måndag 28 april 2008

Perverse Incentive

There is another crop of letters in the newspapers today, complaining about the loss of the 10p income tax band. Of course most of them miss the point, which is that the 0p band should be extended so that nobody earning less than the mininum wage has to pay income tax at all.

And looking more deeply into the subject, it is necessary to understand that income tax is nothing more than a system of perverse incentives - a structure of penalties for working rather than doing nothing. This results in an ongoing annual loss to the UK economy of over £140 billion, to which must be added the running cost of £25 billion. We cannot afford this kind of nonsense, especially since government spending actually needs to rise to pay for people's increasing expectations of public service.

Public debate on tax is almost always confined to how much. Attention needs to shift to a consideration of what is taxed and how.

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