Rationale for making the living wage a tax-exempt point for the first £24,000 per year.
This is consistent with the net effect of working tax credit claimes which is in part a refund of the tax paid with additional benefits to supports those on the minimum wage rates.
Currently, income tax is collected at the £12,570 and then the individual claims working tax credits and other benefits which then return an amount over the amount of tax paid which in itself is a waste of government costs in administration.
By modification of this layer of taxation the net effect reduces the benefits and can make work actually pay so the reliance on the state for financial support is reduced.
Apparently 90% of taxes are paid by people above £34k, so I would argue that if you made the starting tax rate at £34k then you would lose at most 20% of taxes.
I would go one further though and remove all benefits and minimum wages and replace it with a negative tax of say -33%.
So if the break even point is 30K, anything less than that is taxed at a negative 33%.
So if someone is on no income they receive £10k, if they earn £9k in a year then the remaining 21 is taxed at -33%, so they would receive £7k on top of the £9k, making £16k. etc etc. until you get to someone on £27k, then they get £1k back making £28k. and then at £30k they are at 0 and get no more or less money.
Basically it means that someone always gets more from earning than not. Atm it pays sometimes to not work.
Secondly it makes a bunch of jobs that are currently below minimum wage in worth to a buisness, viable. This may not sound good but it massively increases the jobs that are available and therefore gives the workers a choice. Now instead of having the option of working in a super market at a till on min wage or nothing, a OAP could go work in a flower shop instead, with a slower pace and more enjoyable. A young person may want to work in the music industry, and could now be paid to work at what previously would be an internship, but get paid while doing it.
There is an interesting video where economist Milton Friedman describes the negative tax proposal. Available on youtube for anyone that is interested.
