Friday, January 16, 2009

Stop Taxing the Poorest Incomes at 20 Per Cent

Joseph Stiglitz write in (via Economist’s View, Mark Thoma):

Do not squander America’s stimulus on tax cuts


Joseph Stiglitz: Just Say No to Tax Cuts

Do not squander America’s stimulus on tax cuts, by Joseph Stiglitz, Commentary, Financial Times”:

“As news of the US economy worsens, he worries about whether a stimulus could restart the economy ...”

“We are in uncharted territory in this crisis. But household tax cuts, except for
possibly the poorest, should have no place in the stimu

It seems to me that Joseph Stiglitz does not emphasis the correct and moral policy. Across the board tax cuts may not be efficacious in the current climate, but the case for removing the poorest consumers from the taxation system is convincing.

Raising the personal, non-taxable allowance from about £6k to £16k (even higher) would largely be passed on in spending and stimulate the economy fairly quickly.

Reducing tax rates in the higher income brackets may not have an such an immediate, or lasting, effect.

The poor spend; they do not save much as a group. Legends of poor-pensioner, miserly ‘millionaires’ are news, when revealed, because they are so rare.

The majority, and their families, are poor already before taxation hits them, if they have jobs, and raising the tax threshold will not make them rich; only a little less poor.

It’s not that this change would ‘solve’ poverty. The moral compulsion for removal is that paying income tax (20 per cent, thanks to the ‘Labour’ government) when they already very poor is itself immoral.

Removal of the income tax from the very poor may mean that the richer would pay ‘proportionally’ more on their much larger incomes, which Adam Smith said was appropriate in other contexts, and not at the expense of the poor, ‘who are least able to supply it.’ [WN V.i.d.13: p 728; Edwin Canaan, 1937 edition, Random House, p 686]



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