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Income maintenance and income taxation†

Published online by Cambridge University Press:  20 January 2009

A. B. Atkinson
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Extract

Social policy and taxation have commonly been regarded in Britain as quite separate aspects of government policy. Changes in taxation appear to be decided largely independently of the aims of social policy, and reforms of the social security system are often proposed with no regard to their fiscal consequences. Despite the fact that Chancellors of the Exchequer have recently arrogated the right to announce increases in National Insurance benefits, there is little evidence of co-ordination between the Treasury and the Department of Health and Social Security over income maintenance. Yet there is clearly a close relationship between these two arms of government policy, and it is important that any proposal for reform should consider taxation and social policy in conjunction.

Type
Articles
Information
Journal of Social Policy , Volume 1 , Issue 2 , April 1972 , pp. 135 - 148
Copyright
Copyright © Cambridge University Press 1972

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References

1 Piachaud, D., ‘Poverty and Taxation’, The Political Quarterly, vol. 42, 01–03 1971, pp. 31–44.CrossRefGoogle Scholar

2 Royal Commission on the Taxation of Profits and Income, Second Report, London: HMSO, Cmnd. 9105, 1954, para. 158.Google Scholar

3 E.g. Prest, A. R., Social Benefits and Tax Rates, Institute of Economic Affairs Research Monograph 22, London, 1970.Google Scholar

4 There is also age relief, which applies at present to investment income, but which will be replaced by the general concession for investment income announced in the recent White Paper on the reform of personal income taxation.

5 Royal Commission on the Taxation of Profits and Income, Final Report, London: HMSO, Cmnd. 9474, 1955Google Scholar, paras. 824 et seq.

6 Webb, A. L. and Sieve, J. E. B., Income Redistribution and the Welfare State, Occasional Papers on Social Administration Number 41, London: Bell, 1971, p. 53.Google Scholar

7 Houghton, D., Paying for the Social Services, 2nd edn, Institute of Economic Affairs Occasional Paper 16, London, 1968.Google Scholar

8 This notional income is in some cases very high: assets in excess of £800 are assumed to yield a return equivalent to 26 per cent per annum.

9 Op. cit.

10 Lynes, T., ‘How to pay surtax while living on the breadline’, Centre for Environmental Studies Working Note 256, 03 1971.Google Scholar

11 Op. cit.

12 This could be so if it were felt that those with low earnings were less subject to disincentive effects. However, it is not clear that this is the case. Even though a man may have a fixed working week, he may still be able to vary his overtime working (or take a second job) and the tax may affect whether or not his wife works.

13 I.E.A. Study Group, Policy for Poverty, Institute of Economic Affairs Research Monograph 20, London, 1970.Google Scholar

14 Tobin, J., Pechman, J. A. and Mieszkowski, P. M., ‘Is a Negative Income Tax Practical?’, The Yale Law Journal, vol. 77, 11 1967, pp. 1–27.CrossRefGoogle Scholar

15 Friedman, M., Capitalism and Freedom, Chicago: University of Chicago Press, 1962.Google Scholar

16 Atkinson, A. B., Poverty in Britain and the Reform of Social Security, Cambridge: Cambridge University Press, 1969, chapter 9.Google Scholar

17 Ibid. pp. 178 et seq.

18 Whether or not the social security benefits would be taxable is left open – there are clearly arguments on both sides. There should, however, be a consistent policy for all benefits.

19 Op. cit. p. 42.

20 Final Report, op. cit. p. 357.

21 Simons, H., Personal Income Taxation, Chicago: University of Chicago Press, 1938.Google Scholar

22 By this is understood his real wealth – in other words we should subtract from his money income the amount by which his wealth has been eroded by inflation during the period.

23 Op. cit. p. 355.

24 Report of the Royal Commission on Taxation, Ottawa: Queen's Printer, 1966, vol. 1.Google Scholar

25 Titmuss, R. M., Income Distribution and Social Change, London: George Allen and Unwin, 1962.Google Scholar

26 Op. cit.

27 See Atkinson, A. B., Unequal Shares – the Distribution of Wealth in Britain, London: Allen Lane, The Penguin Press, 1972, chapter 7.Google Scholar The question of the allowance to be made for that part of capital gains (and investment income in general) which is due to inflation is also discussed in this chapter.

28 The reform of income taxation recently announced by the government, although described by the Chancellor as a ‘root and branch’ reform, does not take any step in the direction of a more comprehensive tax base.

29 Bossons, J., ‘The Value of a Comprehensive Tax Base as a Tax Reform Goal’, The Journal of Law and Economics, 13, 10 1970, pp. 327–64, p. 340.CrossRefGoogle Scholar

30 One objection to the comprehensive tax base not discussed here is that a number of the present concessions can be justified on efficiency grounds. For example, the concessions for pensions can be seen as a method of sustaining a socially optimal level of savings. This may conceivably be so, but the defence must be made explicit (and the distributional consequences brought out); moreover, the gain in efficiency from the concessions must be set against the loss caused by the need to have a higher overall rate of tax (given the narrower tax base).

31 Kaldor, N., An Expenditure Tax, London: George Allen and Unwin, 1955, p. 242.Google Scholar

32 Atkinson, A. B., ‘Policies for Poverty’, Lloyds Bank Review, no. 100, 04 1970, pp. 17–28.Google Scholar