I’m not usually a huge fan of internet humour, but this piece has been doing the rounds of the interwebs for a while; this version actually came to me via Liberal Democratic Party treasurer David Leyonhjelm, who (apart from sending the funny) also let me know that Peter Saunders (CIS) has recently suggested that the welfare state be available on an opt-in or out basis. Unfortunately, I can’t find his paper on the CIS site (something one of our many subscribers will no doubt rectify). 
I did manage to track down the precis, which runs as follows:
This paper outlines proposals which would enable people who want to opt out of the welfare state to reduce their income tax liabilities so they can afford to make provision for themselves. People who want to continue to pay high taxes in return for government services and payments can do so. But those who are willing to give up their eligibility for government benefits or services should be able to use their own money to provide for their own needs.
As is also fairly well known, I’m not a fan of so called ‘mutual obligation’ - something Saunders has advocated in the past - in large part because it does not allow for normal economic cycles (there are times when a low-skilled person will simply be unable to find work) and penalises those who find it most difficult to comply with its (often ridiculously bureaucratic) demands (the mentally ill, the poorly educated). That said, the vast amount of Australia’s GDP that is wasted on welfare - particularly of the middle-class, ‘churned’ variety - is simply staggering.
David also pointed out to me that the LDP does not have a welfare policy as such, apart from its 30/30 tax policy (the main reason I joined the party, after spending most of my life watching what high EMTRs do to the poor and the sick and the part-time. The latter circumstance, of course, is usually a corollary of the former two). He wants to start thinking about one.
With that in mind, I’d like Catallaxians to help David and the LDP formulate some welfare policy ideas, perhaps using some of Saunders’ thoughts, or other insights (EMTRs are my personal bugbear). What would welfare look like with a classical liberal/libertarian government? Are there good ideas we can pinch from all across the political spectrum? If - as is likely in the next couple of election cycles - we finish up with a couple of senators, what should they be arguing on this issue when bargaining with the major parties?
130 Comments
Rock up here to give David & the LDP a hand, people!
Welfare needs to be progressively dismantled.
How, JC?
I certainly don’t recall this Saunders paper so i’m a bit unclear about the extent of this opt out. Obviously as the point of welfare is redistribution actual opting out would mean effective abolition - this Saunders proposal obviously doesn’t go that far and sounds more like a way of introducing the Singaporean system of social security through compulsory savings.
It arrived in David’s in-tray as part of the CIS December e-precis, and was supposed to be out by mid-December, but apparently hasn’t materialised as yet.
1. Dismantle welfare and social security over a period of 10 years
2. Sell off all government assets and distribute the money to all taxpayers. It should not be allowed to go to the government.
3. Reach a new concord with the states
4. Enact a law that restricts the Federal government to limit taxing powers at no more than 10%. Make war the only exception.
5. Privatize medical support and education.
6. Prohibit the states from being allowed to borrow. Meanwhile the Federal government to have borrowing powers only in the event of war.
7. Greatly reduce parliamentary sitting time to only a few weeks a year.
8. Ensure monetary policy is properly managed during this transition time.
9. Ensure the states don’t scupper the move to a free market based society by enacting or attempting to regulate labor markets.
That’s a start.
I would also be looking to privatize corporate registration etc.
I’ll speak about that later.
You need to ensure that the states don’t fuck this up by reregulating at state level.
I am all in favour of an opt-out system. In fact, I recommended it years ago (I think on FreeMarket.net, though maybe on ALS), although there are practical problems - one can benefit from others receiving government assistance; it is hard to not use government services/goods sometimes (roads, for example); compensation is due to the public purse for services/goods received up until the opt out in certain circumstances.
JC, for any radical re-structuring of the welfare system, I’d advocate a generation for the transition - 20-30 years, not 10. For tinkering, like tariff reductions or elimination for example, 10 years is good, but big changes need longer so that the culture can adapt.
Porks
if you need 10 years for tariff reductions… you’ll need 100 years for the rest.
Tariff reductions and such like ought to be done immediately, especially when one considers any form of tariff is thieving.
I think opt out is a cop out. It sends out the wrong message in that we aren’t certain of our position and makes other side ammunition and time.
Sorry to nit-pick, but roads shouldn’t be funded out of income tax. That’s why we pay car registration. Years ago one of the state motoring associations pointed out that if all the money raised from car registration was spent on maintaining roads, we’d be blessed with six-lane highways across the continent.
And JC, ff is not fat. I have met him. He doesn’t even have fat fingers.
Just sayin.
I really do want to see the detail of Saunders’ opt-out proposal, to be honest. I find the idea superficially very attractive and then find various kvetches (of which JC’s is one) floating to the surface and troubling my mind.
I know he isn’t fat, SL. That’s why I call him that to his face. I wouldn’t be calling him porks if he were a breathless blubber.
makes other side ammunition and time.
Ummmm
Gives the other side time and ammunition.
“Tariff reductions and such like ought to be done immediately,”
No, they shouldn’t, unless you are aiming for economic dislocation. A carefully planned out and explicit timetable for tariff elimination (or other economically equivalent measures) over 10 years gives everyone plenty of time to adjust so there can’t be political backlash and economic planning is easy. Plus 10 years is not so long anyway.
“Sorry to nit-pick, but roads shouldn’t be funded out of income tax. ”
Don’t know what you are nit-picking exactly, I never mentioned income tax. I thought we were talking about government welfare (services and goods provision) in general. Roads just came to mind because they are practically unavoidable, and are currently paid for by governments.
“if you need 10 years for tariff reductions… you’ll need 100 years for the rest.”
Only if you think we can only do one thing at a time. Unlike you, the rest of the world can walk and chew gum at the same time.
The most oppressive form of taxation is income tax, followed by the various tax-based disincentives operating against investment in things that provide something other than simple asset value appreciation (ie, buying up houses cos as far as we know, they’re not making any more land).
The LDP will never be a party of government, so I’m particularly interested in stuff that can be used as bargaining chips in a balance of power scenario. 30/30 - or elements thereof, like doubling the tax-free threshhold - are very powerful and simple ideas with genuine voter appeal.
If we have to keep paying car registration for the foreseeable, I don’t particularly care, although the LDP can make its point as the party of both low and responsible taxation by showing that most of our car registration isn’t spent on roads (ostensibly its raison d’etre).
OK, fair enough. Though roads aren’t the only ‘raison’ - there’s also externalities to pay for.
Raising the tax-free threshold is tax reform I always argued in favour of, and I will vote for any party that advocates it. It is equitable (all payers benefit) and progressive (the lowest-paid benefit most). I believe the LDP will have the best chance of political success in pushing this hard. Even more so than 30/30.
Aim for tripling the threshold!
I was under the impression that 30/30 was our tax AND welfare policy. That is, the LDP would replace all forms of income support (newstart, austudy, disability pensions, single mothers pension, age pension) with the negative income tax.
That’s what I thought, too, Yobbo, until David’s email lobbed into my in-tray asking me to fire up a Catallaxy thread on welfare issues.
I am not against welfare as such but there is a way we can have something like an implicit ‘opt out’ and allow competition to ’select’ efficient bundles of tax and welfare.
1) Fix up federalism and the way it has been stuffed up by the courts
2) Allow the States to raise their own income tax
3) Gradually abolish income tax and welfare at the federal level (this will go together with a process of tother cuts to federal spending). All Federal expenditures to be funded by GST and resource rent taxes.
4) With the States income tax power restored, let them raise their own welfare safety net if they want to. Individuals and businesses can then choose which State they prefer to be resident in. The more convergent the mix is on the preferences of its residents the better chance they have of achieving it.
Along with all the policy fixes that people are suggesting to modify or phase out the welfare system as we know it, has anyone addressed the mentality of the system, apart from the push for mutual obligations?
I mean is anyone apart from libertarian ideologues seriously promoting the idea that able bodied people have a moral obligation to pursue every legal avenue to look after themselves and their dependents before they have any right or reason to expect help from other people, apart from friends and relations?
The situation is quite different for the disabled and people who are in strife through no fault of their own. That is the basis of the ancient and honourable distinction between the deserving and the undeserving poor (deserving of welfare, that is).
How does one graduallly get rid of welfare? Do you inexorably lower the payments to zero, thus slowly starving people to death? As with most statutes of any importance the “Greta Big Welfare Abolishing Act” would have to have some rather intricate transitional provisions.
As a beginning, we could learn from the US : ie make sure that no-one who is not disabled or aged can receive welfare for more than 5 years in his or her adult life time.
Of course if we abolish things like sickness benefits, we will have tio prepapre for a steep rise in the official unemployment rate.
The 30/30 tax policy provides an excellent foundation for welfare and is the core of LDP policy. (For those not aware, it involves a negative income tax (NIT) of 30% on earnings below $30K. The tax free threshold is $30K and the tax rate above that is 30%.)
My concern is the situations it does not address. Should dependent children, for example, all receive NIT of $9K (ie 30% of $30K) just like adults who earn no money? If not, how and when should they be supported?
Should the NIT apply to all adults equally, irrespective of their ability and desire to work? If not, when should it apply?
You get the idea. The 30/30 plan is very good, but it needs a bit more. Otherwise, the LDP could be exposed to accusations of impracticality or heartlessness.
The link below leads to a summary of the 30/30 policy. It includes a link to the full document.
http://www.ldp.org.au/federal/policies/tax.html
people should receive this at adulthood, however that is defined, and as individuals. I see no reason for the State to subsidy couples who decide to have children anymore than there is a reason for it to subsidise singles who build up a wine cellar.
David
The 30/30 plan actually raises the the cap. gains tax, possibly the most damaging and corrosive of all taxes. It needs to gotten rid of irrespective of whether other taxes are lowered or that the tax free level is raised to $30,000. Cap gains is a tax on capital. Get rid of it.
JC
John’s plan is properly costed. Removing the CGT will just add too many spanners in the works. An income tax works on the principle that all sources of income are taxed - capital is a source of income. As long as taxes are at low levels that is what matters. Let’s get practical before we get too utopian shall we? John’s costed plan is a good enough start. It’s not as if any of this will actually be implemented. But we need a sufficiently practical plan that has a hope of influencing the direction of debate.
Abolishing CGT encourages people to park their money in property, which isn’t necessarily a good thing. Yes, I hate it too, but I hate income tax even more. If, as Jason and David point out, we are to affect the direction of debate, then we need to focus on ideas that have been fully worked through and costed.
I do think Rafe’s point is also important. There are some people for whom work is simply unrealistic - schizophrenics, the blind, many of those confined to wheelchairs. Australia has a very large number of DSP recipients, and they tend to have very low participation rates. High EMTRs are a significant part of this problem, but there are other issues as well.
I had my own vastly cheaper version of the negative-income-tax with an opt-out capacity on the Catallaxy archives.
And it was a formula which would likely have seen more and more people opting out each quarter.
And if that turned out to be not true you could adjust it so less and less people were on welfare every quarter.
And yet it carries the ability to opt-in so that no-one actually starves to death.
It would be a perfectly good way of weaning off the welfare state once we get that $30 000 tax-free threshold and 30% top tax rate which I reckon is at the core of the LDP platform.
Of course the archives are lost for all time.
But I’ll later see if I copied it onto my blog.
The key is to get a daily transfer of cash.
It has to hit just before you would normally have to be getting ready for work. Like a daily family transfer hitting at 3.00am in the morning.
But then in accepting that instead of getting the $30 000 tax-free-threshold you forfeit that and pay (lets say) the 30% from dollar ONE.
But then you can always swap over to gain the threshold and the incentives are such that its going to be within the reach of most families (even with all family members who are older then, lets say, 12….. working only part-time)…….
Its going to be within reach of that family to get by with that minimal assistance, stay together (no incentive it there to pull the family apart) not starve and quite quickly be in a position where it is in their interests to opt-out.
Pretty much everything hinges on getting that $30 000 tax free threshold. Or perhaps $25 000 and another $10 000 (lets say) for every registered dependent.
And then you can do this stuff.
Once you bring up the threshold you can bring in a more: 1. rational 2. Time-limited 3. minimalist 4. interim 5. safety-net.
That is to say a more rational, time-limited, minimalist interim safety-net.
All these current family assistance grants and other crap are just so poxy it makes me sick. Just a hateful system of poverty traps, such a disgrace. All wrapped up in a soul-destroying purgatory of form-filling condescension.
So many incentives for 16 year old girls to dredge up and build up alleged maltreatments put upon the gentlest of fathers and most motherly of mothers.
Just so they can con welfare into getting an income. And this represents a bribe to split familes apart.
Its so disgraceful its sickening.
Sickening to two more orders of magnitude because all of these bullshit measures and this fucking-fine-tuning is really just there so the tax-eaters can ignore their responsibility of thinning out their OWN numbers and lifting the threshold like the BASTARDS must have known they should have done 30 years ago.
Its really just a pretense to let them tell themselves their own parasitism is necessary and good.
Well I think these things are so nauseatingly disgraceful.
But Nick Gruen likes them.
So I must be wrong.
“Obviously as the point of welfare is redistribution actual opting out would mean effective abolition”
The point of welfare is NOT redistribution. The point of welfare is avoiding a utilitarian catastrophe.
And since under capitalism, well run and transitioned to, one would seldom expect such a catastrophe, then we ought to hold out great hope for welfares abolition or near-abolition.
And most of it quite quickly too.
The key is to get a daily transfer of cash.
Graeme, sometimes I can follow your reasoning in spite of your unique style. Not this time.
As SL points out, there are people who will never be employable and for whom a tax free threshold is irrelevant. Is a NIT an appropriate means of providing for them? Is there a way of incorporating the opt-in/opt-out approach here?
SL
But if you removed the negative gearing and other housing investment incentives, then CGT removal doesn’t neccessarily involve property speculation.
And Jason, the government should subsidise the wine cellar of parents of more than 2 children. This will remove all of the intergenerational demographic issues- and with all that booze lying around, the parents will probably be in the sack so much, they will end up having 4 or 5 kids (disclaimer - I have 4 kids). But seriously,the baby bonus and the family payments system should indeed be scrapped. Having children is a lifestyle choice (which I believe to be worthwhile), and, I believe, little swayed by a measly $1000 baby bonus (the little blighters cost a lot more than that to raise).
“As SL points out, there are people who will never be employable and for whom a tax free threshold is irrelevant. Is a NIT an appropriate means of providing for them? Is there a way of incorporating the opt-in/opt-out approach here?”
An NIT is better then what we have now. And it eliminates the so-called “poverty traps.”
But its mighty expensive.
And also people can cry poor. Since you can get a monthly payout and spend it all quickly.
And to be fair they can actually BE poor because dad can be a dipsomaniac.
You see him on payday (ie welfare day) drink and gamble his family allowance away. And in this way welfare has actually been part of his downfall.
But a before-work daily cash allowance of a much lesser amount is cheaper and no-one can rightly claim starvation or inability to make it to work.
Under total deregulation of the labour market very few people would be unable to get a job.
Maybe they run and get the job quickly for $2 an hour and the cash grant gives them enough to get to work on time with a full stomach and a few dollars for each dependent as well.
I think you’ll understand this totally different alternative once I dredge up my example of the scheme.
Give me a few hours.
The worthy poor will be looked after by private charties, family, neighbours, friends the goodwill of strangers etc. The state should stay out of welfare provision entirely.
One way to phase out welfare is to stop admitting people into the system. The pension could be phased out by telling people that if you were born from 1970 onwards you don’t qualify for the pension until you’re 100. Or a similar such rule with a sliding scale. Unemployment benefits might only be available for 5 years starting immediately. However the timeframe would then reduce over time.
Merry Xmas (belated) everybody.
You cannot, I repeat , you cannot remove unemployment benefits until every single layer of restrictive labor laws and regulation is removed from the system.
Even with our low unemployment rate there are about 400,000 people looking to fill 125,000 jobs at any one time.
There is unemployment in this country and it’s quite high.
The unemployed are not at fault here. At least the presumption should be they are not at fault until the labor market is fully opened up.
JC is right. A NIT solves the unemployment issue nicely. If someone wants to spend their $9000 a year surfing and only working over summer in a surf shop, that’s fine. When they’ve got more income they contribute to the tax base, when they haven’t, they don’t. Layers of bureaucratic regulation disappear in a flash. Likewise for the disabled who can work part-time and under the present system are actively discouraged from doing so.
The real sticking point is those who can’t work. Ever. Many of these people are severely mentally ill, and as someone with mentally ill friends and family, I can say that (as a society) we’re currently paying for the deinstitutionalisation of the mentally ill, in part by parking large numbers of them in gaol.
Here’s a really good analysis of the negative income tax.
http://www.mises.org/story/2406
I think its clearly a better system then what we’ve got now viewed in a static sense.
But we ought not ever introduce it but that we’ve hard-wired it to phase itself out.
The phase-out ought to begin right from the first month. Even if it takes a 200 months to do it
If we’ve already raised the tax-free threshold then where is this money for the negative income tax coming from?
1. The inflation-tax?
2. Taxes at rates that do grave damage to capital formation?
3. Measures that get us further in debt to foreigners every year?
Its got to come from somewhere and any of the above hurts the plight of the poor in anything other then the very short term.
I’m for the Negative Income Tax if its explicitly an interim thing. If the legislation for it guarantees its phase-out and its interim nature.
But we cannot let it dull our resolve to do what is necessary to bring living costs down.
Some of the things necessary to bring down the cost of living are a very hard ask politically.
(Getting rid of height restrictions on buildings. Getting rid of taxes on rent but clawing some of that back via land value tax……… and on and on and on and on)
If we have freed up the labour market and furiously taken all measures to bring living costs down then there won’t be many people falling through the gaps and those that do will not overwhelm private charity.
I can’t find my considerably more stingy and therefore more affordable scheme.
So I’ll reconstruct something like it a bit later on when I get the chance.
I’ll put it on this thread.
I had to spell it out on the grounds that derida derida was taunting me on being unrealistic about a high tax-free-threshold AND an NIT….. About not doing the maths.
Well I wasn’t being unrealistic but he did have a point.
On the other hand I’m sure his eyes just glazed over after that and he no doubt went back to figuring our own appalling system was acceptable and not a complete disgrace.
I think with the NIT one ought to treat it like other spending projects and not promise that any specific NIT will make the budget constraints cut-off.
You know there are all these things that you are going to cut. But you set up your constraints to do with the tax-free threshold, defense spending, cutting the top rates and running a surplus. And those things cannot be compromised.
So that collection of constraints sets a high threshold as to what spending programs can make the cutoff.
Now I think SOME SORT OF negative income tax ought definitely make the cut-off in that first budget. Because you are throwing out all the “public servant” tax-eaters and getting rid of nearly all other welfare besides the NIT itself.
So I think some sort of Negative Income Tax can be promised.
But I think its a mistake to promise a SPECIFIC Negative Income Tax.
That would await the iterative budget-making process to see what can be left in given the constraints.
Here is a summary of a few things we have to do to reduce poverty by reducing government.
I think we always have to be looking at reducing poverty but its the WAY in which you do it that really matters.
http://www.mises.org/fullstory.aspx?Id=1647
More such measures can be found in Reismans book.
Option for opting out from welfare means that the social security will work as an insurance company. The problem with this is two fold. First, most able bodied and well off people will opt out, and as (susprise, surprise) they are the biggest taxpayers, the system will either go bust or will be mighty expensive for the rest.
Secondly, once one of these who opted out finds himself in an impossible position (say, spent all the money in bankrupt property deals and then got a disability - or perhaps just grew too old), the goverment are expected by the electorate to support him.
30/30 and NIT is a great idea, but as David says, all is not as simple as it sounds. Indeed, should there be a distinction between a disabled person and someone who decided just to surf and survive on NIT?
The flat 30/30 system will mean that the fuly disabled will be at the bottom of the income piramid, which in my book is wrong. I guess this is why I am not a libertarian. I see that on economic issues I am close to fatfingers (however why on earth did you choose this weird name?)
Boris
Don’t saddle up with porky fingers. There are lots of Libertarains who think a tax take of about 10% is close to perfect. You can run a great military and provide welfare to people such as those who can’t take care of themsleves in any way.
Porks will lead you down a blind alley.
People who are TPI (totally and permanently incapacitated) are, AFAICS, the only sticking point in what is otherwise an excellent proposal.
I am starting to formulate some ‘in kind’ support proposals - much as is done for recipients of the blind pension. This is not means tested in any way, but is no higher than the standard DSP.
To take one example, blind people are given taxi vouchers for transport (which, because they are vouchers, cannot be mispent) and various other benefits that are wholly voucherized in one way or another (disclosure - I tutored a blind student for all of last year, so got to know the ins and outs of the system fairly well).
“Indeed, should there be a distinction between a disabled person and someone who decided just to surf and survive on NIT?”
You are thinking in static terms here. As if the NIT is to be some sort of end goal.
How handicapped are you talking about?
In a free labour market a man with a handicap does not necessarily have to feel like he’s a handicapped man. Or not forever least-ways.
He needs to be able to job-hop in order to manouvre himself into paid work which he is suited for and which pays well.
Well its a possibility that for the time being such people would get a supplementary scholarship/pension.
Maybe they get lumped in with the elderly since that pension will take many years to wean off of.
But the main point is that if you create conditions where people have many options and the costs of living are falling then any small number of people who are still destitute constitute a small number of people for charities to be able to assist.
It means these charities are not overwhelmed by people who ought to be able to get a job just walking up the next street and ought to be able to secure an apartment to rent on that same street in a buyers market and on the cheap.
In any case any pension that are set for people ought to be slowly reducing so that it eliminates itself unless a seperate bill is passed.
“To take one example, blind people are given taxi vouchers for transport (which, because they are vouchers, cannot be mispent) and various other benefits that are wholly voucherized in one way or another ”
Here is an example I’m talking about. Such vouchers would be vastly cheaper to provide, publically at first and privately one supposes later on, if we had sorted things out with great fervour in the meantime.
That is to say if we had taken all measures possible to reduce government depredation with a view to reducing the cost of living.
If we had done this with taxis the cost of a taxi ride would be far far cheaper then it is now. Or it would be at off-peak times at least.
Because taxi-rides are one of many areas where the cost is artificially elevated by amazingly idiotic policies.
I am sympathetic to your point, but that does not mean it should not be LDP policy.
Perhaps a more moderate option is to devolve welfare and income tax responsibilities to the states (or local governments). The feds can keep GST to pay for roads and military.
It is amusing to read the comments of those who know nothing about tax. First there is SL who doesn’t seem to know that CGT is not a separate tax to income tax.
There is no CGT Act, SL. The CGT provisions are part of the Income Tax Assessment Act 1997. How it works is that capital gains made by a taxpayer are added to that taxpayer’s assessable income for the relevant year. However, capital losses cannot be claimed as deductions from assessable income, but only written off against capital gains.
And there, sweet libertarians, is the biggest and best reform your precious LDP could introduce to cut the tax burden: allow capital losses to be claimed as deductions. At one stroke you would solve one of the biggest inequitable anomlaies of the tax system. You would also prove that you actually knew something about tax.
Jimmythespiv,
That prize-prat, Keating abolished negative gearing in the 80s. The result was the collapse of the rental market. he had to reintroduce in the next Budget. So leave it alone.
Thats a tiny matter Roccoco.
Don’t be a smartass.
What an idiot you are being.
Off-topic:
hey Graeme
Jefferson over at ALS has started referring to you as GBH - maybe you should change your moniker
http://alsblog.wordpress.com/2006/12/28/thoughts-on-the-libertarian-meeting-action-arising/#comment-2912
In art, “rococo” is understood to mean ‘opulence, grace, playfulness and lightness’. It’s not taken that seriously.
People who genuinely need welfare (as opposed to the middle class recipients much admired by the Howard Liberal government) do not pay tax as they earn no money. Hence capital losses are hardly relevant.
Let’s assume there is no minimum wage (as GMB suggests), so most disabled etc can find employment at some level. NIT under 30/30 also applies until their income reaches $30K.
Is this practical by itself? What about children and the impoverished elderly?
GB, RL is a tax attorney. He would know the tax act.
I’m fully aware of the governing legislative provisions with respect to GCT, RL, and yes, as the system stands, it is inequitable that capital losses can’t be deducted. Please do not make smart-arse assumptions about other people’s motives.
That said, one of the problems with the system as it stands is the maze of deductions and leg-ups granted to residential property investment over other types of investment.
For my part, I dislike CGT in large part because I pay so much income tax. I doubt I would care with a $30,000 tax free threshold and a 30% tax thereafter.
There are 700,000 DSP recipients in Australia. Their participation rates are the lowest in the OECD. Australia’s mental health system is a disgrace. Although I don’t agree with their solutions, this organisation has some useful cliometrics on the scope of the problem.
Of course, I’m biased… but my original paper does briefly address the issue of the disabled and children (and agd) in the appendix.
My preferred plan would be to increase the tax-free threshold for parents by $6000 (or $10000 if you want to be nicer) for each child, have a grandfathered pension top-up which is phased out as the compulsory super generation grows up and decentralise disability (and single-parents) responsibility to the states & private charity. If the last part seems to mean, then have a limited pool of funds (a couple of billion should do) which is used to match private funding for charities dedicated to the disabled and single parents.
This is discussed in the original paper. But mostly — 30/30 covers it.
Rococo, 30/30 covers the issue of CGT losses being written off against non-capital income. I guess that means I pass your criteria of understanding tax.
I think we’re going to have to go with some sort of voucher scheme. The electorate won’t wear those sort of suggestions, especially when they’re not fully costed and worked through in the same way as 30/30, and it may cruel our electoral chances completely.
I should read more Appendices.
Raising the TFT (and thus NIT) for parents makes sense (provided shared custody means sharing the increase) and could also be applied to certain disabled and the elderly.
Delegation to the states gets away from the tax system but otherwise is not necessarily a solution. The states might give handouts like Howard, raising the EMTR.
Matching public donations is OK except that a lot of so-called ‘corporate welfare’ involves matching funds. We need to be consistent.
Do you really want to maintain the compulsory super system? I don’t think so.
I have to say, of all the welfare regimes I saw, the Blind Pension was the most equitable. The amount of money was no greater than the standard DSP, but the absence of high EMTR and in-kind, voucherized support worked well.
Where it fell down was that blind people who could work had no thresholds at all, which meant that you could be on a very good salary and still get the full DSP.
“GB, RL is a tax attorney. He would know the tax act.”
I didn’t say he had anything wrong. I said he was being a smartarse.
And I wasn’t wrong about him being a smartarse.
On account of him being a smartarse.
The knowledge that this guy is a tax expert makes his remarks seem even more snide. Like he’s the tax guy.
None of us are tax-guys. We are philosophers of freedom and not experts on current depredation.
He should have just informed us on these matters and not expected us all to be experts on it when we have to rely on his expertise.
Sure tax deductibility on capital loss would make things more consistent. They have it in NZ I think and it would mitigate problems arising from a transition to hard money.
It was all this “sweet liberals” talk that shitted me.
I hope I didn’t piss him off too much that he aint coming back. Because we need his expertise. We don’t need him to be a smartarse.
We value your expert input Roccoco.
Do come back.
But don’t be a smartarse.
Maybe we could go further.
Make the threshold $20 000 and $20 000 for each registered dependent.
Which could mean not only your kids but your old dad and your blind cousin. And a crippled orphan kid who stays at your joint.
(I’m assuming here that we are getting rid of things like public education when I say this.)
And basically if you are a blind guy and you accept the assistance of a benefactor you forfeit your own tax-free threshold and get a tiny pension.
And if authentic charities can negotiate various cut-price voucher arrangements…
(like educational discounts, or taxi voucher discounts and so forth)
…… for the benefit of your blind cousin they might get compensated at half the voucher cost and also get a dollar for dollar subsidy for the donations they receive for their charitable work more generally.
But we ought not be thinking that any or all of these things are more then stop-gap measures to stop tragedies happening in transition.
Otherwise we’ll forget about doing the hard yards to bring living costs down and opportunities up.
And maximising voluntary capital accumulation which is the answer to all these problems ultimately.
And in fact any spending programs of this sort oughto have their own built-in phase-out.
“I think we’re going to have to go with some sort of voucher scheme.”
Two things worth thinking through here SL.
Firstly there are high EMTRS with vouchers unless you make them available to all people in the same “class” (e.g. blind people) regardless of income. If you withdraw them at a certain level of income, say $30K and the point at which you start taxing someone, then the value of the lost vouchers is higher than 30%.
Secondly, as libertarians is it valid to provide vouchers that remove choice? You would effectively be saying to a blind person, you must travel by taxi and not giving them the option to find alternate, cheaper travel and pocket the difference.
I make this last point because all too often those on low incomes are provided with least choice and deemed to be less responsible than others. Witness Mal Brough’s approach to many Indigenous issues. A truly libertarian society would afford choice to all.
I’m not sure what SL means by a voucher scheme. As long as welfare is around I prefer to minimise the number of taxeaters that have to be employed administering it. Hence libertarians’ preference for NITs. John’s scheme is an excellent interim policy and he has put a lot of work and costings into it and I think we should be happy running with it for the time being. He’s even softer than I would be and envisaged an implicit subsidy for each child (which is politically savvy) by the increase in the threshold. Personally I’m against subsidising single parenthood - but only because I’m against subsidising parenthood period. As jimmythespiv said it’s a lifestyle choice like collecting a wine cellar or maintaining a yacht. But I can see why we’d want to take account of it from a politically pragmatic point of view.
GBH - not to worry about Rococo, He may have a frilly, poncy moniker but he’s a tough guy.
Justin’s GBH for GMB is definitely catching on
“He’s even softer than I would be and envisaged an implicit subsidy for each child (which is politically savvy) by the increase in the threshold. ”
I really must stick up for John here.
I assume you are talking about John and not ME unless you have gotten round to referring to ME in terms of “He’s” like I’M the guy upstairs. Like I’M a new Yahweh.
If thats the case I encourage this practice as well as the use of “GBH” to refer to ME……..
….But please Jason use capitals.
But a tax deduction in this case is no implicit subsidy.
Rather Johns war of thinking is a very good way to go the whole hog and get rid of nearly all the EXPLICIT subsidies like public education.
And if we make that choice. If we go that road. If we make that choice to go that way I think we go EVEN FURTHER and make yet more cuts to the income tax as I suggest above.
It could wind up that our interim strategy would be to retain the income tax in the initial budget YET HAVE ALMOST NO BUGGER EVER PAYING IT (praise the lord).
But just have it there in the initial series of budgets to strong-arm folks to do the right thing and look after their own (as well a little bit some that might not be ‘their own’) like they would have if the depredation had never gotten to that level.
Now of course this strong-arming talk is antithetical to what we are about.
But if what we do amounts to a rapid-and-substantial reduction in OVERALL depredation at each step and also avoids heartbreaking utilitarian tragedy then I’m OK with it as a transitional arrangement.
Better then OK actually I approve.
We might need to look at that then.
Instead of 30/30 it might be 20/20/20/20/20 but then we cut much deeper into blood-sucker-central.
We cut so it hurts.
By the way wasn’t Angharads input quite brilliant?
Hopefully its Roccoco Liberal and he isn’t abandoning us on account of me spitting the dummy.
Angharad can you please kind of hang out?
No matter who you are?
I’m sure RL will be back. He’s a busy bloke and he’s got other stuff to do - tax lawyer and all that.
Well he’ll be back if he’s a tough guy.
Read whatever motives you want from the above statement but we are right and good and true and therefore we need all the brains we can get.
“Hopefully its Roccoco Liberal and he isn’t abandoning us on account of me spitting the dummy”
Nope I’m not a tax lawyer -but the idea of being one is a weirdly compelling
Please feel free to drop in more regularly, Angharad. Your input on this topic is very insightful and much appreciated, and is helping David & the LDP feel its way towards some sort of policy on this.
I’m wondering if UK politics has gone libertarian because this debate is sounding very familiar. Especially the “I’m alright, Jack” assumption that welfare is something that only happens to other people.
I was always under the impression that the welfare state (UK) was established to eliminate the tyrrany of the ‘deserving and undeserving poor’ distinction. (Fine concept when you’re the one distributing largesse, but very oppressive for those having to justify their personal worth in order to live week to week.)
There is an alternative no one seems to have considered. Contrary to Jason’s suggestion to sell off the nations assets (a move that would benefit a single generation but make no provision for those coming after) how about developing more assets that will bring in additional money to fund the system?
Alaska already does this with oil and gas revenue. Other investments require sums only a nation or a bank could supply - during railway privatisation Abbey National (a bank) bought the new rolling stock needed by the privatised rail companies and leased it back for substantial profit. The government could have done this.
They already have land and commercial property. Make it pay. Buy some more. They ‘invest’ in fine art for politicians offices and residences to borrow, why not extend the idea to investing in other income producing assets and let THOSE pay for the welfare state.
Correct me if I’m wrong, but this seems a bit similar to John’s idea (or was it Jason’s?) of matching government funds to private charity. I can’t see any reason why it should only be charity - what’s wrong with making the whole thing profitable?
“… how about developing more assets that will bring in additional money to fund the system?”
We do that already. Its called private investment.
Stealing off people to fund investment is not a good move and is in fact quite heartless.
Sometimes its been thought to be necessary for so-called public goods.
But this only highlights weaknesses in our development of regulatory frameworks to clarify property rights for such goods.
The idea that government can be a more effective investor then the public is quite silly.
I don’t suppose you remember the Soviet Union? It had a number of decades to do what you suggest and failed.
Where did you get the idea that a greater level of thieving is good for poor people?
SL [on 16]:
Don’t be too certain about that …. although many former Liberals voters will seek refuge in that other conservative party, Labor, when the Liberal Party finally disintegrates ….. there will be some looking for new homes, like Australian Democrats and Liberal Democratic Party.
Okay, fair point Graham. At least you can’t accuse me of being unrealistic and over optimistic!
I could write lots here (Saunders’ proposal is ridiculous - has he never heard of adverse selection?). But I’ll stick to a single point: SL, it is schizophrenic to simultaneously complain of churning and high EMTRs. If you lower EMTRs you must increase churning as more people will be in both the welfare and tax system either simultaneously, over the course of a year or over their lifetime (BTW this points to another issue - the rate of churning is very sensitive to the time period you use).
To illustrate, a pure Flat Tax/Basic Income scheme would have no high EMTRs anywhere but would have massive churning. Despite this last, it would also be very simple to administer - which should tell you that churning can be efficient.
FWIW, according to the OECD Australia has the lowest rate of churning in the world. This is not unrelated to our high EMTRs.
Dude. Thats rubbish.
You appear to be assuming that we are keeping the government the same size.
If you put up the the tax-free-threshold and massively reduce government spending you reduce churning and the effective marginal tax rate at the same time.
“FWIW, according to the OECD Australia has the lowest rate of churning in the world. This is not unrelated to our high EMTRs.”
Look governments are by their nature outrageous thieves. So it doesn’t matter if the above it true. Actually its almost definitely bullshit but it doesn’t matter.
We have to reduce our effective marginal tax rates. And we have to reduce churning.
Its the most outrageous nonsense to suggest we can’t do both.
I don’t see how that holds, DD. Consider the raising of the tax free threshold to $30,000 (current LDP policy). At present, many people receive various kinds of hand outs - family tax benefit is one such example. In large part, these hand outs are necessary because our tax free threshhold is set at $6,000.
This process - taxing someone, then administering a bureaucratic application process, then giving the individual previously taxed (some of) their money back - is churning, pure and simple. As Jason pointed out above, this process requires large numbers of taxeaters to administer it. If you read the 30/30 policy, you’ll see that as much as raising the tax-free threshhold, it involves a major simplification of the system.
Discretionary handouts that reward lifestyle choices - baby bonuses, FHOG and family tax benefit - and which are clear examples of churn - disappear entirely.
That way, you get both your reduced churning and and an increase in the tax free threshhold. However, as David and I pointed out, this does involve a significant drop in income for people who are disabled - from around $15,000 to $9,000. For many, that won’t matter, as they will be able to work part-time without having to fear losing their pension.
Where the system falls down is for those who are TPI, and who will never work. As Angharad argues, these people are the most vulnerable in our society and should not be penalised for being vulnerable. And - as he also points out - vouchers are tempting but also deny the poorest of the poor real choices. As a libertarian I’m uncomfortable with denying people choice.
Of course, you could argue that we’ll never sell this to the electorate - and despite Graham Bell’s optimism, I suspect you’d be right. There are, however, bits of it that could be sold in negotiation with the major parties. Raising the tax free threshhold is one such example. Ending the tyranny of mutual obligation for the disabled, in my view, goes hand-in-hand with this.
I didn’t say it would be more effective, simply that there are some investments of a size particularly suited to goverments that are currently only exploited by the largest institutional investors.
You seem to equate tax with theft. I simply argue that there are some functions of government that cannot be exploited for profit and are therefore unsuitable to be privatised. Yes something like Education COULD be profit making but the cost would be ditching universal education provision. We’ve already seen several of New Labour’s private ‘academies’ find convenient excuses to exclude any student that seems unlikely to perform academically. While there would be some benefit to making education a priviledge rather than a right, the social fall out for and caused by those left behind would be immense.
Market forces by nature are concerned with short term benefit. Governments need to consider what effects their policies will have on a generation that hasn’t even been born yet. When Thatcher gave council tenants the right to buy their homes in the 1980’s she boosted a whole generation of people onto the property ladder. The result has been a drastic reduction of investment in social housing (both in maintenance and new provision) so that the children of the ‘right to buyers’ no longer have access to affordable housing.
I’m thinking in terms of basic domestic economics. You start with an income from work. You use that income to buy assets which themselves produce an income. Eventually you can quit work because your assets are producing enough income to live on.
In the UK contributions to the welfare state are called “National Insurance” because that is what it is supposed to be - an insurance scheme. Instead of paying premiums straight out again (which is why the pensions system is near collapse) you invest them and use the interest to pay the premiums.
I thought there was a bit missing there, DEM. All fixed now.
The problem with relying on government as a sort of institutional invester is twofold.
1. Governments - even more than corporations - are wedded to short-term election cycles. They often make very bad investment decisions and waste more of the taxpayers’ money than originally received in the form of taxation.
2. Much of the reason for overpriced housing (in both Australia and the UK) is to do with restrictive urban planning and government tax breaks that encourage people to invest in residential property. In Australia the FHOG was designed to give young people a leg-up into the housing market. All it did was contribute to an increase in housing prices.
On the education issue, Milton Friedman was the one who pointed out that education provided so many positive ‘neighbourhood effects’ that it had to remain universal. He proposed a voucher system, which meant that parents could freely choose where to educate their children. This gives the school in question a powerful incentive to ensure that it retains its students and actually educates them, rather than booting them out when they become troublesome. It also eliminates the problem of ’sink’ schools in one fell swoop.
That said, if the state is going to run a form of national insurance (as both DEM & Boris have mentioned), and they aren’t investing the money and increasing the size of the overall kitty, then the system really is rogered.
Thanks for neatening the code. I’ll try to be less ambitious until I’ve had some posting practice.
Yes, the current system IS rogered, hence the recent pensions green paper. And private provision hasn’t been the saviour you might expect. The UK has seen the financial failure of Equitable Life (one of the largest insurance companies) and numerous company schemes that have gone bust, taking forty years of workers money with them. There have been so many now the government has had to set up a compensation scheme which is already wobbling due to demand.
Companies have rushed to close final-salary schemes to new employees (and sometimes existing ones) in a bid to get their pension deficits down. Private investment nous is obviously also lacking - instead of socking away record gains during the market boom of the 1990’s to even out cycles, companies took a payment holiday instead and are now left with massive deficits. It probably doesn’t help that pension schemes are considered part of company assets. There may be an argument for hiving them off so executives can’t play with the pension fund to boost short term share prices.
I agree that direct control by politicians would encourage short-termism for electoral gain, so why not give the scheme to the now independent Bank of England? They’ve been doing quite well without political interference for several years now and wouldn’t be hamstrung by the profit motive that means massive admin charges on your private super scheme.
“You seem to equate tax with theft. I simply argue that there are some functions of government that cannot be exploited for profit and are therefore unsuitable to be privatised. Yes something like Education COULD be profit making but the cost would be ditching universal education provision. ”
There is just too much nonsense in your post to unravel. If you could be more laserlike then we can put it to rest one mistake at a time.
1. You seem to equate tax with theft.
Yes well of course I do. On account of the fact that it IS theft.
2. I simply argue that there are some functions of government that cannot be exploited for profit and are therefore unsuitable to be privatised.
Right. The courts. The police. Intelligence. Defense. And sometimes big problems of the moment.
No not education. That is wholly unsuitable for the government to run. Totally inappropriate.
You see I could go on countering all you’ve said but its just too much bullshit in one hit. It requires me to write ten words to your one. Is there any one thing that we might be able to hone in on?
The terms insurance in ‘national insurance’ and ’social insurance’ aren’t meant to be taken literally. It has never been run on actuarial principles and doesn’t need because of the monopoly power to tax. Insurance companies are based on competing for customers’ premiums. In any case even the concept of insurance isn’t based on ‘growing’ the size of the fund but by having a large enough sample of subscribers to enable risk pooling and diversification effects.
But more importantly the idea of raising revenues through investments is far, far, far worse than raising it through taxation. It means government getting involved in holding large chunks of investments in the economy, and it means important sectors of the economy gradually becoming exempt from competitive pressures on the rationale that they are being used to cross subsidise public goods. The privileges that used to be enjoyed by Telecom (now Telstra) was based in part on such ideas.
This is the wrong way to go.
Graeme, don’t be grumpy. These are exactly the sort of questions reasonable punters are going to ask on these issues. We have to have well thought out answers and good policy proposals. I happen to know DEM supports a NIT, so like the rest of us (and in line with David’s original request), she is trying to come up with solutions.
As yet, no-one has come up with a satisfactory solution to David’s and my concern with provision for the TPI. And if we don’t, we will get called for heartless bastards.
Ignorant question, Jason: why didn’t the UK government, when it had all that money sloshing around in the ‘National Insurance Scheme’ at least invest it wisely in much the same way as, say, an insurance company does?
I’m sure there’s a ridiculously simple answer but my head is full of a rotten summer flu just now and I can’t think of any.
“I was always under the impression that the welfare state (UK) was established to eliminate the tyrrany of the ‘deserving and undeserving poor’ distinction. (Fine concept when you’re the one distributing largesse, but very oppressive for those having to justify their personal worth in order to live week to week.)”
Does this mean that the “poor” has the right to welfare even if they are perfectly able to work?
SL
As explained there is no need for government to be engaged in such shenanigans. National insurance schemes are just tax and transfer schemes.If there are some forms of insurance that are better handled by private insurance companies they should be , and if not (i.e. inherently uninsurable risks) they should just fall under tax and transfer schemes. It is better to be transparent than dressing something up as a hypothecated service when it isn’t.
I don’t understand where this desperate urge to raise revenue by government effectively nationalising parts of the economy is coming from - there are more than enough revenue sources to tax and no one except a handful of nutters is proposing doing away with all tax.
Tax is always going to be with us and its (sparing) use is preferable to recreating the Soviet experiment.
To elaborate on the above and to some extent repeating myself - when government sets up a ‘national insurance’ scheme it already has a captive policyholder base unlike a private insurance company.
Indeed, to some extent this is one of the alleged advantages of national insurance over competitive insurance (though not a decisive advantage) - the captive base means that it does not have to suffer from adverse selection problems and therefore at least has that cost advantage (though whether this gives it the incentives to do other things better than private insurers is questionable).
My point in a nutshell SL. If it wasn’t actuarily “insurance” before perhaps it should be.
And GBH (I choose that permutation deliberately), why should welfare be any less vital than defence, intelligence, courts or the police to creating a safe, stable society and economic development? Aren’t the ‘neighbourhood effects’ worth it?
Charity is no less liable to abuse than welfare, nor is it any less oppressive than state bureacracy . In Struggle or Starve, a book on life in the Welsh Valleys between the wars, one girl assessed for parish relief because she was too ill to attend school had to prove her virginity.
Presumably she would have been considered capable of earning her own living had she failed the examination.
Under an NIT, yes, Boris. Living on $9,000 a year would probably be a bit tricky, but then I’ve known pleanty of people do fairly well on less, particularly if they live in country areas and stay in share housing.
As Jason and Mark have repeatedly pointed out both here and LP, the number of people who are going to flock off and surf and do no work for the year while living on 9K is very small.
The whole concept of ‘dole bludgers’ is actually an artificial media creation. The phenomenon appears to exist because people are so busy fulfilling their mutual obligation requirements (around here the unemployed seem to be painting an awful lot of rocks white) and being penalised for doing part-time paid work (because of high EMTRs) that the system is collapsing under its own weight. An NIT eliminates the whole ‘worthy and unworthy poor’ distinction completely.
What it doesn’t do is help people who are disabled and need things like in house care, specialised transport, specialised medical attention and so on. Of course, people may argue that it would be possible to reinstitutionalise the mentally ill at least, and the idea has some merit. However, every study ever conducted shows that even the most lavish regime of ‘care in the community’ is cheaper than hospital based accommodation.
Did Angarahad have a comment that got messed up or did he suffer from slippery paws?
Angharad - your comment has vanished into the ether - I checked in as admin and there was nothing there!
We would all do well to remember this comment of Jason’s:
Arguably, the 30/30 regime may well raise more revenue because of its positive pareto effects (I’m not sure if I’ve expressed that properly - if I haven’t I’m sure Terje will come along and explain it rather better).
How much money was sloshing around in the National Insurance scheme? And are we seriously considering letting government play with our taxes on the stock market when this was totally unnecessary given the captive subscriber base?
Look, the only country which actually does this is Singapore, I believe. And they pay their politicans and public servants top dollar. if that’s the road you want to go down, sure, but it’s not necessarily a libertarian road.
Jason, private insurers themselves are easily swayed by stock market performance. What’s your evidence that they perform any better than the state (hampered by complacency)?
New Labour has cooked the books when assessing Private Public Partnership projects to add an ‘inefficiency’ weighting to public sector bids to make them look more expensive. Unfortunately there is no actual evidence that this is the case and some contracts remain in the public sector where they are completed in an efficient and profitable manner.