Monday, 23 June 2014

What are potential hour credits?

Hour credits are highly valuable in an hourly averaging economy. Their distribution would need to be tightly controlled and the rules for entitlement to them would need to be strictly applied. The binary nature of hour credits could be seen as a source of great inflexibility in the system. In some cases the choice to give out hour credits for certain activities could be a very difficult one. Disallowing hour credits for an activity might stifle a highly useful and important part of the economy or society. Allowing them, on the other hand, may have serious consequences.

Consider the example of hour credits for writers. If writers are not able to claim hour credits this would reduce writing to a hobby activity, one which would need to be funded largely by people working on other activities. Great writers might have to waste valuable writing time doing approved work and society would miss out on many if not all of their latent works. Now consider the other extreme, where writers are given hour credits for spending time writing. If anyone is able to declare that they are writing something then many more people would than the number who would be considered serious writers. Free-riders could occasionally hand in a load of nonsense to justify the valuable hour credits (and the money that follows) they receive from society. Plus we wouldn’t want government approved censors making the call about which works were artistically valuable. The two extremes are undesirable.

My proposal is that people should be able to register ‘potential hour credits’ for some activities, for example that of unfunded writing explained above. These potential hour credits would not generate any tax or income benefits when they are granted. If the activities later generate income then the authorities can upgrade these potential hour credits into fully fledged ones. This could be applied at a rate of converting one hour credit for an amount earned above the zero-tax point. So if this amount is set at twice the zero-tax point and this point is £9 per hour then the potential hour credit upgrade rate would be one hour credit for every £18 earned from the activity. Once the income from the activity exceeds the number of potential hour credits there are no more to convert. Of course the taxpayer can continue to receive further income but this will have no further effect on hour credits.

A further suggestion (from my very clever fiancĂ©e Katy) is that the upgrade of potential hour credits could be accompanied by a tax-free top up payment as well. This would represent the difference in the value of an hour credit of the required value being received at the time the potential hour credit was granted and the time at which the potential hour credit was upgraded. Katy suggested using the ‘social time and preference rate.’ For the most part the payment would be very small. However, where the rate is high or the time-span is long the payment could be valuable to the recipient.

This briefly explains potential hour credits. Let me know in the comments if anything is left unclear. In the following posts I will explain the sorts of activities that would qualify, and also present another possible use for potential hour credits for self-employed workers. 

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