That every citizen is entitled to a Citizen's wage. That all earnings received in addition to this amount, is then taxed at some fixed rate.

Typical calculation - a citizen's wage of £4000 per annum. A flat rate of taxation of 50% for any additional income - with no additional National Insurance for either employers or employees.

Explanation

The initial meme is that an entitled Citizen's wage provides the backdrop of a social welfare policy providing security for all. It would replace unemployment, disability and state pension benefits. It is not a benefit .. it is an entitlement.

An extension to this idea is the realisation of its potential relation to taxation systems.

A related problem is the idea that "well off" individuals should not be entitled to state benefits. That child support, and state pensions should be mean tested and only provided to those who really need them.

The Child Benefit Example

Before the fixed child benfit payment was introduced, parents would claim tax relief for the extra dependents they were responsible for.

It was demonstrated that this discriminated against the less well off, since if they did not earn sufficient money, they could not receive the full tax benefit - well off people benefitted more. Clearly this was wrong

This was corrected by the removal of the tax code adjustment, and the introduction of a cash benefit - normally paid to the mother of the child.

Now however, this is perceived to be a benefit that should be removed from better-off couples. This is an example of a lack of appreciation for what the benefit is. The logical conclusion to this thinking is that better off people should have their tax code reduced - clearly nonsense.

Family Credit

This relatively new tax/benefit system in the UK is clearly designed to replace child benefit at some point in the future. Introduced as a means tested benefit payable either as an increase in tax allowances are as a monthly cheque. The effect is that your taxable allowance is increased unless you have a combined income of > £53k, ridiculous. And precisely the effect that seemed nonsensical with means testing child benefit. This is pure blindness.

A PAYE Example

Suppose Mr X, earns £40000 per year. Ignoring the employers NI contributions, Mr X will have a tax code that gives him ~ £5000 per year free of income tax. Then he will be taxed at various levels as his salary increases. After ~£30000 his personal NI contributions will reduce to 1%, and at about the same point his salary will be taxed at 40%. The formula is quite complicated - certainly too complicated for most people to really understand - even without the nonsense that is the employers NI contribution - possibly winning awards as the ultimate Stealth taxation system.

But for every pound that his company pays out for in the higher rate band, Mr X will receive ~52.3p. Salary 88.65p => employers NI ~ 11.35p and personal tax of 35.46p, and employee NI of 0.89p, so the resultant tax on the full £1 is 47.7%.

So, on £40000, how much will Mr X receive over the year?

Tax Code yielding £5000 free from income tax:

Employers NI  7431.84
True Gross   47431.84

Employees NI  2987.16
Tax due       8379.48
              -----
Deductions   11366.64

Net pay      28633.36
             ========

So we can see from this example, that the effect of the various tax bands and calculations, is exactly the same as providing a citizens wage of £3826.56 per annum and taxing all other earned income at a flat rate of 47.7%.

The benefit system seems mainly to be in place to ensure that those people who do not receive their full tax allowance, do in fact receive it by some other way. Except, of course, that no-one seems to realise this.

Note that this does not define what the tax rate should really be, there may well be arguments that tax rates should be lower, it simply demonstrates that the combined tax breaks are equivalent to a flat rate "entitlement".

Some interesting figures:

Single Pension	£4000 pa
Incapacity Benefit (40yr old)	£4100 pa
Income Support	£2800 pa

It doesn't look like those on income support are getting anywhere near their full entitlement, but to this basic level can be added other benefits if people understand the system properly. The single pension and incapacity benefit figures are close to the citizen's wage that could be paid to all as an alternative to the banded taxation system. In fact for our £47431 example, a citizens wage of £4000, would imply a tax rate of 48.1% to yield the same tax take.

It would also be interesting to consider child and other benefits in terms of a citizens wage, I am confident that all could be rationalised along similar lines.

Benefits Trap

It should hardly need pointing out that an obvious advantage of this approach is that the so called "Benefit Trap" is completely removed.

This article and others may also be viewed online here: http://www.cutthecrap.biz/blog/memes/taxation.html