used, then there are a limitless number of ways to deploy it, some of which might reduce relative poverty and inequality. The question for LibDems is really “what would you do with £17 billion”. If the best answer is “raise the tax threshold” then that is one major policy – perhaps the costliest any party will have – which isn’t going to reduce inequality or relative poverty. The suggestions of either public spending on pro-poor services, or spending on tax credits, are not exhaustive.

    (2) You make some criticisms of tax credits. But what is Liberal Democrat policy on tax credits? I am not an expert, and appreciate any corrections on detail, but here is my understanding.

    I think they are proposing that awards should be made for fixed periods of six months, to bring more stability to the system. This sounds to me a good idea, albeit a relatively minor reform, which is sensibly motivated. It could incur some additional costs (where people receieve more for longer), though it could mean some people having to wait longer for support when there was a significant adverse shift in their earnings (though in those cases it would be cheaper). But I don’t think it addresses your points about tax credits.

    I am not aware of other substantive proposals to change the distribution of tax credits from the party. I assume this is because Vince Cable, Steve Webb and others are very much aware that, while there are real issues in administration and complexity, these are massively outweighed by their enormous positive redistributionist effects.

    Without more significant changes to the benefits and tax credits system, the LibDem raised threshold will have relatively limited effect on issues like marginal tax and benefit withdrawal rates. (I will ask the authors about this: LFF might want to carry something about the detail of that as the discussion continues).

    Some others propose tax threshold changes in order to scrap the tax credit system. I stress is not LibDem policy, but is often advocated by right-wing commentatators. One would have to model the distributional impact of that change too. I don’t have the detail. It seems obvious from the distributional impact of tax credits that it would be massively regressive: it would dwarf the impact of the 10p tax rate abolition. It would also be politically very difficult.

    David Willetts made this point in 2005, in explaining his opposition to Maurice Saatchi’s proposals. At the time, he states that the £10,000 threshold would have cost £30 billion, because the threshold was then just under £5000. (It would now cost £12 billion less, because the nominal threshold is now much closer to £10k).

    http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article536372.ece

  • http://twitter.com/nextleft/status/10416409338 Sunder Katwala

    @johnb78 I have replied to yr critique (http://bit.ly/bCo4V4 ) on LibDem tax threshold & tax credits in the @leftfootfwd thread

  • http://fabulousblueporcupine.wordpress.com Alix

    Couple of quick points & I’ll read the PDF later, but I think I know what it’ll say. These are what Ben Goldacre calls zombie arguments. No matter how many times you knock them down, they always get up again.

    “• the measure would do nothing to help the very poorest, who don’t have income large enough to pay tax;”

    This is a dumb argument. It’s like saying “This is an apple and it doesn’t solve the banana shortage, therefore it’s a rubbish apple.” There are dozens of Lib Dem policies that “don’t help the very poorest who don’t earn enough to pay tax”, just like there are dozens of Labour policies that don’t – because they are about other things. This policy is about a fairer tax system. It does what it says on the tin. It will make the tax system fairer and flatter, and in the process it will offer the greatest proportional help to people who pay tax but are nonetheless on low pay.

    For people who don’t earn enough to pay tax, we have a little thing called a welfare state. And, coincidentally, the welfare state as constructed by Labour currently includes so-called “tax credits” paid over to households earning up to about £70k in some cases. As I’m sure you know another Lib Dem policy is to taper those tax credits. High-minded claims about Labour’s opponents failing to concentrate funds on the poorest are not well-founded.

    “• only around £1 billion of the £17 billion cost (6 per cent) actually goes toward the stated aim of lifting low-income households out of tax;”

    I’ve not checked your figures, but I imagine this and the next objection on your list are both “objections” because of the same errors of interpretation. One, you have reinterpreted the “stated aim” to suit your purposes. The stated aim is to make the tax system fairer. This has the *effect* of lifting low-earners out of poverty. Two, you are implicitly assuming that absolute gain is more important than proportionate gain. This can pretty easily be knocked on the head. £300 per year will make far more of a difference to someone earning £12k than someone earning £30k. And *everybody* earning £12k will feel that difference. Ignoring this simple truth suggests a disturbing lack of interest in people’s actual circumstances.

    “• households in the second richest decile would gain on average four times the amount than those in the poorest decile; and”

    Again, not read the report, but I take it this is just a restatement of point 1, that the lowest earners (up to £6k) won’t earn enough to benefit from the tax cut, and those earning between 6K and 10K will “only” benefit to the tune of 20% on that range. And they’re all in your poorest decile, so they’re dragging the average gain down. If this is what you’ve done, your statement is misleading to the point of sophistry. You were on far more respectable ground with just stating the figures. You have deliberately sought to give the impression with this statement that the policy is biased in favour of higher earners. Unimpressive.

    “• the policy would increase socially damaging inequalities between the bottom and middle.”

    Again, pending my reading of the report, this sounds like an assertion-masquerading-as-finding, and is essentially a rehash of points 1, 2 and 3.

    There *is* a debate to be had about the only point in which actual figures are quoted, i.e. point 2. This debate is largely about principle. The two questions are “Does absolute gain matter as much as proportionate gain?” and also “Should the tax system be fairer and flatter as a matter of principle?”. To which my answers are of course no and yes respectively, and accordingly, I don’t mind that the tax cut goes to everyone. It’s just a fairer tax system. I like fair tax systems. Your respective answers are yes and don’t care, so far as I can see. I note you haven’t mentioned at all the fact that this whole tax cut is being paid for by debarring access to tax breaks currently enjoyed by higher earners.

    So I think my overall responses is twofold.

    1. This is a liberal policy. Wherever possible I want people on low income lifted out of tax. I do not want them taxed and then given handouts. That is antithetical to me as a liberal. It also has nothing to do with the tax system. The tax system is the mechanism whereby government takes a due from people. The Liberal Democrat policy aims to alter in a revenue neutral way where that due falls. No-one should allow themselves to be bamboozled by Labour into thinking that benefits are part of the tax system. The fact that Labour has called some of its benefits “tax credits” does not make it so. They are not tax credits in any true sense of the term.

    2. Show me the money. What have you got to offer instead? You, meaning this website and the Labour party generally. Have you got a way of taking low-earners out of tax and not extending the same tax reduction to higher earners? Something like Matthew’s scheme (above) would work. You come up with that, iron out the complexities of collection to a convincing extent, find a way of arguing that it is fair and flat, push it through the Labour party using whatever mechanisms are available to you and then we can talk.

    Until then, I’m afraid the Lib Dems are offering to lift all earners >£10k out of tax altogether and make an enormous (and decreasing) proportionate difference to those earning over it.

  • http://fabulousblueporcupine.wordpress.com Alix

    Sorry, when I said “This has the *effect* of lifting low-earners out of poverty” I of course meant out of the tax system.

  • http://fabulousblueporcupine.wordpress.com Alix

    And furthermore…

    This tax policy was actually passed at last year’s conference. I would expect the big debate this year to be around the DEBill.

  • http://www.owenmeredith.co.uk Owen Meredith

    Alix makes some very good points. I haven’t read the full paper yet, but I will, but from the blog, comments and rebuttals, it seems you have looked at lifting the tax threshold as a policy in isolation to suit your views.

    I don’t believe anyone is usggesting that.

    If, for example, you increase the basic rate of tax to around 24/25% at the same time, all top rate tax payers would be about £180 worse off, everyone under about £28k would be better off on a scaled, and those earnering over £28k would pay between £1 and £180 more as the graduate towards the top tax rate.

    Soyou can lift the lowest eaners out of tax, without costing the Treasury a fortune!

    I explain this here: http://owenmeredith.blogspot.com/2009/10/promote-growth-cut-costs-give-more-to.html

  • Rob

    Some more footnotes and appendices in the report wouldn’t have gone amiss. At some point, details of a cut in individual income tax rates is transformed into an analysis of the impact on households, with little explanation of how this is done. I recognise that Landman Economics may have some intellectual property in their modelling, but it can’t be a hugely complex calculation, so it can’t hurt to explain how it was done, surely?

  • http://www.timworstall.com Tim Worstall

    Rob: the reason why they analyse it on a household basis is simple.

    The higher end of the houshold income distribution is dominated by two earner families. The lower end by one (and none).

    So by analysing a change in “individual” taxation as a change in “household” taxation you manage to get in a nice cheap shot. For of course higher income households get more benefit….they’ve got two allowances to play with not one.

    If you actually analysed a change in individual taxation on the basis of individual post tax incomes then much of what they’re complaining about here would go away.

    Which is, of course, why they’ve done it this way.

    Now they do have one line in there where they point out that the two allowance household gains more precisely because it is a two allowance household. But what makes the rest of their analysis meretricious is that they don’t explore the other implications of this……that the whole system of individual taxation is therefore regressive in exactly the same manner……that they most certainly would not support the idea of the household as the taxable unit….(nor would I but then I’m not complaining about the use of two allowances) and so on.

    And as to the basic point of the rise in the allowance (and I would note that the ASI has been shouting about this for years, UKIP has been suggesting it for years and I personally (and there’s most definitely an overlap between the three) would argue that the personal allowance should be the full year full time minimum wage for entirely moral reasons.

    Start from the beginninig:The Joseph Rowntree Trusts tells us that the people of this country think that £13,900 pre tax is required to be not living in poverty in the UK. That is £11,400 a year post tax.

    Full time (37.5 hour week, 52 weeks a year) minimum wage brings in £11,300. Hell, this is close enough for government work.

    If we say, for moral reasons, that those who work must not, by law, be paid less than the min wage, exactly the same moral reasoning insists that we should not be taxing said min wage to pay for outreach diversity advisors. Or SpAds. And if we are to say that no one working full time should be living in poverty then that again says, by the same moral reasoning, that we shouldn’t be taxing people earning under the amount needed to live not in poverty.

    Increasing the personal allowance is a moral isse….we can clean up the economics of tax raising after we’ve dealt with that.

    BTW, fun fact….as a result of fiscal drag recent governments (yes, Geo. Brown included) have been extending the income tax system ever further down the income scale. No one’s suggesting anything particularly radical here you know, only that the personal allowance should bear the same relationship to average wages as it did 20 or 30 years ago.

  • http://twitter.com/christineottery/status/10423477305 Christine Ottery

    RT @leftfootfwd: Lib Dem tax policy "fails the fairness test": only 6% goes to poorest families http://cli.gs/BynM9

  • Tim Horton

    Tim – the reason we analyse the figures at the household level is because that is the level at which you assess welfare. For example, the Duke of Westminster’s wife would not be in poverty if she had zero income. (I thought Tories like you understood the importance of families?)

    So we have not done it at the household level in order to ‘get’ these figures, but because that is the level at which welfare is meaningfully assessed. You might not like the results, but there you go. (As far as I know, no party is planning to change the basis on which the government assesses welfare and poverty.)

    Specifically, the analysis has been done over ‘equivalised’ household incomes, that is, adjusted to take the composition of households into account – such as number of children, pensioners etc.

    The distributional gradient therefore also reflects the pattern of characteristics like this across the population (the same technique used by organisations like the Tresury and the Institute for Fiscal Studies).

  • http://www.flickr.com/photos/billy_blofeld/ Billy Blofeld

    You guys at LFF will appreciate this ;-)

    The Guardian reading spider…

  • http://fabulousblueporcupine.wordpress.com Alix

    And I still say your entire argument is tautologous. Your graph shows that households (whether double or single earner) who pay more tax stand to gain more from a tax break (up until £40k per earner). Well, yes. You want to up welfare as a separate exercise, up it. This is a tax policy which aims to flatten out the tax system.

    Owen, I like your scheme for its simplicity, but in an ideal world I would not tamper with the base rate because it’s a bit of a blunt instrument. Part of the point of this tax reform in particular and Lib Dem tax reform in general is that economically productive work should be penalised less and wealth more. That is why I like the idea of interventions like removing the double relief on pensions enjoyed by higher rate taxpayers. By paying in those sums to their pensions, they are explicitly acknowledging that they earn enough in proportion to their circumstances to not need to keep it all in circulation; they are hoarding it instead. A high-earner, on the other hand, who happens to have 17 children and two sick parents (to take it to reductio ad absurdam) may well use all their income and hoard none of it. Even the rather clunky Mansion Tax is a more precise way of targetting accumulated wealth than moving the base rate around.

  • Mr. Sensible

    Will, I’m not sure I understand.

  • http://twitter.com/nextleft/status/10428449917 Sunder Katwala

    A very detailed discussion on @LeftFootFwd re the paper on regressive effects of LibDem tax plans http://bit.ly/bCo4V4

  • http://twitter.com/wesstreeting/status/10428511288 Wes Streeting

    RT @nextleft A very detailed discussion on @LeftFootFwd re the paper on regressive effects of LibDem tax plans http://bit.ly/bCo4V4 <- !!!

  • http://twitter.com/bencooper86/status/10428648382 Ben Cooper

    RT @nextleft: A very detailed discussion on @LeftFootFwd re the paper on regressive effects of LibDem tax plans http://bit.ly/bCo4V4

  • http://twitter.com/bevaniteellie/status/10428660211 Ellie Gellard

    wins headline test, but fails the fairness one. @LeftFootFwd on regressive effects of LibDem tax plans http://bit.ly/bCo4V4

  • http://twitter.com/nextleft/status/10428869181 Sunder Katwala

    RT @BevaniteEllie: wins headline test, but fails the fairness one. @LeftFootFwd on regressive effects of LibDem tax plans http://bit.ly/bCo4V4

  • http://twitter.com/ewannic/status/10428971619 Ewan Nicholas

    RT @BevaniteEllie: wins headline test, but fails the fairness one. @LeftFootFwd on regressive effects of LibDem tax plans http://bit.ly/bCo4V4

  • http://fabulousblueporcupine.wordpress.com Alix

    The definition of regressive taxation is taxation that falls disproportionately on lower earners. Raising the personal allowance reduces the current level of disproportionality. It makes the taxation system less regressive.

    What definition of regressive are you using?

  • Sunder Katwala

    I asked co-author Howard Reed if he had any response to the point about marginal tax rates, and whether the LibDem threshold proposal does anything about this. He says:

    “The assessment criteria for tax credits are completely separate from the assessment for income tax – the current tax credit system is assessed on gross incomes so the cut in income tax does not take anyone out of the tax credit eligibility (as their GROSS income is unchanged, it’s their net income which changes. It does of course take people below £10,000 gross income out of the income tax system but the PAYE side of this is mostly done automatically anyway – there is very little admin hassle from the point of view of the employees who are being taxed”.

    While there is probably a separate case for simplifying the tax credit system and making it easier to claim, the simplification arguments that some people are making are complete red herrings”.

  • http://twitter.com/robbierb/status/10432316268 Robbie Erbmann

    RT @nextleft: A very detailed discussion on @LeftFootFwd re the paper on regressive effects of LibDem tax plans http://bit.ly/bCo4V4

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  • Sunder Katwala

    I suggest that LibDems arguing against a household analysis ask Steve Webb and/or the Institute of Fiscal Studies whether is the main and long established basis for analysing poverty, inequality and distributional impact of tax changes across society, and report back to us on what they say.

    Owen Meredith,

    We have analysed the current LibDem policy proposal which they will take into the General Election. This is what they are proposing. There is no suggestion at all that the party will increase the basic rate to offset the gains higher up the income range than those earning £10k.

    Were they to do so, they would have a less expensive policy, and it would be focused on taking those earning less than 10k out of tax.

  • http://fabulousblueporcupine.wordpress.com Alix

    “I suggest that LibDems arguing against a household analysis”

    Eh? You’ll have to look to Tim Worstall for someone arguing against a household-based analysis, and last time I checked he was not a Lib Dem. If you’re talking about me, I was simply pointing out a basic truth. I said:

    “Your graph shows that households (whether double or single earner) who pay more tax stand to gain more from a tax break (up until £40k per earner). Well, yes.”

    Nothing factually incorrect in there. The graph is a great illustration of how tautologous your overall point is. You’re standing there shouting that households who pay more tax stand to benefit more from a tax break, and expecting it to mean something. It doesn’t, it’s just a fact. You want to give low earners extra help, you up their benefits. This is a tax reform. Your argument is tautologous because you persist in confusing the tax system with the benefits system.

    “We have analysed the current LibDem policy proposal which they will take into the General Election. This is what they are proposing. There is no suggestion at all that the party will increase the basic rate to offset the gains higher up the income range than those earning £10k.”

    Erm. You haven’t analysed it very well, then. And by “analyse” I mean “read the relevant policy papers”. The original proposal (2006/07) was to introduce green taxes on pollution, reform CGT and shutting down particular tax breaks for the wealthy, reform notably getting rid of the double relief on pension payments enjoyed by higher rate taxpayers. The aim at that time was to lower the basic rate, which I did not consider progressive enough (and I said so on CiF). Fortunately, the party saw the merit of my proposal (!) and ditched the basic rate cut in favour of raising the personal allowance.

    The proposed savings mentioned above nonetheless remained, and remain, in place to pay for it. If you do not understand this, I suspect it arises from a simple ignorance of how the Lib Dems construct policy. Once a policy is passed by conference, it is party policy until it is replaced by another, or superceded by events. Members of parties with a more fast and loose grasp of internal democracy tend to not get this. In this instance, the CGT reform was superceded by Brown’s shocking axing of the Lawson system in order to curry favour with the wealthy. Both the green taxes and the restrictions on pension relief remain party policy and for my money the latter is one of the most important strands of reform.

    In addition to that, the Mansion Tax was in fact initially floated as a way of paying for raising the personal allowance (so, in fact, forget the policy papers, you’ve not even read the news reports! Sheesh.) Now, the mansion tax is clunky, like I said. But it’s a tax on accumulated chunks of wealth, and if it’s used to pay for tax breaks on economically productive activity, especially when the greatest proportionate beneficiaries are the lower earners – well, I’m all for it, on every level. I don’t understand why you’re not.

    So, why have you omitted pension relief reform and the Mansion Tax from your analysis? Is it because they would fall on the rich and inconveniently disprove your partisan point? If you are in earnest, I’m sure you will want to issue an immediate correction to your “research”.

  • http://www.order-order.com Guido Fawkes

    Fabians in “tax cut doesn’t help non-taxpayers” shock discovery.

  • Sunder Katwala

    Alix,

    Not sure if you had read the paper after your earlier post. Section 3.14 (p13-14) does discuss the distributional impact of the whole LibDem package: this would retain the regressive gradient across the bottom nine deciles, while the top decile would lose income. It is of course possible to raise those resources from the top decile using the other proposed policies, and it is a separate decision as to choose what to do with that.

  • http://fabulousblueporcupine.wordpress.com Alix

    Again, I don’t understand your use of the term “regressive”, Sunder. People paying more tax in the first place will, obviously, stand to benefit more from a tax cut. So they look “better off” on your graph. You cannot give higher tax cuts to people who do not pay tax. (You can give them more benefits – but that is a different thing. This is an income tax break.) For this proposal to be “regressive” it would have to *actively favour* higher earners over lower earners. It does not. It taxes higher earners (over £40k) in order to pay for tax breaks for lower earners. Your bottom nine deciles are – I am assuming – made up of people who earn 40K (being the higher rate threshold) or under in various permutations. All of them get some help as a result of this proposal. The lowest earners in taxable bands get proportionately the most help of all (and I notice no-one has taken my proportionality point on board, which is a shame as I think this is where the true ideological difference lies).

  • http://fabulousblueporcupine.wordpress.com Alix

    “We have analysed the current LibDem policy proposal which they will take into the General Election. This is what they are proposing.”

    I remain interested in why you did not mention the mansion tax, pension relief reform or green taxes in the course of making this point (even if only to dismiss them as insignificant). You had every opportunity to do so. Why not? Again, did it interfere with the overall message of “regressive tax” you wished to convey?

  • rob tennant

    I think Alix has shown up this “shocking report” for what it is – an attempt to discredit the Lib Dems on what is, to anyone not blinded by partisan ties, their strongest policy. “does nothing to help those who don’t pay tax” – durrrr, it’s supposed to help those who do pay tax, not all of whom are rich! you’ve really let the side down, Sunder – and I expected better of you, Will. The only reason Labour is attacking the Lib Dems on this is because they didn’t think of it first.

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  • http://twitter.com/richardwatts01/status/10442643004 Richard Watts

    Yet more reasons why progressives should not vote for the Lib Dems: http://bit.ly/9KPWKf

  • Matthew

    I know it’s been said, but “Rob: the reason why they analyse it on a household basis is simple” is utterly idiotiarian. Income has been assessed on a houshold basis for decades, if not longer, simply because it’s the most obvious unit in which to do so.

    I think Alix makes some good arguments, but they aren’t conclusive. The reason one considers taxation policy with expenditure and with income distribtion measures is because they are all about money – raising the personal allowance by 3,500k directly means you can’t spend the money on, say, housing benefit. Alix is right that whether someone on 9,000 pays income tax or not is a moral issue, but wrong insofar that there’s no obviously liberal answer.

  • Matthew

    Sorry, it is a moral issue, but it’s not morally obvious it’s a bad or good idea.

  • http://twitter.com/benbedesurtees/status/10459849709 Ben Surtees

    fabians attack lower taxes for the low paid – http://cli.gs/BynM9

  • Sunder Katwala

    * The objection to a household analysis: can anybody point me to Institute of Fiscal Studies analysis of tax changes which doesn’t do this?

    * On the partisanship point:
    – we are confident that the modelling is accurate. So it is not in the power of the authors to decide what the distributional impact will be.
    – can it be a bad thing for policy and public debate for such evidence to be in the public domain? Perhaps the LibDems’ political opponents don’t want to draw attention to the scale of the middle-class tax cut for higher earners; the LibDems have not emphasised the £17 billion cost of the policy. Everybody can take their view as to whether it is good or bad.

    – Guido Fawkes is in favour of the policy, because he wants to see middle-class tax cuts and is happy that they are larger “Middle earners pay disproportionately more tax after all”. He argues this because he is philosophically in favour of flatter taxes (perhaps a flat tax). This is one idea of “fairness” on the libertarian right: it would be fairer to pay the same rate, so you pay more tax, but not a higher rate at higher incomes. The argument for progressive taxes (banded rates) is opposed to this:, based on higher earners having more disposable income and ability to pay.

    – The Fabians have a long record of detailed analysis of tax plans, since the Fabian Tax Commission in 2000. Labour’s flagship proposal in 2001 and 2005 was pledging not to increase the upper rate. We produced evidence and arguments against it, and advised Blair to drop it. By contrast, we praised the LibDems on the 50p rate. When Labour emulated much of Osborne’s policy on inheritance tax in 2007, we published critically on that. We then advocated freezing the thresholds last year, and that was adopted.

    The Fabians have consistently analysed and argued positions based on their distributional impact, not on which party is proposing them.

  • Sunder Katwala

    The charge of not mentioning the other proposals: “I remain interested in why you did not mention the mansion tax, pension relief reform or green taxes in the course of making this point (even if only to dismiss them as insignificant). You had every opportunity to do so. Why not? Again, did it interfere with the overall message of “regressive tax” you wished to convey?

    ===
    This falls on the grounds that the paper does discuss the other proposals: both page 4 and section 3.14 (p13-14)

  • http://fabulousblueporcupine.wordpress.com Alix

    “- we are confident that the modelling is accurate. So it is not in the power of the authors to decide what the distributional impact will be.”

    You still don’t get it. No-one’s querying your numbers. What’s wrong is your basic premise that a tax cut should behave like a benefit. You can’t make a tax cut do that. It’s a tax cut, designed to make the tax system fairer and flatter. To say it’s “regressive” is simply untrue – regressive would be, for example, lowering the basic rate but getting rid of the 10p tax band, which actually made the poorest worse off. Your graph just reflects the fact that the lower down the deciles households fall, the less tax they will be paying in the first place. I just don’t know how to put this any more simply.

  • http://fabulousblueporcupine.wordpress.com Alix

    Sunder, I get that the paper discussed the proposals. I was asking why you didn’t, right there, in that sentence I quoted. Seemed an odd omission is all.