Stupid ideas in tax policy

"Let's tax people more than they earn, that'll work."

On both sides of the Atlantic, there have been some truly terrible suggestions recenty as to how to "improve" the tax system.

In the US, [some Republicans are proposing what amounts to a great than 100 per cent marginal tax rate on incomes hovering just over $400,000], as the New York Times' Jonathan Weisman reports:

One possible change would tax the entire salary earned by those making more than a certain level — $400,000 or so — at the top rate of 35 percent rather than allowing them to pay lower rates before they reach the target, as is the standard formula. That plan would allow Republicans to say they did not back down in their opposition to raising marginal tax rates and Democrats to say they prevailed by increasing effective tax rates on the rich. At the same time, it would provide an initial effort to reduce the deficit, which the negotiators call a down payment, as Congressional tax-writing committees hash out a broad overhaul of the tax code.

That would mean, Slate's Matt Yglesias writes, that:

A person with an Adjusted Gross Income of $399,995 is going to have a higher after tax income than someone with an Adjusted Gross Income of $400,005. And it's not a small difference! You're talking about a tax penalty in the tens of thousands of dollar range for popping slightly above $400,000 rather than staying slightly below.

Meanwhile, in Britain, Chris Skidmore MP is arguing for massive marginal tax rates on the poor:

For individuals aged under 25 who have not yet paid National Insurance contributions for a certain period, perhaps five years, unemployment benefit should be in the form of a repayable loan. An unemployed teenager would still receive the same amount of cash as now, for example, but they would be expected to repay the value once in work. A New Beveridge calculates that this could recoup the government over £1.3 billion a year. Even if someone were unfortunate enough to be out of work for the entire seven years between 18 and 25, the total sum repayable would be £20,475 – considerably less than the tuition fees loan, repayable by many of his or her peers. This would also create an additional incentive to take on paid work.

With the numerous benefits which get phased out rapidly in the first few thousand pounds earned each year, making work pay is already tricky. That was the stated motivation behind the government's introduction of its own Universal Credit, which will replace six means-tested benefits and tax credits in an effort to ensure that the phase-out is controlled.

All of that would be for nothing if, the minute you started earning, you were expected to pay back a multi-thousand pound loan. Even taking Skidmore's "solution" at its most charitable, and assuming he literally means a tuition-fee style repayment option, people currently claiming unemployment benefits are, pretty much by definition, the last people you ever want to raise marginal tax rates on.

If your first priority is to punish the unemployed, then this is a proposal which makes sense. If it's to help them back into work, it's a ridiculous idea.

A political cartoon mocks William Gladstone. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Why Theresa May won't exclude students from the net migration target

The Prime Minister believes the public would view the move as "a fix". 

In a letter to David Cameron shortly after the last general election, Philip Hammond demanded that students be excluded from the net migration target. The then foreign secretary, who was backed by George Osborne and Sajid Javid, wrote: "From a foreign policy point of view, Britain's role as a world class destination for international students is a highly significant element of our soft power offer. It's an issue that's consistently raised with me by our foreign counterparts." Universities and businesses have long argued that it is economically harmful to limit student numbers. But David Cameron, supported by Theresa May, refused to relent. 

Appearing before the Treasury select committee yesterday, Hammond reignited the issue. "As we approach the challenge of getting net migration figures down, it is in my view essential that we look at how we do this in a way that protects the vital interests of our economy," he said. He added that "It's not whether politicians think one thing or another, it's what the public believe and I think it would be useful to explore that quesrtion." A YouGov poll published earlier this year found that 57 per cent of the public support excluding students from the "tens of thousands" target.

Amber Rudd, the Home Secretary, has also pressured May to do so. But the Prime Minister not only rejected the proposal - she demanded a stricter regime. Rudd later announced in her conference speech that there would be "tougher rules for students on lower quality courses". 

The economic case for reform is that students aid growth. The political case is that it would make the net migration target (which has been missed for six years) easier to meet (long-term immigration for study was 164,000 in the most recent period). But in May's view, excluding students from the target would be regarded by the public as a "fix" and would harm the drive to reduce numbers. If an exemption is made for one group, others will inevitably demand similar treatment. 

Universities complain that their lobbying power has been reduced by the decision to transfer ministerial responsibility from the business department to education. Bill Rammell, the former higher education minister and the vice-chancellor of Bedfordshire, said in July: “We shouldn’t assume that Theresa May as prime minister will have the same restrictive view on overseas students that Theresa May the home secretary had”. Some Tory MPs hoped that the net migration target would be abolished altogether in a "Nixon goes to China" moment.

But rather than retreating, May has doubled-down. The Prime Minister regards permanently reduced migration as essential to her vision of a more ordered society. She believes the economic benefits of high immigration are both too negligible and too narrow. 

Her ambition is a forbidding one. Net migration has not been in the "tens of thousands" since 1997: when the EU had just 15 member states and the term "BRICS" had not even been coined. But as prime minister, May is determined to achieve what she could not as home secretary. 

George Eaton is political editor of the New Statesman.