Changing my mind on taxing the poor

I have been following the debate on the 10p rate of income tax with a huge amount of schadenfreude and Nu Labour's embarrassment at this one. I wasn't blogging lat year but I remember thinking when Brown announced it that this was just another piece of Labour grandstanding and a waste of money because of the increased bureaucracy.

I have always been a great believer in a simple tax system and that the beast way to help the poor is to raise the starting rate of tax to something like £15k (about 60% of median salary). However I started to change my mind reading through some of the comments on Tim Worstall's site and especially this one from dearieme:

dearieme // Apr 18, 2008 at 11:31 am

Why do people who don’t pay income tax get to vote?

On reflection I think this is a really good point and its one I have always felt was a problem with the NHS*. It was the one made against the old rating system where only private housing paid rates (not strictly true but because council tenants paid it in their rent as one figure they didn't link the 2). This was thought to skew local election voting and needed to be changed. Sadly the change was fucked up and we got the "poll tax", but that's not the point of this thread.

I don't want to get in to the Citizens Basic Income argument here because, much as I think there is a case for it, I don't think it will happen and even if it did MP's would soon tinker benefits back in. What I am now starting to think about is maybe an even lower tax band, say 5%, paid on all earnings. We would probably need 2 other tax levels, say 25% above the median wage and then 45% above about £100k. These numbers need working through and I am aware that there are still problems with marginal tax rates and at the boundary, but no system is perfect. It should, though, help with the real problem we have now of huge marginal tax rates, approaching 70%, for those coming off benefits.

* too many people don't value things that are free, which is why there is so much abuse of the NHS and especailly 999 services. I reckon we need to give people an invoice for the true value of any service and where possible make people pay a smal , say, 15% capped at £100, with pensioners and other on benefit having there's stamped "Paid by te Tax payer".

Arguments for small Government

The Remittance Man has an interesting piece, AND TALKING OF INCOMPETENCE, in which he argues that Government is so big there just isn't enough talent to fill all the key roles such as Chancellor, Home Secretary and heads of Civil Service etc. Therefore we should reduce the size of Government. This is a well made case in a good cause, but it doesn't go far enough as it only considers one half of the equation.

I cannot argue with the need for talented people in those key jobs and that the numbers should be reduced to an absolute minimum but my argument is that this is because while they are consuming wealth they are not creating it. Surely we want our most talented people in industry creating wealth for the country?

This wealth creation argument is also the drive behind Lawson's dictum that taxes should be simple and universal. We don't want our best talent trying to minimise a Company's ever more difficult tax liability; we want them generating higher profits for their companies. On a personal level I resent having to pay an accountant to fill in my annual tax return even tough he generally save me money. He should be doing something more productive.

Consider the case of tax credits, probably the most fiendishly difficult tax relief system ever devised. In order to make it work we have some of our best computer programmers writing programmes and scripts so that people in call centres can deal with the ever growing problems. Surely raising the tax threshold would be the simplest way to give poor people a tax break? And then these creative programmers could be developing products that can be used to create wealth?