Sunday, 2 November 2014

On Earning Subsidies (Part 1): Why earning subsidies?

Earning subsidies are my preferred method to improve the situation of the economically worst off. The government provides a top up to the income of workers who earn a low amount. These are utilised often under the name of ‘tax credits,’ for example Working Tax Credits in the UK and Earned Income Tax Credits in the USA. The new Universal Credit in the UK is gradually replacing Working Tax Credits.  

Unlike the basic (or unconditional, or citizen’s) income this subsidy only goes to those who work. This is achieved by only taking account of income received as a result of working (earnedincome), or by taking a declaration of the fact that someone is working, or the number of hours which they have worked.

If earning subsidies directly assist the right people, why are they not universally accepted as a good idea? Some on the left think that employers should be paying their staff rather than leaving the government to pick up the tab. This is no doubt often because they want the state to do a lot of other things and money spent supporting workers leaves less money available for other projects. Many on the left are also heavily involved in the Trades Union movement, and Unions will also be sceptical of earning subsidies for similar reasons.

Those on the right might be sceptical of earning subsidies for several reasons. Some think that free markets produce the correct outcomes and that it is always wrong to interfere with them. Others may see earning subsidies as a disincentive for people to work harder or show ambition, and that this might have unwanted economic consequences. The left-wing characterisation of the right-wing view on this might be that they want workers to be desperate and have little choice but to take terrible jobs for very little pay. I hope that this characterisation would not be correct, but I fear there might be some terrible people who would hold this view.

I will consider the more sensible concerns about earning subsidies in the next part of this series of blogs. I should mention that despite the ideological opposition described above most pragmatic and centrist politicians and activists are supportive of earning subsidies. There is good reason after all—channelling government spending to people who are doing economically useful activities but getting paid very low wages for doing so. In the third part of the series I will explain why my hourly averaging system would provide a much more effective method of assisting the worst-off than existing earning subsidy proposals. 

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