23 thoughts on “The tax and benefit system is highly redistributive: Look at the net effects”

  1. Posted 30/06/2015 at 10:24 | Permalink

    this might be the most pusillanimous piece of nonsense i have ever read

  2. Posted 30/06/2015 at 11:14 | Permalink

    This is true enough, but pitching ‘progressivity’ as something that can be simply observed by looking at the way taxes and benefits fall across the income distribution obscures the fact that money isn’t simply taken Robin Hood-like from the rich to pay the poor.

    The ONS rightly distinguishes between three broad categories of household, and looking at the amount of taxes paid against cash benefit received:

    1. All retired households are net recipients apart from the top decile.

    2. All non-retired households without dependent children, including the bottom decile, are net contributors.

    3. The bottom third of non-retired households with dependent children are net recipients, and the upper two-thirds net contributors.

    The nature of redistribution is not so much to take from hard working earners and give to layabout scroungers, but to take from those who can most afford it right now (those with most money and least obligations) and give to those who most need it right now (those with most obligations and least money). While retired people are *now* getting more than they pay, most will have put a lifetime of contributions into the public pot from which they are now drawing. And those with dependent children were once, and will be again, people without dependent children, so will have in a very real sense have paid some of what they are *now* receiving in advance, and will pay more later.

  3. Posted 30/06/2015 at 12:35 | Permalink

    Dear Anonymous who posted at 11:24.

    I would like to thank you for your carefully argued rebuttal of the original article. Your grammar is sublime. You are wise indeed to protect your anonymity as, otherwise, you would be deluged by those seeking a glimpse of your wisdom.

  4. Posted 30/06/2015 at 14:53 | Permalink

    Michael – true enough. That a welfare state redistributes overwhelmingly to people with children and the retired is not in question (though you have to be careful with these comparisons – someone in the bottom decile of a distribution ‘without dependent children’ may well be in a completely different decile in a larger sample!). This was a narrow rebuttal to an extraordinarily narrow and disingenuous claim though. I appreciate your comment though. I haven’t had chance to read through the rest of the release yet. No doubt there will be some inspiration there for more blog posts in future.

  5. Posted 30/06/2015 at 15:30 | Permalink

    Peter James you are now my guru.

  6. Posted 30/06/2015 at 18:11 | Permalink

    I agree that the claim you’re countering is itself narrow, that’s why we need to zoom out and place in a real world that is a bit more complicated than simply rich and poor. The point is well made elsewhere by others that most people follow a trajectory of getting better off as they get on, with child-related interruption, and then less so when they are old. Some twenty-somethings in todays bottom decile will be in the top decile in less than ten years time. Any such dynamic can’t really be observed in these figures, though there some very good ONS publications on this. My other cautions for headline writers whether left-leaning or right-leaning is that the figures are ‘equivalised’ by a standard that might or might not reflect todays realities as well as they did when the standard was adopted, and that ‘disposable income’ is all too easily taken as meaning money available for discretionary spending. Obviously many people, once they have housed and fed themselves (and any children) and paid utility bills, have no money in their pockets at all to ‘dispose’ of.

  7. Posted 30/06/2015 at 18:27 | Permalink

    Tell Peter James that comma’ splicing is the f,i,n,a,l, death of the English language.

  8. Posted 30/06/2015 at 22:47 | Permalink

    The problem with your analysis Ryan, the elephant in the room, is that only an apologist for gross income and wealth inequality would take the trouble to make this sort of rebuttal. There are legions of right wing analysts in the USA who apply their Ivy League education to proving that poverty is largely a myth and nothing to do with the machinations of the wealthy. It is depressing to read the same sort of self righteous special pleading from an English commentator. On the spectrum of deception in relation to poverty, with Ian Duncan Smith’s dreary lies at it’s far right hand limit, I would place your contribution nearer the middle – but your attempt to deal with this issue with humour betrays the default callousness of the right, which is its least appealing characteristic.

  9. Posted 01/07/2015 at 05:38 | Permalink

    “While retired people are *now* getting more than they pay, most will have put a lifetime of contributions into the public pot from which they are now drawing”

    This is a nice theory, but quite untrue. The value of state pensions paid to most of today’s pensioners vastly exceeds the value, in NPV terms, of what they (and their employers) paid in NI contributions. Which is why the state pension system is in the hole to the tune of several trillion. And the poorer you are, the better deal NICs are. In these “look how shocking it is that the poor pay so much in taxes” screeds, NICs are always included as part of the terrible burden on the poor worker. In fact – until the state pension system goes bust – NICs for the poor worker are a splendid investment. You have to be nudging up towards the upper NI limit before you become a net loser. (Besides which the employer pays well over half the cost, and though it’s certainly economically arguable that the employer can pass on most of the cost to the employee in lower wages, (a) that’s less likely to be the case near the minimum wage, and (b) some of the cost is bound to be borne by the employer and by the customers.)

    Why doesn’t the IEA produce a paper on the real effects of tax and benefits on the distribution of income, taking into account all the things that the government’s figures leave out ? As well as the points Ryan Bourne makes, there are also all sorts of regulatory takings to be factored in, such as making housebuilders build social housing as a price for getting planning permission for their developments, which adds to the cost of the private housing and subsidises the social housing.

  10. Posted 01/07/2015 at 11:53 | Permalink

    Talking up so called ‘ subsidy’ of social housing by house builders is another diversionary tactic Lee. The vast majority of public subsidy in housing goes to the private sector and the better off, as a cursory examination of the matter would reveal. Let’s also set aside the greed, incompetence and financial criminality of the banks and their clever,clever back room boys in relation to mortgages and loans for homes and commercial property. We have a property bubble instead of a housing policy and a social cleansing in London and elsewhere which benefits only the rich. When, as Warren Buffet says, ‘the rich have won the class war’, it is necessary for its apologists to use their best efforts to pretend that everything is just fine and the poor are lazy, stupid and heavily subsidised by their betters. How the kleptocrats must laugh when they read this deracinated bunkum.

  11. Posted 01/07/2015 at 12:24 | Permalink

    Part of the difficulty with these analyses is that it they only look at income inequality. When we look at the bottom 10% in terms of income, many of them are not poor at all. They may be pensioners with large savings but low income. They may be students. They may include the generally affluent but temporarily unemployed. They often include builders and other trades where we know their real income level is disguised due to cash-in-hand payments. This distorts the picture so it is difficult to know how many truly poor people we have – and how much it would cost to help them.

  12. Posted 01/07/2015 at 14:12 | Permalink

    Just as an after thought, I wonder whether the some of the benefits in kind, eg spending on prisons and the police, were allocated correctly by Ryan in his calculations. I would suggest that it is high income groups that benefit mostly from this expenditure.

  13. Posted 01/07/2015 at 14:31 | Permalink

    TickyW – I don’t account for that, no. I can only use the same data as everyone else. Worth noting that this data doesn’t look burden of corporation tax, which one might expect to fall on some workers and shareholders too. It’s incomplete – but then if people quote incomplete figures on tax burdens, I think I’m entitled to use the same figures for net effective tax rates!

  14. Posted 01/07/2015 at 14:47 | Permalink

    Like Lee, HJS is looking through the wrong end of the telescope. It is the rich whose income and wealth is vastly underestimated, because they have legions of lawyers and other parasites who are only too happy to help them hide it. Wake up and smell the class system!

  15. Posted 01/07/2015 at 15:01 | Permalink

    ‘Taxation is for the little people.’ Who said that Ryan ? Data is not on your side I’m afraid

  16. Posted 01/07/2015 at 15:08 | Permalink

    Maurice Neville misses the point I was making. My point was simply that just looking at income doesn’t give a very good idea of WHO is poor. Until we know WHO really is poor, it is difficult to work out how best to help them.

  17. Posted 01/07/2015 at 16:22 | Permalink

    HJ wishes to identify the poor and help them. .. Unfortunately the more likely outcome is to identify who needs to be targeted for the kind of ‘help’ offered by the DWP -stigma, punitive bullying etc.

    Far better to identify the sharp practices and criminality which shelters billions in undeserved wealth and give us a just taxation system, based on accurate information rather than the tissue if lies which protects these parasites.

  18. Posted 01/07/2015 at 18:28 | Permalink

    Unfortunately, Maurice Neville appears to be more interested in delivering diatribes than in sensible debate.

  19. Posted 01/07/2015 at 19:15 | Permalink

    Now let’s start with English before addressing Economics: “TV licence” ffs not the gibberish – license, as a noun – as spelt by those who live on the wrong side of the pond.

  20. Posted 02/07/2015 at 08:53 | Permalink

    Contra TickyW it is extremely unlikely that the rich are big consumers of government law and order services. Indeed it is much more likely that the poor consume law and order services more than the rich, per capita, never mind in proportion to income. Most crime victims are poor. Crimes of violence, which absorb most police and prison resources, are committed mostly against the poor. Crimes against property are mostly resisted by the private sector rather than by the state – better locks on cars and houses, computer security systems in banks and so on. Most rich people will own more foreign assets than UK ones, so even to the extent that the state does involve itself in protecting property, the UK state doesn’t protect most of the property of the rich living in the UK. It’s true that the state spends an amazing amount of effort criminalising poor people for not paying their TV licences, but this is hardly a handout to the rich – except in the only real sense in which the state hands money to the rich – rewarding politically connected rent seekers, like the BBC.

    In any event, crime control (and defence) is a remarkably small proportion of government these days. Go back a hundred years or so, when the government spent less than 10% of GDP, and law and order spending would have loomed larger. Now it’s chickenfeed compared to the welfare state. But even so, the rich consume very little of it. None of which, of course, is to say that it is a bad thing that the government spends money to protect (mostly) the poor from crime.

  21. Posted 02/07/2015 at 10:49 | Permalink

    @Lee Moore
    The rich are not consumers of law and order services – they are beneficiaries. The benefit in kind received by the rich from law and order services is in proportion to their wealth. The law and order system, at least so far as it relates to property, exists to maintain and enforce existing property rights.

  22. Posted 02/07/2015 at 20:25 | Permalink

    @TickyW – Beneficiaries of law and order services are consumers. You seem to have walked straight past both my points. First, the law and order system as regards its current application and the overwhelming majority of its costs is about crimes of violence – which happen overwhelmingly to the poor. Crimes against property are barely policed at all by the state. And second, insofar as the state does police crimes against property, one does not benefit in proportion to the value of one’s property. The rich own most of their property outside the UK. And it does not cost ten times as much to investigate a burglary at a £2 million house, as at a £200,000 house; or a mugging in which £500 is stolen as against £50.

    The courts’ main role in property protection comes in the civil courts enforcing contracts. Which is all financed by the private litigants…..except for legal aid which is provided to the poor.

  23. Posted 03/07/2015 at 10:42 | Permalink

    @Lee Moore.

    We will have to agree to disagree because I don’t recognise any of your assertions as factually correct.

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