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A Citizen’s Income would leave income tax calculation as the only income test

Most of us are subject to an income test: an income tax system. This is quite efficient – that is, it efficiently works out from our earnings and other income how much tax we should pay – largely because much of it happens automatically through a Pay As You Earn system, in which the employer deducts tax from earnings each month on the basis of a tax code and then passes the tax collected to the Government. The problem for people on means-tested benefits is that they suffer an inefficient means test, and employees who receive in-work means-tested benefits will often suffer two means tests: an income test attached to income tax and a means test attached to means-tested benefits. A Citizen’s Income would require all or most earnings to be taxed, therefore most people would find themselves on an income tax income test, and few would suffer from a means test for benefits. Social integration and social justice would be enhanced and administrative costs would fall. After all, why do the same job twice?

If at the point of implementation of a Citizen’s Income some means-tested benefits were retained, and households’ means-tested benefits were reduced by their Citizen’s Incomes in the same way as they are reduced by other income, then some people would still suffer two means tests: the more efficient income tax income test, and the less efficient means-tested benefits means test. Those households would be on far lower amounts of means-tested benefits, their marginal deduction rates would be lower than they are now, and they would therefore have both the ability and the desire to get off means-tested benefits by increasing their earned incomes.

Should the Citizen’s Income be taxed? If it was taxed, and there was a tax allowance greater than the Citizen’s Income, then those on low incomes would lose none of the benefit of their Citizen’s Income (so there would be no harm in taxing it) and those paying tax at a higher rate would have their tax bill increased (because more of their income would be in the higher tax bracket). The arguments against taxing the Citizen’s Income are that this would be administratively inefficient, that people paying tax at the higher rate are already paying more in tax than the amount of their Citizen’s Income, and that to tax the Citizen’s Income might make it less popular.

But whether or not the Citizen’s Income is taxed, the principle remains the same. It is an automatic and unconditional payment that would be paid for through the operation of an efficient income test: the tax system.

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About the Book

101 Reasons for a Citizen’s Income offers a short, accessible introduction to the debate on a Citizen’s Income, showing how a universal, unconditional income for every citizen would solve problems facing the UK’s benefits system, tackle poverty, and improve social cohesion and economic efficiency. For anyone new to the subject, or who wants to introduce friends, colleagues or relatives to the idea, 101 Reasons for a Citizen’s Income is the book to open up debate around the topic. Drawing on arguments detailed in Money for everyone (Policy Press, 2013), it offers a convincing case for a Citizen’s Income and a much needed resource for all interested in the future of welfare in the UK.