Reforming the Tax and Welfare System

Journal of Business Administration and Policy Analysis, Annual 1996 | Go to article overview

Reforming the Tax and Welfare System


INTRODUCTION

I am going to focus my talk on the research we do at the Institute for Fiscal Studies. What I want to discuss is work on reforming the tax and benefit system. This is an important area of work at the Institute and I want to look at this work in the light of recent reforms in the U.K., U.S.A. and Canada. Of course, there have been lots of reforms to the tax and benefit system. I want to concentrate my discussion on the concerns that people have about the welfare system as it affects those who are not in employment, and the issue of how best to get those types of individuals, or welfare recipients, into the labour market. It is the most important issue, in some sense, in the design of welfare systems and it is a red hot policy issue.

The problem with systems designed to relieve poverty among particular target groups of families - in particular, single parents - is that as these individuals start to earn, then there is typically an implicit tax rate of close to 100% in most welfare systems. Effectively, there is a dollar for dollar loss on the welfare benefit as earnings rise. In addition, in-kind transfers like free medical services, free dental care, free medical prescriptions, and subsidised housing are often lost with a move into employment.

What I want to focus on then, in light of these concerns, is the move in the policy debate towards the use of in-work benefits. This is a topic that has been of interest on both sides of the Atlantic, and especially in the U.S. and the U.K. Coincidentally, there is a big debate going on in Canada right this minute and I'll try to refer to Canadian evidence as I am discussing this topic. The idea is to make work pay for individuals who are welfare recipients. The difficulty in the design of welfare reforms that attempt to achieve that goal is to avoid too large a reduction in the income of individuals who either can't find work or are not able to work.

Before I discuss the types of reform, I want to put these reforms within the context of the 1990s. Quite important things have been changing in the economic environment, especially in the labour market. And it is only within the characteristics of this environment that you can begin to understand how this kind of welfare reform is going to operate. One characteristic we are familiar with is the shift in demographic patterns. There are now more retired people and more single parents. In addition, there is a remarkable shift in returns to education and skill; in particular, declining real wages for individuals who are less educated or less skilled. For example, in the U.S. even median real earnings have fallen yearly since the late 1970s. And the lower deciles have fallen yearly since around 1974 or 1975. That characteristic is quite exaggerated in the U.S., but it is nonetheless common to most developed countries and those with low skills are exactly the type of people you find in the welfare system. Welfare recipients have found a continuously falling return to being in employment, certainly over the last 15 years.

In addition to that, we have seen an increase in income uncertainty, with higher chances for people to have repeat low income spells. On top of this, there are certain factors that bear on the cost of living for these individuals. In particular, one thing I'll focus on with regard to the U.K. - but I am sure it is true in Vancouver and lots of other North American cities - is increasing housing costs, especially among low income households. Typically in welfare programmes, some housing assistance is given, and so one can find individuals in cities, such as London, with quite high welfare benefits covering, to a large extent, their housing costs. With a lowering of the real returns for individuals who are less skilled - exactly the group on welfare - there is a dual problem of a falling return from employment and an increasing level of benefit through welfare programs like housing assistance. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Reforming the Tax and Welfare System
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.