Sorry Libdems, Labour has made taxes fairer


2:36 pm - April 12th 2010

by Sunder Katwala    


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Nobody could seriously argue with the Institute of Fiscal Studies on the distributional impact of Labour 1997-2010, in showing that Labour’s changes to the tax and benefits system have been strongly progressive.

So how does Nick Clegg stand the IFS analysis on its head to claim the opposite this morning? He claims to have “damning evidence that after 13 years they have failed to deliver fair taxes. Despite everything they said in 1997, life has got harder for people at the bottom and easier for people at the top”.

It would appear that he does so by excluding tax credits from his tax analysis, which enables him to turn the IFS’ comprehensive analysis upside down.

But I was surprised that The Guardian reported the Clegg claim at face value, without noting either the Institute of Fiscal Studies analysis or the tax credits point.

The Guardian did report the IFS findings a fortnight ago.

But this also raises the issue of why Labour has not done more to argue for and communicate the distributional impact of tax credits.

***

Of course, tax credits are widely disparaged as both complex and pointless, particuarly by senior journalists and national politicians, whose incomes are mostly above those of the families which benefit from them. So how often do you see it claimed that they ‘take with one hand and give away with the other’?

This is simply wrong. Don’t take that from me; take it instead from the evidence-based Tory frontbencher David Wilett. He wrote shortly after the 2005 election, offering a persuasive rebuttal of Maurice Saatchi’s argument that tax fairness was best pursued by raising income tax thresholds.

While other LibDems proposals raise revenue at the top, it remains valid to argue that the £17 billion threshold plan would increase inequality between the bottom and the middle, and would increase relative poverty. (That will not concern libertarians like Guido Fawkes who think relative poverty is meaningless, but it might well matter to social liberals, who do not).

After the election campaign, I hope LibDem advocates of a higher income tax threshold will revisit the question of different methods by which the party could propose to cut taxes at the bottom, which might better meet their party’s fairness goals.

We have published the extract of the Fabian Solidarity Society book which compares the distributional impact of tax cuts, threshold rises replacing the tax threshold with a flat-rate rebate and a universal tax credit. I hope that analysis will help to inform progressive debate in different parties beyond this election campaign.

——
longer version at Next Left

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About the author
Sunder Katwala is a regular contributor to Liberal Conspiracy. He is the director of British Future, a think-tank addressing identity and integration, migration and opportunity. He was formerly secretary-general of the Fabian Society.
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Story Filed Under: Blog ,Economy ,Equality ,Labour party ,Libdems ,Westminster

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Reader comments


I was going to point out how hypocritical it is for you of all people to point all this out, but it seems you’re quite happy to continue with your failed analysis of Lib Dem tax policy in this very article. What a lovely merry-go-round of misrepresentation we’re all involved in.

Sorry, this is incoherent. Elections seem to be having a Kryptonite effect on your usual dispassionate analysis 🙁

Nobody could seriously argue with the Institute of Fiscal Studies on the distributional impact of Labour 1997-2010, in showing that Labour’s changes to the tax and benefits system have been strongly progressive.

So how does Nick Clegg stand the IFS analysis on its head to claim the opposite this morning? He claims to have “damning evidence that after 13 years they have failed to deliver fair taxes. Despite everything they said in 1997, life has got harder for people at the bottom and easier for people at the top”.

Labour’s changes have been progressive, but they haven’t necessarily been progressive enough. Inequality has continued to rise. Now, it may have risen much less than it would have in the counter-factual scenario of a Tory victory in 1997, but that doesn’t make Clegg’s statement false. Life has got harder at the bottom and easier at the top; Labour have ameliorated the worst effects but no more than that.

Giles Wilkes explained this here on LibCon a couple of weeks ago:

Brown did not increase this gap. The gap increased. There is a difference.

Clegg isn’t saying that Brown made the gap bigger. He’s saying that he hasn’t done enough to reduce it.

“It would appear that he does so by excluding tax credits from his tax analysis, which enables him to turn the IFS’ comprehensive analysis upside down.”

If he’s carrying out a tax analysis, he should exclude tax credits. Despite the name, they’ve got nothing to do with tax. They’re a benefit. Clegg’s quite right when he says “After 13 years Labour have failed to deliver fairer taxes” because they have. You might as well claim “Labour have made the tax system fairer by increasing unemployment benefit”.

What you should be saying is “Labour may not have made taxes fairer, in fact they’ve actually made them less fair, but their distributional impact is net good because of what they’ve also done with benefits.”

Then we can have an honest argument about whether benefits are better than just not paying tax in the first place.

“That will not concern libertarians like Guido Fawkes who think relative poverty is meaningless, but it might well matter to social liberals, who do not”

What an odd statement. Social liberals are usually thought of as those who are liberal (ie, liberty loving) on matters such as what you toot and who you root and how you do so.

There’s nothing in social liberalism that then goes on to talk about inequality (which is what relative poverty is).

There is certainly left liberalism that does concern itself with inequality, and there are left liberals who are socially liberal just as there are such who are not. There are also social democrats who are rather left liberals in another guise.

So while there’s an overlap between social liberals and those who concern themselves with inequality it isn’t a defining feature of social liberalism to be so.

I for example am most definitely a social liberal (as well as an economic liberal and even a classical liberal) but as is well known around here I don’t worry overmuch about inequality.

5. Sunder Katwala

Rob@2 – Your statement is perfectly reasonable. Clegg was however critiquing Labour’s tax decisions, not the overall distributional impact. And his claim to deal with this by the tax threshold issue misses out

Lee Griffin – Of course LibDems can defend their policy passionately. Some of the arguments against it are about policy choices and priorities – of the do we really have £17 billion, and would you put this first – which are simply differences of choice. The point that it would be necessary to mitigate the impact through other policies since this will increase relative poverty and the bottom-middle gap, surely stands, whatever is being done at the top (though several of those policies – like air taxes, avoidance measures – have never I think been described in sufficient detail to calculate their impacts).

We’ve been over these issues several times. I would be interested in your response to the final Solidarity Society link – which makes a generic point about the effects of using tax thresholds more generically. If the LibDems decided they wanted to take people “out of tax” at the bottom, why not move over time (post the campaign) to proposing a flat-rate rebate of the same value as the threshold change? It would be useful and important to have a mechanism for progressive tax cuts – for example, for use in stimulus programmes, etc – and especially if we now have one centre-left party which wants to create a coherent tax fairness and lower tax/spending agenda.

TimW – I am referring to the social liberals who have formed the Social Liberal Forum, so using their term of choice. You can fight them for the label if you want, or call them left liberals. But i was not referring to general liberalism on social question: sorry for any confusion

6. Sunder Katwala

orphaned sentence … misses out Willetts’ argument, which was cogently put.

These are his 2005 figures, but the general structure of the argument remains valid:

“It is true that poor people pay a shockingly high amount of tax. The richest 20 per cent of households lose 35 per cent of their incomes in tax. The poorest 20 per cent of households lose 37.9 per cent of their incomes in tax. In fact the poorest 20 per cent pay a higher proportion of their incomes in tax than any other slice of the population. No one seriously planned for this bizarre outcome.

But the tax that poor people pay isn’t income tax. The poorest 20 per cent of households sacrifice 28.5 per cent of their income in indirect tax, of which the biggest single item is VAT. All direct taxes take 9.5 per cent and of this the biggest item is council tax, which takes 4.6 per cent. Income tax, taking 3.5 per cent of their income, is responsible for less than one tenth of the taxes paid by the poorest fifth of households”.

Clegg today was particularly keen to focus on the bottom 20% of households.

“Clegg was however critiquing Labour’s tax decisions, not the overall distributional impact.”

Indeed. Which (at the risk of labouring this) would seem to undermine your whole point. Labour’s “tax decisions” do not include “tax credits” just because the latter are misnamed benefits. Clegg is right not to include them in a critique of Labour’s tax decisions.

8. George W Potter

What Rob said.

I think you’re quite right as regards VAT, mind. One of the good things about all the posturing from all sides over who’s going to promise not to raise VAT is that it has actually put that option on the table.

But since your good points are buried under several paragraphs of misinformation, which are your main communication focus when twittering at the press as you did this morning, it’s a little difficult to take your invitation to “progressive debate” seriously.

Sunder @5:

Rob@2 – Your statement is perfectly reasonable. Clegg was however critiquing Labour’s tax decisions, not the overall distributional impact.

I’m still not sure what you’re objecting to. Clegg says that Labour has scope to change the tax system to make it more progressive and has not done so – and the Lib Dems will. What’s wrong with this?

The title of your post is “Sorry Libdems, Labour has made taxes fairer”. But the Lib Dem position is not that Labour have made taxes less fair, they just haven’t increased the fairness by enough. You then quote Nick Clegg saying something perfectly acceptable and react as though he said something else entirely. He made a very simple point, that inequality has increased under Labour despite Labour’s efforts, and this tells us that more needs to be done. Do you disagree with this?

You keep making a point about tax credits, but I struggle to see how this proves anything Clegg has said wrong. At best, you can say that he’s right about the facts and – in your opinion – wrong about how to address them. Clegg isn’t advocating scrapping tax credits and introducing tax cuts instead, he’s proposing increasing taxes on the wealthiest and cutting taxes on the poor and middle-income. That is clearly a progressive policy, and the attack on Labour for not being as progressive as they could be clearly still stands.

Your position can be that the Lib Dem policies aren’t progressive enough either, but then you also have to accept that Labour’s policies aren’t progressive enough, which sort-of undermines the attack on Clegg in your post. It seems that you and Clegg should be agreeing that Labour needs to be more progressive and the disagreement is about the mechanism used.

We clearly have a difference of opinion on the usefulness of taxing only to give it back to people Sunder. The difference is that I’m not sitting around misrepresenting the other side’s stance because of a heavily weighted pre-bias in applying benefits to the analysis of tax as if they are intertwined. They are not.

This argument that moving the bottom threshold for tax upward doesn’t target the poor and that only a proportion of the tax foregone ends up in the pockets of the poorest is a red herring.

That is true only if you leave the other thresholds where they are and all the benefits as they are. In fact, you could move all the other thresholds downward and have a really good long look at all the benefits available to households up to and beyond median earnings.

The effect could be engineered to be very positive for those at the bottom, negative for those at the top and not very important for those in the middle. The fiscal impact would thus be small but it would make the simple simpler to administrate, more transparent and visibly fairer.

Naturally, that is a complex matter and it would take a good deal of hard work at the Treasury and the DWP but it is certainly doable.

To react as though the LibDems are irresponsible even to raise the matter is childish

13. Sunder Katwala

Lee@11

The non-partisan Institute of Fiscal Studies have now produced a detailed response to the Liberal Democrats’ claims today.
“The Liberal Democrats have, once again, claimed that the poor pay more of their income in tax than the rich, and that this gap has got larger under Labour. But, by ignoring the fact that the poor get most of this income from the state in benefit and tax credit payments, and by overstating the extent to which indirect taxes are paid by the poor, this comparison is meaningless at best and misleading at worst”. The detailed points are well worth reading.

The IFS also promise a full distributional analysis when the LibDem manifesto is published
http://www.ifs.org.uk/publications/4813

Personally, I admire many things about the Liberal Democrats. They are another centre-left party, and I think they are often excellent on civil liberties, political reform and the environment. Personally, I find them weaker on issues on barriers to equal opportunity, employment rights and power, and on redistribution between the bottom and the middle, though they have often helped to open up debates about inequality between the middle and the top in a very good way. My own view is that Labour and the LibDems’ differences often reflect issues where one side can usefully challenge the other, both ways around, which is why we frequently invite Liberal Democrats to speak at our events, take Labour politicians to LibDem conferences, etc.

But the “taxing to give it back to people” point – which is very common – simply misreports the distributional impacts of tax credits: again a point made strongly, clearly and accurately by David Willetts. He pointed out that – were it true – it would be easy to simply ditch tax credits, but that it is not the case. Which is why the LibDems propose only very minor changes to the tax credits system, and are not seeking to replace it with their threshold change.

It certainly is worth reading:

“The underlying figures come from the Office for National Statistics, and are not in dispute. As the Liberal Democrats say, in 2007-08, the poorest fifth of households had a gross annual income of £11,105 on average, and paid £4,302 a year in tax, a ratio of 38.7%. Meanwhile, at the other end of the scale, the richest fifth of households had an average gross annual income of £74,247, and paid £25,926 in tax, on average, a ratio of 34.9%. (See Table 1 of this article).

The first key point to note is that benefits and tax credits account for £6,453 of the £11,105 average gross income of the poorest fifth of households. Their original income – in other words, private income from sources such as earnings, private pensions and investments, but not that from benefits and tax credits – was an average of £4,651. So the poorest fifth of households were clearly net beneficiaries from the tax and benefit system, to the tune of £2,151 a year, on average. At the other end of the scale, the richest fifth of households received £1,666 a year in income from the state, and so they are net contributors to the Government’s coffers, to the tune of £24,259 a year, on average.”

But the Lib Dems aren’t disputing that the poorest 20% are “net beneficiaries”. They’re saying their taxes haven’t got fairer, which is demonstrably true from the ONS figures. The net beneficiary effect, laudable though it is, has got nothing to do with the tax system (and anyway hasn’t been enough to stop the inequality gap growing regardless).

Further down is where the strange assumption slips in:

“The combined impact of the tax and benefit system on the distribution of income seems much more enlightening than the impact of the tax system alone when talking about fairness.”

So basically, they are completely ignoring the avowed aim, which is to make the tax system itself fairer and setting up a different goal for the policy, one which could only be met by an entirely different policy about the benefits system.

Labour (for that is what you guys are at the moment) now opposed to “the middle”, i.e. ordinary people, becoming better-off, even at the cost of the wealthiest, because it doesn’t always help a bottom group of people. Labour would prefer it if the middle did not become wealthier at the expense of the wealthiest because we should all become wealthier at the speed of the poorest, i.e. not very fast. This is devolving into real 1980s territory, guys, so enjoy your spell of dominance in the party.

16. Stuart White

I think Sunder is absolutely right at 13 to say that ‘Labour and the LibDems’ differences often reflect issues where one side can usefully challenge the other, both ways around…’

Labour has lots to learn on civil liberties from the Lib Dems. I suspect I am not the only Labour party member who groaned when s/he read in the party’s manifesto today ‘We are proud of our record on civil liberties…’

On the other hand, spending £17 bn right now on a tax cut which gives most of its benefit to the top 50% in the income distribution (as the Fabian report showed) does not sound very progressive. Though, I suspect, it isn’t meant to be ‘progressive’ – I think its meant to be an eye-catcher of a policy to hold and attract votes from the Tories so as to see their challenge off in some constituencies and cudgel Labour from the right in other constituencies….

I suspect I am not the only Labour party member who groaned when s/he read in the party’s manifesto today ‘We are proud of our record on civil liberties…’

All else being equal, that’s exactly why no-one should vote Labour.

“On the other hand, spending £17 bn right now on a tax cut which gives most of its benefit to the top 50% in the income distribution”

More ignoring of where the £17bn is raised occurs…and in an article about someone complaining about someone not taking enough relevant detail in to account….

“Which is why the LibDems propose only very minor changes to the tax credits system, and are not seeking to replace it with their threshold change.”

Which is what people like me have been saying all along, the benefits system is still going to be in place along side the threshold change, in fact it’s potentially going to be better in that the rich will have their ability to claim tax credits curbed. So we have a net effect of taking money away from the rich, taking benefits away from the rich, giving the poorest earners in the country an almost tax free wage, keeping their benefits. Yet this is consistently described as regressive by people like you because you only want to look at the threshold change in tax, wrongly so, and then you come on here and cry about a leader not taking more in to account.

But the thing is, as Alix points out, Clegg only talks about the fairness in the tax system. If you take him purely on what he’s talking about he’s absolutely right. You on the other hand have made an argument out of half a policy because that suits your argument more than looking at the whole picture. It’s actually pretty disgraceful in my eyes, but you’re clearly not afraid of bending the truth for your own political gain.

I also read the IFS report earlier, and it’s no wonder you like it, as it makes up terminology on the hoof.

@ Stuart White at 16:

The Fabian Society analysis was very odd, because it ignored where the £17bn are being raised from (such horrendously regressive changes as putting capital gains tax rates equal to income tax rates, which would see them hitting 40% for higher rate taxpayers, and the mansion tax on houses worth more than £2m).

See Danny Alexander’s article on Left Foot Forward: http://www.leftfootforward.org/2010/03/lib-dems-our-tax-plans-are-fair-and-progressive/

20. Sunder Katwala

Lee and Niklas

Nobody can accuse the IFS of having a partisan motivation – and they have said they will look at the broad impact of the LibDem manifesto, and indeed all of the manifestos.

I don’t myself see why (in the longer term post this campaign) Liberal Democrats should not look at other methods for reducing taxes at the bottom: I would be interested in any responses to the Solidarity Society analysis on this (see Extract link) which is not about the specific LibDem proposal.
http://www.fabians.org.uk/publications-news/tax-fairness

“Yet this is consistently described as regressive by people like you because you only want to look at the threshold change in tax, wrongly so, and then you come on here and cry about a leader not taking more in to account.”

Oh, Good Grief, can’t we get this right?

Sunder and associated Fabians are not actually interested in what is the actual distribution of tax cuts, tax raising, or even incomes. They’re interested purely in these things being determined from the centre, by the State, by Sunder and associated Fabians.

Absolutely the worst result possible would be that the Good Society could result from people not being subject to the ministrations of Sunder and associated Fabians. For if that were so there would be no political or social power for Sunder and associated Fabians, would there?

This is the Great Split between classical liberals like myself and those who follow in the Webbs’ foorsteps. Sure, I want the lives of the poor to be better: and part of exactly that making them better is that the opinions of people like myself about how those lives, in detail, will be better is an irrelevance. So I argue for simple cash transfers (like a cbi) and let them get on with making their lives better as they see fit. And I’ll get on with making my life better as I see fit.

But Sunder and associated Fabians don’t want this. They want that the poors’ lives should be better as Sunder and associated Fabians see fit. Which is why they react in such horror to the thought that instead of taxing the poor then handing back some of that tax to only those who do what Sunder and associated Fabians see fit we should simply give the poor money without strings.

Because, see, Sunder’s from that pervasive English tradition of aristocracy. We know what’s good for the poor better than the poor themselves know what’s good for the poor. Only those who think and act the correct way should get the ladle of soup from the tureen as the more educated and enlightened deign to patronise them.

Yes, I have had a beer. Why do you ask? In Vino Veritas after all.

22. Sunder Katwala

Hi Tim

glad to be able to become part of said pervasive English aristocratic traditions: hope for us all.


Good to see Paxo must follow the blogosphere closely, in that he took this tax threshold issue up with Clegg, who I thought did well. my quick thoughts here
http://www.nextleft.org/2010/04/on-cleggpaxman-good-performance-but-not.html

I would also claim defending universalism on child benefit with Steve Webb as a good example of constructive cross-party dialogue, which was so successful last Autumn that Nick Clegg was pretending tonight in his interview that the debate didn’t happen at all!

Sunder, can we straighten this out? As I see it, we have four possible scenarios:

1) The status quo, Labour government. Notwithstanding Brown’s pledge of “relentless reform“, we can presumably assume that the status quo is, after 13 years, pretty close how Labour wants things to be. We have tax credits which have helped the poorest and have definitely ameliorated the rises in inequality that otherwise would have taken place in the last decade, albeit not entirely.

2) A counter-factual Tory continuity after 1997, in which tax credits don’t exist and no other measures were taken. Inequality is considerably higher than it is now, and the poor still get lumbered with high proportions of their spending going on tax.

3) The Lib Dem proposals – essentially similar to #1 but with extra taxes on the wealthiest and lower taxes on the poorest and middle (which – correct me if I’m wrong here – makes it more progressive than the status quo).

4) The Fabian policy – even more progressive than #3 by dint of eschewing tax cuts in favour of higher levels of tax credits to the poorest.

Now, I find a lot to like about #4; tax credits have their flaws, but the heart of the idea is in the right place (a universal grant such as a Citizen’s Basic Income would be closer to ideal, in my view).

As I understand it, the order of “progressiveness” as applied to the above four scenarios is this: 4 > 3 > 1 > 2 (where the highest is the most progressive). On that basis, if we want progressiveness we should support scenario #4. However, there is no political party advocating #4, so we’re left with a choice between the first three. The next-most progressive policy is surely #3, yet that’s the one that you’re choosing to disagree with, whilst also implicitly endorsing scenario #1 (at least that’s how the original post reads; the comments are a bit more nuanced). You defend Labour’s record but surely you and Nick Clegg both agree that Labour hasn’t gone far enough. In which case why are you making a point of defending Labour’s record against Clegg’s criticism, when it’s one that you would share yourself? It just smells like tribal party politics.

Yes, Clegg’s analysis focuses on tax rather than tax credits. But he’s still promising to do more to put money in the pockets of those in the bottom decile than the Labour party. The fact that the Fabians would do even more is still no defence of Labour, unless you know something about Labour’s post-election plans that the rest of us don’t, and that weren’t in the manifesto today. The Lib Dem policy is a downwardly redistributionist policy, from the wealthiest to the rest of us. You can come out strongly against this if you really want to, but I think most of us are going to have a hard time understanding why, especially as no other political party is offering a better alternative.

Sunder: I’m not saying the IFS is partisan, I’m saying they’re wrong for trying to tie benefits in with tax when evaluating the fairness of a system. If you are going to tie in benefits then you need to tie in everything, indirect benefits through public services, indirect benefits through charitable action, and even direct private benefits that employers may give. The IFS has strangely cherry-picked a bizarre definition for “net tax” that ensures a favourable outcome for the Labour party.

Now, again, I’m not saying they’re partisan…but the analysis is still extremely odd, and despite their protestation doesn’t actually do anything to debunk Clegg/Lib Dems point about the tax system being unfair by comparison to their proposals.

“I don’t myself see why (in the longer term post this campaign) Liberal Democrats should not look at other methods for reducing taxes at the bottom”

And who says they won’t?

“I would be interested in any responses to the Solidarity Society analysis on this”

I think they are looking at a different issue than what the Lib Dems are tackling with their tax rise threshold (the analysis dictates that raising the allowance INSTEAD of providing benefits, from what I can gather, is regressive, rather than doing both). Unfortunately you and others have taken it to be a wholly tax based analysis so feel justified (completely wrongly) in calling Clegg’s tax plan’s regressive. Ultimately not changing the benefits people get while raising the threshold may not be as redistributionally progressive as just increasing benefits but it is more progressive than where we’re at right now. Your reference therefore to the Solidarity Society analysis is a complete red herring.

I’ve already stated elsewhere you couldn’t be more wrong on this issue of regressiveness; mainly because the tax cut is being paid by tax rises on people that are inherently going to be on the richer side of the income scales, but also because the practical benefit a person on a lower income will gain from the tax cut is proportionally significantly greater than those on a higher income.

Paxman today too fell in to that trap. £50k earner will have £700 (arbitrarily picked it seems) while someone on £8k will only have £300. Now aside from £700 being closer to twice the amount than the three times Paxman over-stated, and as Clegg rightfully picked up, that £300 is much more significant to the person earning £8k at somewhere just below 5% of their income while the £50k earner is only receiving something closer to 2%. Proportionally the distribution, especially around the actual £10k marker, is heavily in favour of giving poorer individuals more of their income to play with, significantly so.

But you want to play silly buggers by picking and choosing, tying certain things together…but you can’t even do that right. You claim (as do others from the Left Foot Forward mess this whole premise has been pushed from) that it’s regressive by redefining what regressive means to suit your own ends with the combining of tax and benefits, much as the IFS has done with “net tax”, but have failed to adequately compare it with the outcome reality of the package of policies Lib Dems have. Now granted you can’t necessarily have known so far in advance what Lib Dems would do (even though they’ve never made any hints about reducing benefits), but then doesn’t that say something about you being willing to tar a policy without having all the facts more than anything else? Rob, thankfully, has explained the situation perfectly above

Now I’d disagree with Rob as I believe that 3 is more “progressive” on a different level, progressiveness doesn’t have to be solely about the state taking more and giving more back, otherwise a completely communist state would be as progressive as you can get. But then this is why progressive, like liberal, is probably a term not to get too attached to in a greater meaning sense.

But the thing we’re both agreed on is that Rob’s option 3 is certainly, clearly, the most progressive option on the table out of all the parties current plans. Yet in an effort to gain Labour votes you’ve chosen to try and trash this as actually a bad thing, something any objective observer will be bemused by (which is ultimately the camp I fall in to, I’m not supporting this policy because it’s Lib Dem’s but because it is logically sound in terms of being liberal AND promoting redistribution for the poor in it’s application with other policies)

And that’s what has me so damn annoyed about this. I want to be on the same side as you guys, but apparently dirty partisan shit flinging comes first. You have the audacity to completely misrepresent someone then whine when it happens to your party as if YOU aren’t a part of the problem when it comes to that sort of petty tactic. To me it’s just indicative of the Labour party as a whole that is all too ready to shift focus on the problems of other people rather than the problems we want to see them solve in themselves

“I’m not saying the IFS is partisan, I’m saying they’re wrong for trying to tie benefits in with tax when evaluating the fairness of a system.”

Just want to echo this. I do not understand why the IFS think it’s ok to simply change the goal of the policy in order to assess how the policy fares. Just because they’re “not partisan”, presumably you don’t think nothing they say should ever be questioned?

26. Sunder Katwala

Rob

Thanks for that. Broadly with you on (1), (2), (4). The difference or the debatable point between us is that, on the information that I have, my current view is that (3) is overall less progressive than (1), though it may be argued that it is more progressive at the top and less at the bottom, because of the benefits of the tax threshold change going most strongly to double-income households and because not enough has been done to mitigate the effect on large numbers of households who gain nothing while the majority of households gain £700-£1400.

But we will all be better informed if the IFS do carry out a full analysis of each party next week: I am confident both Labour and the LibDems will come out ahead of the Conservatives on distributional fairness, and let’s see how they gauge the overall range of proposals between the centre-left parties.

Sunder: I’m not saying the IFS is partisan, I’m saying they’re wrong for trying to tie benefits in with tax when evaluating the fairness of a system.

Sure the definition of ‘the tax system’ is the sum total of the activities of HMRC whichever direction they happen to be transferring money?

It’s bizarre to arbitrarily separate out one set of things they do, one set of forms available as part a single menu on their website, and say that is somehow not part of the tax system.

While other LibDems proposals raise revenue at the top, it remains valid to argue that the £17 billion threshold plan would increase inequality between the bottom and the middle, and would increase relative poverty.

Whereas that argument is equally bogus. Relative poverty absolutely exists, but it is not so well characterised by any single statistical figure that you can say whether some marginal movement in it is real or just an meaningless artefact.

This is where, if it wasn’t an election campaign and the truth wasn’t strictly off the record, you would have to start talking about a picture of (as a minimum) socio-economic classes. Mathematical abstractions that have many less dimensions than the irreducible complexity of the thing they claim to represent are barely distinguishable from a lie.

“Sure the definition of ‘the tax system’ is the sum total of the activities of HMRC whichever direction they happen to be transferring money?”

The tax system is the system of generating state income through taxation. Tax credits are a mean tested benefit that isn’t linked to the way in which you pay tax or why you pay tax. You can get child tax credits even if you do not pay tax, so surely it is a paradox to include that without accepting that you’re not purely analysing the tax system.

There is an ideological difference here.

The Fabians (not representative of all Labourites but an important tradition) want the state to tax everyone then give money back to the poorest.

The Liberal Democrats want to simply not charge the poorest any tax at all, so the poorest keep more of their money in the first place.

Both believe in the benefits system. The major difference is that the Fabians believe in increased bureaucracy to give the money back to those the state took from.

On that basis, the Lib Dems’ plans make more sense.

“The Liberal Democrats want to simply not charge the poorest any tax at all, so the poorest keep more of their money in the first place.”

People earning £5-10,000 will still pay tax under the Lib Dem plans, just not income tax.

As Sunder pointed out, people on low incomes pay more in VAT and council tax than in income tax.

The Lib-Dems are a complete joke. Nick Clegg, when asked by Paxman last night how he would solve the immigration problem said – “Send them to Scotland and Lincolnshire!”
Not too different, though, from that idiot Paddy Ashdown’s famous “Let’s re-settle the entire population of Hong Kong in the Outer Hebrides!”
Loonies!

Don @ 30

As Sunder pointed out, people on low incomes pay more in VAT and council tax than in income tax.

It is, however, much easier to exempt someone from income tax than it is from VAT. I don’t have the figures on council tax but a) there is council tax benefit to offset this already and b) the Lib Dems want to scrap council tax (albeit over a slightly longer timescale than has previously been planned).

Dave dave dave… What Nick Clegg said was that rather than just require an immigrant to have a sponsor and a job, also require them to have a region. Dig out that ear wax.

34. Charlieman

@30 Don Paskini: “As Sunder pointed out, people on low incomes pay more in VAT and council tax than in income tax.”

Thankfully, VAT is not paid on necessities such as food. Admittedly, it is difficult to avoid should you wish to wear clothes as an adult. Or to warm your home.

Council Tax is a disaster zone; people on low incomes can seek relief by filling in complex forms that may be processed inaccurately. But the underlying problem is not Council Tax, it’s council revenue generation and dependency on central funding.

The LibDem proposals at least address a few problems. If the tax threshold is increased, fewer people will have to fill in benefits forms because they will be outside the scope. Alas the plans are not as ambitious as the mid 1970s proposals for an integrated tax/benefit system.

I presume that the manifesto will contain the traditional pledge for council funding based on a local income tax.

The tax system is the system of generating state income through taxation. Tax credits are a mean tested benefit that isn’t linked to the way in which you pay tax or why you pay tax.

Sorry, but how can you possible argue with a straight face that a reduction in that income due to a set of rules called _tax allowances_ is somehow qualitatively different from a reduction in that income due to the set of rules called _tax credits_?

If you wanted to be consistent, if arbitrary, you could at least drop out of the calculations all those people who, as a result of allowances, pay zero. There’s nothing mathematically special about zero as a number in this context, but it would look less like you are trying to seem plausible.

As is, you could just pick a different arbitrary threshold, and define the _tax_ as _tax in excess of £1million_, hence proving only multi-millionaires pay tax.

Either would be equally stupid as excluding only those people who end up with a calculation of net negative-excluding-zero tax.

“Sorry, but how can you possible argue with a straight face that a reduction in that income due to a set of rules called _tax allowances_ is somehow qualitatively different from a reduction in that income due to the set of rules called _tax credits_?”

Because they *are* qualitatively different from tax credits perhaps when viewed holistically? Take a snapshot of a society that has a system of tax credits to give people their money, and those that have a system of tax allowances that give people the same money, and see how the actual figures in disposable income will differ.

The one thing I certainly fail to keep a straight face over is the idea that someone like you that seems to believe that qualitative differences between the two are zero can accept therefore that it’s a better system to make people pay it and claim it back. I guess it’s just shits and giggles for you?

Tell you what, I’ll keep to my simple definition of things which keeps the tax system separate from the benefits system for individual analysis, as I’ve consistently done; and you can carry on pretending that it’s reasonable to look at tax income and direct benefit payments as a single system without applying other factors of “good” or “savings” that are passed on through other uses of the generated tax income, and we’ll all just go on our own separate ways.

Take a snapshot of a society that has a system of tax credits to give people their money, and those that have a system of tax allowances that give people the same money, and see how the actual figures in disposable income will differ.

Yes, they will differ, and they will differ in a way that, by standard left-liberal assumptions, makes the tax credits look better: more money to poor people, smaller disincentives to increase income, and so on.

As a result, you don’t want to do that comparison, but instead choose to fiddle the figures by calculating ‘tax paid and allowances but not tax credits’ instead of ‘tax’.

Misreading my post AND ignoring the points you don’t want to address, how quaint, Soru.

“Yes, they will differ, and they will differ in a way that, by standard left-liberal assumptions, makes the tax credits look better”

No, they won’t, if you do what I say. Get a system whereby the tax credits given after tax means an income equal, in theory, to the income available to someone with a tax allowance increase, and you will see that the poor are better off under the tax allowance increase. The reason is simple, everyone gets the money they don’t pay in the first place under a tax allowance rise, some people don’t get any of the money they should under tax credits. Qualitatively different, quantitatively different.

I am not against tax credits, nor against benefits in general, but the underlying tax system has to be fairer. In doing so it encourages people off of some of those benefits in the first place to become more self-sufficient, and it ensures that no-one is left out in having a good amount of disposable income because of bureaucracy and hoops.


Reactions: Twitter, blogs
  1. Thomas O Smith

    RT @libcon: Sorry Libdems, Labour has made taxes fairer http://bit.ly/dxp5T2 <yeah, now everyone gets hammered

  2. Paul Sandars

    RT @libcon: Sorry Libdems, Labour has made taxes fairer http://bit.ly/dxp5T2

  3. Ben Cooper

    RT @libcon: Sorry Libdems, Labour has made taxes fairer http://bit.ly/dxp5T2 @stuartbonar

  4. Peter Ptashko

    RT @libcon: Sorry Libdems, Labour has made taxes fairer http://bit.ly/dxp5T2

  5. Liberal Conspiracy

    Sorry Libdems, Labour has made taxes fairer http://bit.ly/dxp5T2

  6. AndyG

    RT @libcon: Sorry Libdems, Labour has made taxes fairer http://bit.ly/dxp5T2

  7. Matthew Rees

    RT @libcon: Sorry Libdems, Labour has made taxes fairer http://bit.ly/dxp5T2

  8. MusicMP

    LibDems misleading claims on wealth distribution fail to take account of the redistributive impact of tax credits http://bit.ly/dxp5T2

  9. Lee Griffin

    RT @libcon Person misrepresenting Lib Dem tax in their own report damns Lib Dems for misrepresenting Labour tax http://j.mp/dxp5T2

  10. Thomas O Smith

    RT @libcon: Sorry Libdems, Labour has made taxes fairer http://bit.ly/dxp5T2 <tax is theft fcuknuts

  11. Andy Sutherland

    Sorry Libdems, Labour has made taxes fairer http://bit.ly/dxp5T2 via @libcon

  12. Nicolas Redfern

    RT @libcon: Sorry Libdems, Labour has made taxes fairer http://bit.ly/dxp5T2

  13. Adam White

    @Kopmatt88 http://liberalconspiracy.org/2010/04/12/sorry-libdems-labour-has-made-taxes-fairer/





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