Tax policies aren’t just about who gets what money

It sounds obvious to judge a set of tax proposals by who gets what money. But there are many other factors which should be included in judging fairness.

Our guest writer is Mark Pack of Mark Pack’s blog and co-editor of Liberal Democrat Voice

You judge a set of tax proposals by who gets what money. It sounds obvious, doesn’t it? Who could possibly object to that? Well, for a start – me.

The reason is highlighted by Will Straw’s analysis yesterday of the key policy goals laid down by Nick Clegg. Looking at the Liberal Democrat proposals to raise the basic threshold to £10,000 and so take millions out of the income tax system all together, Will judged it on the basis of who gets what in their pocket (or rather, a promise of a shortly to be published analysis of that). But that’s not the whole story.

There is a major benefit which doesn’t get counted in pounds and pence in your pocket from being taken out of the income tax system – if you are the sort of person who struggles to handle complicated bureaucracy, who moves in and out of jobs through the year, who doesn’t have the financial cushion to see them through while tax takes are adjusted and over/under payments come and go. Or indeed, if you’re the sort of person for whom all of that applies.

Among the millions who would be taken out of income tax all together with a £10,000 threshold are many who fall into those descriptions.

People who will benefit from having the hassle of struggling with the tax system lifted from them. People who will benefit from not having to worry about how tax is under or over-paid if they move between jobs or different pieces of part-time work. People who will benefit from not struggling to make ends meet because, while there is a tax adjustment coming down the line, they aren’t getting the money in their bank account right now. People who just don’t have the financial resources and bureaucratic experience to see themselves through dealing with an at times complicated, unforgiving and slow moving tax system.

Making bureaucracy simple for individuals is a much under-rated policy goal. Business and red-tape hogs the limelight in this respect – with the result that we end up with well intentioned policies such as the Office of the Public Guardian mired in over-complicated, expensive bureaucracy that turns what should be a great service for the most vulnerable in society into a service for those with money to spend on lawyers.

So when judging a tax policy – and above all, when judging it by the progressive yardstick – don’t just look at the theoretical implications. Look at the bureaucratic reality too.

9 Responses to “Tax policies aren’t just about who gets what money”

  1. House Of Twits

    RT @leftfootfwd Tax policies aren't just about who gets what money. The Lib Dems' policy has additional merits //cli.gs/0e9XW

  2. Mark Pack

    Guest post by me on Left Foot Forward: Tax policies aren’t just about who gets what money //bit.ly/dlv2Bf

  3. topsy_top20k_en

    Tax policies aren't just about who gets what money. The Lib Dems' policy has additional merits //cli.gs/0e9XW

  4. Sunder Katwala

    Mark makes some fair points. Ideas of “fairness” combines attitudes to need, to merit and to entitlement, and the Fabians have looked in depth at that.

    But I think we can agree some terms, can’t we? To be “progressive” tax changes need to do more in distributional terms for the relatively less well-off and are “regressive” if they do the opposite primarily benefit the relatively affluent. And an important test of the overall approach of the progressive parties (Labour, LibDem, Green) and of any other parties aspiring/claiming to be progressive is that their changes make the tax system overall more progressive, rather than more regressive.

    These aren’t the only considerations in making policy, but this matters – and it can be factually determined, analysed and referred by the IFS,ec.

    This is also one important fairness test of individual proposals from all of the parties. Eg, Labour’s 10p tax abolition was regressive. the Tory inheritance tax proposal and the marriage tax break are clearly regressive in their distributional consequences. Other arguments of fairness or merit can be made for them, though the marriage change offends other fairness instincts in discriminating against widowers, and in favour of John Terry, etc. And clearly nobody can or will abolish VAT, but its regressive feature is worth bearing in mind in terms of whether it would be the right tax to raise, etc.

    There may then be other considerations – such as those of convenience, stress, how it feels to be in one type of system rather than another (eg stigmatising/non-stigmatising issues around means-testing/universalism). These will be important, though can be less tangible and more contestable, and we can debate how far we would trade them off against distributional fairness. (EG, we have warned against a purely needs-based targetting which is too narrow, on grounds of stigma and non-sustainability over time, but that is to lock-in distributional fairness in the long-run).

    But the distributional analysis of tax changes is not theoretical but surely central to a progressive analysis, though you might want to add other considerations to it. When John Kampfner and others argue the LibDems have the most redistributionist platform, he must surely mean that in this distributional sense. He can not be relying only on non-financial elements of the tax changes, without stretching or losing any meaning of what redistribution means.

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