My point was that 63% is still very bad, and if it’s supposed to be an improvement, then the existing system is abysmal from an incentive perspective.
So, concrete proposal on how you'd structure this?
Edit: Why are people downvoting this?
I don't understand what's so confusing about SilasX's argument.
Removing cliffs and changing it to a smooth dropoff is good.
But that dropoff doesn't have to be £.63 in benefits per £1 earned. That's a pretty big effective marginal tax rate! Why not £.50 or £.30?
It should be extremely easy to understand how this proposal works, right?
It would technically bring more people into the system, but they'd be at the top end, and therefore only be receiving a small fraction of the current levels of benefits. It's totally doable.
If it's less than 63%, you "unilaterally extend benefits to a whole bunch of people who don't currently get them".
Let's say benefits for the unemployed are £1,000 a month (chosen to be an easy number to work with). You lose 63p of benefits per extra pound you earn. The government gives you (some) benefits up to the first £1,587 you earn. If you go to 50%, the government gives people earning up to £2,000 a month benefits, and so on, which probably includes a bunch of people who don't currently get any.
You can't change 63% without either paying much more in the way of benefits overall, or without reducing the benefits of those who can't do any work.
> It would technically bring more people into the system, but they'd be at the top end, and therefore only be receiving a small fraction of the current levels of benefits
That's not how the maths works. Assuming an even distribution of people at each wage level, changing this to 30% effectively doubles overall spend.
So your solution is "spend a lot of extra money on social security", which is fine, but it doesn't satisfy the constraints.
But even so, smoothing out the curve some might be better overall even if the max amount drops.
Also you could extend the curve so that 'benefits' go negative at the high end. Now your budget is fine...
> Also you could extend the curve so that 'benefits' go negative at the high end
You've just invented tax, congratulations.
You have a very different definition of 'massively' than I do.
> You've just invented tax, congratulations.
Positive taxes can balance out negative taxes, ~tada~.
The original constraint was not a $0 increase. I did not violate the original constraint.
And even if you did take it to be $0, it said you can't "just afford to" increase. Proposing a tax to make up the difference meets that critera.
But even inside a hard "no more spending" constraint, it's not nearly as unsolvable as you make it out to be. It's quite possible that giving less money to people mildly below the old cliff edge, while giving more money to people mildly above it, is a net positive. That doesn't screw over people at the bottom, and it doesn't increase total cost.
Going from a hard cliff to a 90% marginal rate was obviously better, right? And going from 90% marginal rate to 85% was obviously better, right? They decided to stop at 63%. It doesn't mean that going further is a priori wrong.
And on top of all of that, smoothing out the curve to 50% very likely motivates more people in the range to work, reducing the amount of benefits they use.
I surveyed opinions on tax brackets a while back, and it seemed like there was a big psychological barrier at the 50% rate.
Most high earners would be willing to pay a 50% marginal tax rate (albeit some very grudgingly) but almost nobody was willing to go over 50%.
What’s good enough for the rich should do for the poor as well. The benefit drop off rate (effectively a marginal tax rate) should be 50% at the very most.
“For each dollar earned, I get to keep more than I give away in tax/benefits” is a cliff edge, but I think a reasonably justifiable one.
Edit to clarify: if your salary is £100K and you get a £10K raise, you see almost none of it in your payslip. But if you’re on £120K and get the same raise you get to take a good chunk of it home. That’s what seems silly to me.
Some people want higher taxes and some want lower; what I’m saying is, 50% stood out as an arbitrary threshold that many people seemed possibly willing to agree on.
Some complained that rich people shouldn’t be expected to prop up the rest of society, but conceded that progressive tax bands might be okay as long as the top rate was no more than 50%. Others felt that highly progressive taxes were essential; they wanted at least 50% as the top rate.
What are you replying to?
Fiscal policy comprises both borrowing and taxing; the two are fungible as far as spending is concerned.
To be clear, I easily understand how a high marginal rate is demoralizing and unfair at the low end. I'm not convinced it's a problem if tax brackets at the high end go to some number above 50%.
This 63% thing is the replacement for "working tax credits" -- it's a top-up of wages for people on low paid work. People get their wages, and then on top of that they get extra money.
In the past this would have been working tax credits.
The advantages are that claimants do not need to ask for permission before starting work. They can just do the work and then declare it. The disadvantages are that the system can't cope well with zero-hour contracts or self-employment, and this is leaving people in severe financial hardship.
As an example, you can reword this just as accurately to say that for every dollar less the person makes, they actually only make $0.27 less because benefits kick in for $0.63 of it. You can reduce that 63%, but when phrased that way, do you want to?
> You need $30,000 / year to live at a minimum in our society. We will make sure everyone that makes less than that gets enough in benefits to make up the difference.
That's not a 100% tax rate for any money earned under $30,000 / year. It's reduced benefits because the definitions of the system (the minimum amount needed to survive) indicate the system only needs to make sure everyone is at a specific minimum level.
You can argue that working costs money (transportation, child care, clothing, etc), and that's a valid argument against working if the amount you make would mean you wind up with less money available for other things.
However, it's still not a tax. It's a limitation in the analysis of cost of living requirements. Calling it a tax is disingenuous.
In the same way that any benefit program being cancelled (eg. movies for kids for free every Friday on the town green, etc) are stealing.
It's a benefit that had some or all of it taken away.
(I mean, if you don’t like the framing, fine, but you specifically said you have a “hard time following” the argument.)
My problem is that I don't see it as capturing less of the wage, I see it as being granted less of the benefit / social safety net.
When you don't make enough money to support yourself, society kicks and and gives you enough so that you're ok (you meet some defined minimum). As you earn more, you need less support from society to be meet that minimum, so you're given less.
Eventually, you get to the point where you meet the minimum without assistance from society. At that point, the benefit is no longer needed (by the definition of the program).
At no point are the benefits your earnings, and at no point are your earnings being taken away by the less of the benefit. Rather, you're just not being assisted by society anymore because you don't need that assistance.
If the recipient of those benefits can't see that and, instead, sees them as "this is mine and you're taking it away", then I argue that's a problem with recipient. They are wrong. They should be happy the benefit was there for them when they did need it... and that it will be there some someone else when they need it. That is the point of social safety nets.
Now, I get that there's some "emotional attachment" to getting the money and then not getting because (as the recipient sees it) they're working (which is wrong; as noted, they're getting less because they need less, period). As such, reducing the benefits amount by a percentage less than 100% of earned ways helps mitigate those feelings. But at some point, the benefit must go away; it's not UBI. The rate at which it goes away is not going to make everyone happy, no matter what is done (that's the nature of compromise).
This prevents situations where it's better to stay under a cutoff of X in income until you can jump straight to an income of X income + Y in benefits, while staying on benefits until then.
This is fascinating.
There is an entirely separate debate about tax rates and incentives for high income tax payers wherein it is suggested that marginal income tax rates almost identical to the 63% you are speaking of are fair, equitable, common-sensible and could not possibly deter earners from pursuing extra marginal dollars.
I have no comment to make about either debate.
I simply find it fascinating that an exactly opposite conclusion is made depending on the subject involved ...