In this issue of the Citizen’s Income Newsletter three of the book reviews are on the same theme: Taxation. We review the publications which have emerged from the Mirrlees review, a collection of classic papers on taxation, and a collection of conference papers. All of these volumes are essential reading for anyone wishing to gain an understanding of the development of the study of the economics of taxation, of the different types of tax available to a government, and of some of the options for reform facing the UK tax system.
However, when the reviews are read together they reveal a serious gap. Whilst in the Mirrlees Review publications, and in the other volumes reviewed, there is occasional reference to means-tested benefits, none of them contain sustained discussions of the differences between means-tested, contributory and universal benefits and of the different effects of these different benefits. None of them study the combined effects of the tax and benefits systems on the income maintenance structure for a population.
This matters. The structure of net incomes, the behaviours of their components, and those components’ combined effects on the many different aspects of people’s lives, are arguably far more important than the characteristics and effects of tax systems studied alone. It is the systems working together which need to impose as little administrative complexity as possible on individuals, households, employers, and governments; and it is the systems working together which need to impose as few labour market, savings and other disincentives as possible. Genuine tax credits would be a step in the right direction (by which we don’t mean the means-tested benefits which the Government calls Tax Credits). Even better would be a Negative Income Tax. But better than that would be a universal, nonwithdrawable and unconditional benefit alongside a progressive tax system. This would be economically and administratively efficient, and it would impose the fewest possible disincentives.
It would be a pleasure to see this option as both the subject of a major review process and of future edited collections of classic and newly written papers.