alt Hacker NewsIncome cliffs, even phased, are generally stupid. See Britain's 100k cliff for free childcare. If both parents make 99k, you get it. If one earns 101k and the other earns zero, you don't get it. The workaround (pension stuffing) is widely known and actually means the govt comes off worse than if they'd just given the childcare away.
There are all kinds of other perverse effects like people turning down promotions or dropping down to working 4 days a week. It's a government-sanctioned ceiling on ambition for high earners. Genius.
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Right in the middle of this now. I have another two years of stuffing pension and making a few choice charity donations (like buying a National Trust Lifetime Membership - a gift aidable donation) and then out of that phase.
And then I'll probably be able to retire 10 years earlier too.
I am also confused by cliffs. Maybe someone more knowledgeable than me could explain why you would ever want them for something like this instead of just having higher progressive tax rates for well off people to make up for it. Naively I would think that that’s significantly easier from and administrative point of view too.
One option would be implement as a income graded fee. Zero up to 230, and increasing fee above. Allowing all walks of life to access the same gov't services should be a more widely deployed pattern.
I suspect that the policy is popular with the 90% of voters in the UK who earn less than £80k and that politicians are not very concerned with the ambitions of the rest of us (frustrating as that is when paying London rent).
In this case, it strikes me as a bad idea because there are advantages to having people - both parents and children - mix across income-levels. It fosters empathy, increases cultural knowledge, broadens social networks.
> Income cliffs
This is because people do not understand continuous functions.
That's why they should be phased, and not too steeply.
If they're phased, e.g. at 30% (for every additional €1 you earn, benefits decrease by €0.30), you have the problem that when you are applicable for several of them (e.g. for children, child care, chronic illness, etc.), the benefit reduction adds up as well, so you're quickly back at an effective marginal tax rate (EMTR) of 90% or even over 100%.
You'd think that it wouldn't be beyond the capability of our society to declare that "the EMTR shall be at most 70% at any point in the income curve", and do the math to make it work, but apparently not.