Hourly averaging, the shadow economy and mainstream work

I am pleased to announce my first blog published on the University of Manchester Policy Blog. 

I wrote a piece about the topical issue of tax credits. My argument is that a further advantage of earnings subsidies such as tax credits is that they encourage workers and employers to engage in legitimate activities and expose themselves to scrutiny. This should in turn have positive economic effects. 

I am very much in favour of tax credits. Indeed, my own hourly averaging proposal could be considered as being tax credits on steroids, given that they could be a lot more generous to working people. 

My CLIPH-rate tax proposal goes further than other proposals as it includes all personal income in the tax base. This means that all income is counted in a single tax, which is set up to provide higher net incomes to those who have worked more hours. 

As legitimate work would be a necessary condition for hour credits (and thereby legitimate net income) this would force those engaging in criminal and black market activities to create front businesses to enable those involved to receive any ‘legitimate’ income. Furthermore, as almost all income is taxed if discovered it would be more difficult for people to hide property that they have gained through illegitimate means. 

Having to create front companies would be a costly enterprise that would make criminal activity less remunerative—a tax on crime. More importantly, providing information about these fake front businesses opens up the possibility of scrutiny. Not only would this mean that such enterprises would be more likely to be found out but they would also have linked themselves to all those engaged in the enterprise—all involved would go down with the ship.