The ever-excellent IFS have a report out today on the ‘lifetime’ versus ‘single year’ views of our tax and social security system. The key finding is that 64% of us pay more in taxes in any one year than we receive in welfare, but that figure increases to 93% across our lifetime.
The Telegraph has focused on this over-90% figure:
More than 90pc of us pay more taxes than we'll ever get back in welfare, says IFS http://t.co/eageijWHUH pic.twitter.com/1IptwPmDN4
— Telegraph News (@TelegraphNews) September 22, 2015
And the Guardian has gone with the analysis later in the report on the effects of the current government’s policies on inequality:
UK tax and benefit changes worsening inequality, IFS warns http://t.co/VYyxvtp0z2
— The Guardian (@guardian) September 21, 2015
Nick Gray picked up something slightly more interesting:
“The sharp distinction often made…between ‘working’ and ‘non-working’ families is not especially useful…” http://t.co/YHmfO6www1 @TheIFS
— Nick Gray (@path_dependent) September 22, 2015
When you combine that with the following statement in the findings, it starts to raise a few questions:
More than half of the redistribution achieved by taxes and benefits is effectively across periods of life rather than between different people, in the sense that the tax and benefit system takes from an individual at one age and gives back to the same individual at another.
Do we see our benefits system as an important mechanism to help other people out, and therefore a system that can be attacked and criticised if they behave in a way we do not like? And should we, instead, accept that over half of the money is helping ourselves out? If so, does this suggest there are better ways to design, protect and manage benefit systems?
Maybe it does, given that we know that there is compassion fade for pro-social actions beyond single individuals 1. We seem to struggle with the ‘many’, and our capacity to feel sympathy is often quite limited.
But we’re actually not good at making decisions for our future selves either. ‘Hyperbolic discounting’ is the term given to our inability to adequately weigh risks and benefits for our future selves, leading us to focus on instant gratification more. This, along with other psychological effects, means that we tend to under-save for our retirement, along with many other financial situations that were covered in the fascinating RSA report, Wired for Imprudence, earlier this year.
The two newspapers that I referenced at the start of this article can be seen as taking different political views of the same report. This underlines that however important it is to get the right information out about policy, people mainly read what they want into it. As well as information, we need to think a little harder about why people make the decisions that they do, and why they respond to that information with the language and assumptions that they do. I’m of the view that it’s probably not because they’re selfish or mean on one side, or naïve and overconfident on the other: getting past this may help us design and communicate policies more effectively to achieve the ultimate objectives of our benefits system. To me, that should be an honest combination of both the effects that the IFS report highlights: the safety-net when we need it across our lives, and the redistribution effect that we want within our society.
[1] Slovic, P; Västfjäll, D; Mayorga, M; Peters, E; Lamm, C. ‘Compassion Fade: Affect and Charity Are Greatest for a Single Child in Need’ PLoS ONE, 2014, Vol.9(6)
