Registered: Jan 2002
Location: UK
Posts: 13002

It would be the tax credit system. Let's start by making it clear. These are benefits. The name "tax credits" is Orwellian newspeak of the highest order. It's been designed to make it sound like it is linked to taxation in a positive manner, i.e. to create the view of an equivalence with a "tax break". It is of course nothing of the sort. They are, as I said, beneifts, just like unemployment benefit, child benefit, incapacity benefit. They are hand outs of cash from the state to people. Now, on principle one might say, "hey that;s a good thing surely?", but the key thing to rememebr when assessing the "tax credit" benefit system is to ask yourself the question, "who exactly is the welfare state for?".

The welfare state is a very necessary tool of government. No one from either side of the spectrum has ever denied such a thing. The question though is who should it serve. It seems to me the answer is that it should provide a safety net of the bear minimum of survival in a given civil society. That is to say, it should be there for those who need it most, and I, as a One Nation Tory, should be aware of my moral obligation to be taxed if I earn money in order to ensure that people do not die of starvation when they find themselves in hard times. However, it should always be remembered that if the welfare state gives to much then it will produce - as Frank Field MP argued - a culture of dependency, and if it gives to little then it wiil amount to little more than a 21st century Poor Law. What is key to this conception is that the welfare state should be there to serve as a safety net when one find oneself in the shit.

So what does this have to do with the tax credit beneift system? Tax Credit benefits are not given out to those in need alone. The tax credit beneift system extends into civil society's workforce unnecessarily deep. To use myself as an example. I earn enough money that I fall into the top rate of income tax. As a result, I am, in some peoples view, one the rich. I should pay my dues because I earn that much and other do not. Fine. But I have a kid (almost (due any day)), so I now qualify for "Child Tax Credit" benenifts. Yes. That's right. I will be a top rate of taxpayer who receives cash handouts from the welfare state. I'm guessing people can see the fuzzy logic going here right? On the one hand I am considered to be required far higher tax than others because I earn so much more, and then on the other hand I am considered to earn so little that I ought to be given a handout from the state's coffers? Me, the man on in excees fo 36K a year, who owns a house worth nealry £200K, becaomes a means tested individual considered necessary of the states help with cash. Now I might be alone in this, but I feel that kind of demeans the value of my work and personal endeavours. I work fucking hard to earn my money so that I don't have to go to the state to live. I pay my tax happily because I realise it is necessary for the money to be in the system for those who really need it, and yet, according to the system, I am one of those that needs it. If I am in need of this money, which I do not deny I want because however small it may be it does have an advanatge, why take it in the first place? I have to step back for a minute when this sort of contradiction stares me in the face and ask the obvious quesiton that occurs to me. How much does this system of beneifts waste each year by giving benefit handouts to people the welfare state was not envisaged for? How many extra people have had to be employed in order to capture such a large majority of the population into the means test? The most important question is why? Why would someone produce such a transpearently wasteful system? My only conclusion, sadly, is that it serves political interests. It provides the ability to claim to be generous, to be hadning out money to people, and it also provides the ability to claim (falsely of course) that a reform of this system would mean a cut in handouts. It matters not of course whether everyone still gets the same amount but by different means.

And so, after a long ramble about why the system needs reform the question is what reform should it have. The answer seems simple to me. Scrap the tax credit system in favour of a mixed system of benefits and tax breaks. Beneifts for those that are not within the income tax system and thus cannot be given breaks, and breaks for the rest. Remove those on minimum wage from tax altogether and there will be no need for them to have tax credits given back to them. As Frank Field said, "make work pay". As for the rest of us, give us tax breaks when we have kids instead. Don't take the money in the first place. Change our tax code. Encourage work as a means of wealth creation by removing the obstacles to state dependency that have been created. Frank Field challenged Labour to "think the unthinkable" on this issue and it failed. Someone will have to do it.

I can see no argument whatsoever in favour of the tax credit system besides that which it provides when someone like me, or whoever else, suggest reforming it. That being the ability to scream the word "cut" and scare everyone into sticking with what they've got. If I had the power to reform whatever I wanted the tax credit system would be the thing I would reform first. It is, by far, one of the most wasteful methods of welfare provision and redistributive polices I have ever seen. There are far cheaper ways of producing exactly the same results.

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Registered: Mar 2004
Location: USA
Posts: 24791

You wouldn't happen to have a dog named Grommet would you?

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Registered: Mar 2003
Location: Here
Posts: 181

Child benefits are an unusual example because they originally (and still) had a purpose beyond giving you money. They were to give your wife money and ensure she used it for the child and not have you piss it away on booze. Child benefits were a underhand way of removing children form poverty.

However the main thrust I agree with- the problem has always been the break point - at some point the marginal utility of work drops dramatically (around 6 hours in britain) where there is little financial benefit to going to work cos other benefits drop off when you work - so suddenly from unemployed on 150pw you become employed on 180pw (figures not accurate)

One inside out suggestion (charles handy i think) was for the state to pay everyone a minimum wage at age 16 (say 12K pa) and if you earn over that they tax you (presumably hard). In other words no expensive means testing, no benefits system, just everyone gets 12k a year from govt and those with jobs elsewhere pay lots of tax. Does not seem that credible to me but its an idea. A bit like the Forbes 15% income tax plan.

And yes, apparently tax credits were supposed to be a cheaper way to provide benefits but they were so confusing that apparently the number of valid claims actually dropped, thus becoming a reduction of the welfare state - and that reduction aimed directly at the poor uneducated etc - exactly who they should be targetted at.

(A good argument for the weird 12K idea maybe?)

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