British politics is obsessed with a silly row over whether the Conservative policy of “recognising marriage in the tax system” is affordable. This is an idiotic question. Anything is affordable if you are willing to raise taxes elsewhere or borrow to fund it.
The only relevant issue is whether a transferable tax allowance (or other tax breaks for marriage) are a good idea. This important debate has been forgotten. Here are some reasons why transferable tax allowances are a terrible idea:
- Simplicity. Transferable tax allowance further complicate the income tax system.
- Independence. Recognising marriage in the tax system undermines a woman’s (or a man’s) ability to keep her income separate from that of her spouse. Women’s legitimate irritation at being treated by the state as an appendage to their husbands was one of the main reasons the tax system became increasingly blind to marriage under the last Conservative government in the 1980s and 1990s.
- Misunderstanding history. It wasn’t nutty progressives who got rid of the married man’s allowance and undermined the married couples’ allowance in the tax system. It was a combination of those awful lefties (Nigel Lawson, John Major, Norman Lamont and Kenneth Clarke) who were Conservative chancellors between 1983 and 1997. Gordon Brown took the last bit of the married couples allowance and called it the children’s tax allowance in 2001. It now has a new and horrible name: ‘the family element of the child tax credit’ and it is assessed on joint family income.
- Incoherence 1. George Osborne wants to get rid of the family element of the child tax credit – ie the one part of the tax system that is a remnant of the old married man’s allowance. In his 2009 Party Conference speech, he said: “We can no longer justify paying means-tested tax credits to families with incomes over £50,000.” This passage came just six paragraphs after he said: “That is why we are going to support marriage in the tax and benefit system.”
- Incoherence 2. The standard argument for a marriage tax break goes like this. Children of married parents have better and more stable lives, therefore marriage is good, therefore the tax system should support marriage. While the correlation is true, there is no evidence that proves the causality runs in this direction. Only the most bone-headed reject the possibility that stable, well-meaning couples are likely both to marry and to raise children well. This wilful confusion of correlation with causation is really worrying in politicians that seek to govern.
- Incoherence 3. Is the world really a better place if a couple who would have chosen not to marry decide to tie the knot because they would pay a little less tax? It strikes me as perhaps the most morally dubious reason possible for marriage.
- It probably won’t work 1. This is pure conjecture, but I don’t think the elasticity of marriage to a tax break is likely to be very high.
- It probably won’t work 2. Politically, the Conservatives have already said that civil partnerships (between same-sex couples) will be eligible. Given this, it will be difficult to discriminate against cohabiting couples or even lone parents by excluding them from any tax break. The obvious unfairness that a married couple with two kids pays less tax than their stable cohabiting equivalent will cause a huge political stink.
- Income distribution. The beneficiaries of transferable tax allowances are single-earner couples who tend to be at the upper end of the income distribution. The policy is therefore a straight-forward redistribution from poor to rich. There is nothing inherently wrong with this – it is a political choice – but anyone proposing such redistribution must be honest about the consequences.
- Labour supply. A transferable tax allowance is a straight subsidy of single-earner couples compared with two-earner couples. So those in favour of it must also be in favour of reducing the potential labour force. It really is something when a political party is insistent on getting more disabled and sick people back into work, so that they can pay taxes to allow rich mothers to stay at home.
* Individual tax allowances can be transferred between husband and wife according to who can use them best.
Disclosure for those who worry about these sorts of things. I am married with two children and a potential beneficiary of this policy I think is nuts.
