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Relatedly, I learned about Universal Credit, an attempt by the UK to merge all their social benefits into one coherent system, and it seems like the cliff probl

by SilasX 7y ago

Relatedly, I learned about Universal Credit, an attempt by the UK to merge all their social benefits into one coherent system, and it seems like the cliff problem here is worse. From the BBC description: https://www.bbc.com/news/uk-41487126 https://www.bbc.com/news/uk-41487126 >Under the old system many faced a "cliff edge", where people on a low income would lose a big chunk of their benefits in one go as soon as they started working more than 16 hours. >In the new system, benefit payments are reduced at a consistent rate as income and earnings increase - for every extra £1 you earn after tax, you will lose 63p in benefits. In other words, after fixing the cliffs of the system, you would "only" face a 63% effective tax rate for working more. So whatever system they have no is even more discouraging. (That understates it because it's phrased post-tax; including a positive income tax, the total effective tax is even more!)

mantap 7y ago
The purpose of universal credit was not to solve any particular problem - it was to give conservative politicians something to say when their voters demanded something must be done [about people on benefits]. The world makes a lot more sense when you realise that laws and regulations are primarily conceived and constructed to keep incumbents in power. Maybe we should vote in our representatives for life then they'd actually have to focus on making things better.
- SilasX 7y ago
  If the system incentivizes capable people not to work and just live off taxes, that should be corrected.
  - tremon 7y ago
    That's a bit shortsighted. There are many valuable types of "work" in society that are not rewarded monetarily. Take for example, child rearing, community building, or caring for elderly/disabled/homeless people. Should "the system" really push capable people into valueless jobs at the cost of meaningful jobs that have no monetary value?
    - SilasX 7y ago
      If there is a deliberate policy decision to penalize someone for working on the grounds that "hey you would do better as a stay-at-home mom", that would be one thing; it would at least have some consistent internal logic to it. But I don't think the UK's or US's systems are like that; they just got hobbled together by being pushed in different directions by various groups with conflicting desiderata that combined to produce ridiculous incentives, and those incentives should be corrected. Moreover, to the extent that valueless jobs and valuable non-monetary jobs exist and can be identified, the proper response is to explicitly target them (either with penalties or subsidies), not just allow anti-market-labor incentives to exist because "hey, not every job is worth doing, you know?"
- M2Ys4U 7y ago
  >The purpose of universal credit was not to solve any particular problem - it was to give conservative politicians something to say when their voters demanded something must be done [about people on benefits]. It's both. The idea of Universal Credit is a good one - it rationalised dozens of benefits into one programme. Unfortunately the implementation is - because Tories - a terrible system that causes more problems than it solves.
  - 113 7y ago
    But no one involved in creating universal credit did so for any other reason than as an excuse to cut the number of people who are eligible.
peteretep 7y ago
I think you have misread or misunderstood this. Under the old system, it was possible to take a job, and then have less actual income than you did before. Under the new system, _every_ extra hour of work you do causes you to have more money in your pocket, and you are always incentivized to do more work, or start a job that pays less now but might pay more as your experience grows. I'm not sure how else you'd want this to be designed.
- SilasX 7y ago
  My point was that 63% is still very bad, and if it’s supposed to be an improvement, then the existing system is abysmal from an incentive perspective.
  - crooked-v 7y ago
    It's not 63%, it's a reduction of £0.63 in benefits (not in your total income) for each extra dollar you earn in income over the cutoff level. This prevents situations where it's better to stay under a cutoff of X in income until you can jump straight to an income of X income + Y in benefits, while staying on benefits until then.
    - deleted 7y ago
      [deleted]
    - johnday 7y ago
      Surely if benefits are part of your income, a £0.63 reduction in your benefits is a £0.63 reduction in your total income (up until the benefits are zero)? In other words, an effective tax rate of 63% on earnings while you receive a nonzero amount of benefits?
  - peteretep 7y ago
    How else would you see this working, exactly? You've got to make sure people who need the benefits and can't work get supported, you need to not discourage people from working (and most people _do_ want to work), and you also can't just (afford to) unilaterally extend benefits to a whole bunch of people who don't currently get them. So, concrete proposal on how you'd structure this?
lmm 7y ago
63% is not necessarily so bad. Income tax rates for the well off went as high as 95% at some points in UK history, and those do not seem to have been disastrous (indeed they seem to be some of the country's finest years). And beyond that you're letting perfect be the enemy of good here. Eliminating the cliffs and capping the marginal tax rate of the poor at 63% is valuable progress. If you want things to get better you should celebrate the small victories, not treat them as an opportunity to complain more.
- crooked-v 7y ago
  As the reduction applies only to the benefits (not to your income), it's just a smooth reduction in benefits as you earn more money, not a tax.
  - lmm 7y ago
    Money is fungible. If a salary increase of $1 leaves you with 37c in your pocket that's a de facto 63% marginal tax rate, however it happens to be structured for accounting purposes.
    - DanBC 7y ago
      The salary increase of £1 leaves you with £1.37, because you get the £1 wage plus £0.37 benefits.
      - DanBC 7y ago
        I don't understand how this got downvoted, because it's literally what happens. Universal credit replaces a wide range of legacy benefits. One of the legacy benefits it replaces is "working tax credits". These were payments made to people who were working and on a low income. This part of Universal Credit "tops up" your earnings from work. They are in addition to your earnings. is. When someone on UC starts working they get their pay from work, and on top of that they get their their universal credit minus 63 pence per pound that they earn from work. In the past if you did more than 16 hours of work in a week all your benefit would stop, but under UC you can work over 16 hours in a week and keep the money. Universal Credit work allowances: https://www.gov.uk/government/publications/universal-credit-work-allowances/universal-credit-work-allowances https://www.gov.uk/government/publications/universal-credit-... What the earnings taper is and how this affects Universal Credit: https://www.entitledto.co.uk/help/Earnings-taper-Universal-Credit https://www.entitledto.co.uk/help/Earnings-taper-Universal-C... How your earnings affect payments: https://www.gov.uk/universal-credit/how-your-earnings-affect-your-payments https://www.gov.uk/universal-credit/how-your-earnings-affect...
crooked-v 7y ago
With this system you're guaranteed to never end up with less total money than you started with by getting a better-paying job, which makes it definitionally not a cliff. It's just a gradual reduction in benefits as you earn more.
- akvadrako 7y ago
  It’s not a cliff and sounds like a step in the right direction, but it’s still effectively a 63%+whatever marginal tax rate.
  - scott_w 7y ago
    I can’t remember the exact benefit numbers (they might overlap with National Insurance) but you don’t pay income tax until you’re earning over £11,000 so you shouldn’t pay marginal tax while on benefits.
    - evanpw 7y ago
      Losing benefits as you make more money has the same effect as being taxed on that marginal income.
      - scott_w 7y ago
        I don’t dispute that at all, I’m just saying the marginal tax brackets themselves don’t kick in until later.
dangerface 7y ago
The universal credits in the uk where setup by a conservative government thats obsessed with austerity. The intent was to cut the funding to benefits disguised as a new system.

by SilasX 7y ago

mantap 7y ago

The purpose of universal credit was not to solve any particular problem - it was to give conservative politicians something to say when their voters demanded something must be done [about people on benefits]. The world makes a lot more sense when you realise that laws and regulations are primarily conceived and constructed to keep incumbents in power. Maybe we should vote in our representatives for life then they'd actually have to focus on making things better.

SilasX 7y ago
If the system incentivizes capable people not to work and just live off taxes, that should be corrected.
- tremon 7y ago
  That's a bit shortsighted. There are many valuable types of "work" in society that are not rewarded monetarily. Take for example, child rearing, community building, or caring for elderly/disabled/homeless people. Should "the system" really push capable people into valueless jobs at the cost of meaningful jobs that have no monetary value?
  - SilasX 7y ago
    If there is a deliberate policy decision to penalize someone for working on the grounds that "hey you would do better as a stay-at-home mom", that would be one thing; it would at least have some consistent internal logic to it. But I don't think the UK's or US's systems are like that; they just got hobbled together by being pushed in different directions by various groups with conflicting desiderata that combined to produce ridiculous incentives, and those incentives should be corrected. Moreover, to the extent that valueless jobs and valuable non-monetary jobs exist and can be identified, the proper response is to explicitly target them (either with penalties or subsidies), not just allow anti-market-labor incentives to exist because "hey, not every job is worth doing, you know?"
M2Ys4U 7y ago
>The purpose of universal credit was not to solve any particular problem - it was to give conservative politicians something to say when their voters demanded something must be done [about people on benefits]. It's both. The idea of Universal Credit is a good one - it rationalised dozens of benefits into one programme. Unfortunately the implementation is - because Tories - a terrible system that causes more problems than it solves.
- 113 7y ago
  But no one involved in creating universal credit did so for any other reason than as an excuse to cut the number of people who are eligible.

peteretep 7y ago

I think you have misread or misunderstood this. Under the old system, it was possible to take a job, and then have less actual income than you did before. Under the new system, _every_ extra hour of work you do causes you to have more money in your pocket, and you are always incentivized to do more work, or start a job that pays less now but might pay more as your experience grows. I'm not sure how else you'd want this to be designed.

SilasX 7y ago
My point was that 63% is still very bad, and if it’s supposed to be an improvement, then the existing system is abysmal from an incentive perspective.
- crooked-v 7y ago
  It's not 63%, it's a reduction of £0.63 in benefits (not in your total income) for each extra dollar you earn in income over the cutoff level. This prevents situations where it's better to stay under a cutoff of X in income until you can jump straight to an income of X income + Y in benefits, while staying on benefits until then.
  - deleted 7y ago
    [deleted]
  - johnday 7y ago
    Surely if benefits are part of your income, a £0.63 reduction in your benefits is a £0.63 reduction in your total income (up until the benefits are zero)? In other words, an effective tax rate of 63% on earnings while you receive a nonzero amount of benefits?
- peteretep 7y ago
  How else would you see this working, exactly? You've got to make sure people who need the benefits and can't work get supported, you need to not discourage people from working (and most people _do_ want to work), and you also can't just (afford to) unilaterally extend benefits to a whole bunch of people who don't currently get them. So, concrete proposal on how you'd structure this?

lmm 7y ago

63% is not necessarily so bad. Income tax rates for the well off went as high as 95% at some points in UK history, and those do not seem to have been disastrous (indeed they seem to be some of the country's finest years). And beyond that you're letting perfect be the enemy of good here. Eliminating the cliffs and capping the marginal tax rate of the poor at 63% is valuable progress. If you want things to get better you should celebrate the small victories, not treat them as an opportunity to complain more.

crooked-v 7y ago
As the reduction applies only to the benefits (not to your income), it's just a smooth reduction in benefits as you earn more money, not a tax.
- lmm 7y ago
  Money is fungible. If a salary increase of $1 leaves you with 37c in your pocket that's a de facto 63% marginal tax rate, however it happens to be structured for accounting purposes.
  - DanBC 7y ago
    The salary increase of £1 leaves you with £1.37, because you get the £1 wage plus £0.37 benefits.
    - DanBC 7y ago
      I don't understand how this got downvoted, because it's literally what happens. Universal credit replaces a wide range of legacy benefits. One of the legacy benefits it replaces is "working tax credits". These were payments made to people who were working and on a low income. This part of Universal Credit "tops up" your earnings from work. They are in addition to your earnings. is. When someone on UC starts working they get their pay from work, and on top of that they get their their universal credit minus 63 pence per pound that they earn from work. In the past if you did more than 16 hours of work in a week all your benefit would stop, but under UC you can work over 16 hours in a week and keep the money. Universal Credit work allowances: https://www.gov.uk/government/publications/universal-credit-work-allowances/universal-credit-work-allowances https://www.gov.uk/government/publications/universal-credit-... What the earnings taper is and how this affects Universal Credit: https://www.entitledto.co.uk/help/Earnings-taper-Universal-Credit https://www.entitledto.co.uk/help/Earnings-taper-Universal-C... How your earnings affect payments: https://www.gov.uk/universal-credit/how-your-earnings-affect-your-payments https://www.gov.uk/universal-credit/how-your-earnings-affect...

crooked-v 7y ago

With this system you're guaranteed to never end up with less total money than you started with by getting a better-paying job, which makes it definitionally not a cliff. It's just a gradual reduction in benefits as you earn more.

akvadrako 7y ago
It’s not a cliff and sounds like a step in the right direction, but it’s still effectively a 63%+whatever marginal tax rate.
- scott_w 7y ago
  I can’t remember the exact benefit numbers (they might overlap with National Insurance) but you don’t pay income tax until you’re earning over £11,000 so you shouldn’t pay marginal tax while on benefits.
  - evanpw 7y ago
    Losing benefits as you make more money has the same effect as being taxed on that marginal income.
    - scott_w 7y ago
      I don’t dispute that at all, I’m just saying the marginal tax brackets themselves don’t kick in until later.

dangerface 7y ago

The universal credits in the uk where setup by a conservative government thats obsessed with austerity. The intent was to cut the funding to benefits disguised as a new system.