Skip to main content

You are here:

Tax system locks people into poverty

Written on . Posted in Deadweight costs.

The tax system locks people out of work and into poverty. How does it do this? There is no need to go into too many details. Just work out these figures and you will see the size of the barrier against work.

 

  1. How much benefit do people receive?
  2. How much tax do they pay when they spend their benefit?
  3. How much do they spend net of sales taxes? [figure (1) minus figure (2)]
  4. How much does it cost an employer to leave an employee with figure (1) in take-home pay? [figure (2) plus employers NI, employees NI plus PAYE]
  5. What is the total size of the tax wedge [figure (4) minus figure (3)]

This explains why Britain is a low wage-high labour cost economy. One would think it was impossible but that is what we have. The result is that the lion’s share of tax money is spent on welfare, much of which would be unnecessary if it was not for the damage done by the tax system itself.

We do not believe all tax is bad. Governments need revenue provide what people expect for the functioning of a civilised society. So the final question is “Which tax does not bear on labour and production and therefore allows allows economic activity to proceed unburdened of any charges?”