Tuesday, October 05, 2010

Ending child benefit for higher rate taxpayers

As I understand it, the left's alternative to ending child benefit payments to higher rate taxpayers is to continue paying the benefit to them but claw it back by increasing income tax.

The argument for this - and it is one I have used myself in the past - is that in order for the welfare state to be politically sustainable we must give wealthier people a stake in it.

Yet I wonder how valid this argument is. Surely the wealthy are able to see that they would be better off personally with no benefit and a lower rather of tax? I suspect that paying child benefit to them has more to do with symbolism than a realistic attempt to give them an objective interest in the continuance of the current system.

Set against the need to reduce the public deficit and the insistent question as to why average taxpayers should support wealthier parents, this argument from the left is not strong enough to convince. Are there any better ones?


Luke Trevorrow said...

This is all very well and good if it were not for the unfair way in which it has been dealt with. It is not right for two parents bringing in 40k each per year to have child benefit whilst the family with one earner bringing in 80k has to lose out. Not only do they lose out with the loss of child benefit, but they already bring in less money due to paying 40% tax.

To add insult to injury, people who are married might get given a tax break regardless of their family status.

Iain Coleman said...

1. The family with two earners on 40k is likely to spend rather more on childcare than the family with one earner on 80k.

2. Here's the world's smallest violin playing for all the people on 80k.

John H said...

So the left's approach is to retain a universal benefit and to claw it back via tax.

The Right's approach seems to be to restrict a benefit but to give a tax break for marriage.

Both are wrong. The first fosters the socialist dependency culture whereby everyone has an unnecessary interaction with the state. The second is an unnecessary interference by the state in how people organise their relationships.

Simply focus benefits and set a fair level of tax.

dreamingspire said...

And the family with 2 earners on 20K is likely to spend far more on child care than the family where one parent earns 40K and the other parent doesn't work.

Andrew Hickey said...

Dreamingspire, Luke, your argument then is for the government to stop treating couples' incomes as separate and lump it into one pot for tax purposes? If not, how else do you want to get a perfectly fair system?

There will *always* be discrepancies of this nature when talking about tax, income, benefits and redistribution generally. I currently earn a relatively good wage, and my wife is too ill to do more than the occasional bit of casual work. A couple of years ago, we both worked full time at a badly-paying job. Our combined pre-tax income now is almost exactly what it was then, but we're significantly worse off because I'm paying far more tax on my one income than we were on our combined two.

Is that fair? Not really. But it also wouldn't be fair to have the government interfere in people's personal relationships by counting our joint incomes. I certainly don't see anyone complaining about the huge difference in tax paid by one person on twenty-something grand a year compared to that paid by two people on twelve or thirteen grand a year, yet the cases are perfectly analogous (except those on the twenty-something are much less able to afford it than those on the forty-something).

Personally, given that I consider the world to be overpopulated anyway, if we're going to be having any cuts at all, starting with removing an incentive for the rich to have more children subsidised by the poor and middle classes seems an excellent place to start.

I`mquitetirednow said...

I personally object to benefits being paid to people who are comfortably-off. Surely, the test of a good benefit is that it`s targetted in a well thought out way ? That should help with public spending whilst alleviating poverty.

I think the way to give the more wealthy a stake in the system is to argue that these things create a better society for all of us. We`re all in this together, as someone once said !

The problem with this particular benefit is that the savings it offers are really quite small in government terms, but to arrive at a more equitable arrangement would actually involve taking on more staff etc to administer the new system. Our lad the Chancellor tried to address the issue without creating a new, expensive system to replace the old one. I can follow his thinking, though I don`t think he`s been politically astute.

I don`t think there are any easy answers here, and as someone`s mentioned above, all systems throw up some sort of anomally (have I spelt that right ?).