The Problem of Discriminating Tax Allowances

And how Basic Income solves it.

Like many people in many countries, I get a personal tax allowance. This is the amount of money I can earn each year, before I have to pay any income tax. But tax allowances are rife with discrimination.

The problem

Let’s consider an imaginary country where the personal tax allowance is $10,000. You only pay income tax on any money you earn above that amount each year. The first $10,000 is tax-free.

But what happens with married couples?

Consider Couple A. Each partner works 20 hours per week. This means both partners are able to make full use of their personal allowances. So between them, they can earn $20,000 free of any income tax.

Couple B, on the other hand, operate a traditional division of labour in which only one partner has a job and works 40 hours per week, whilst the other partner takes care of housekeeping and childcare. Despite working the same hours between them as couple A, they only get $10,000 free of income tax each year, because they can only make use of one person’s tax allowance.

This seems ridiculously unfair. So it would seem reasonable to allow a married person to transfer some or all of their personal allowance to their spouse. And this is what some countries did.

But then came the issue of same-sex partnerships (in the days before same-sex partners could get married). If married heterosexual couples could benefit from this ability to transfer tax allowances, then shouldn’t homosexual couples be able to do the same thing? Otherwise, it’s blatant discrimination.

And what about people who are partners, but not formally married or in a civil partnership? They shouldn’t be discriminated against either, surely?

But wait! What about people who operate a household division of labour, but are not romantically involved with one another? What happens, for example, if you have two sisters living together? One has a job and the other takes care of household duties. Why shouldn’t they too be able to transfer personal allowances? Why should they be at a tax disadvantage compared to couples?

But where do you stop? What about couples who don’t actually live together? What about people who are divorced, but still have to make maintenance payments to a non-working ex-spouse? What about people who live in polygamous relationships?

If we want to avoid any form of discrimination, shouldn’t people be allowed to transfer their personal allowances to anyone they like?

The problem is that if we allow that, rich people could potentially buy non-working people’s personal allowances off them and avoid paying income tax altogether. Plus there would be huge potential for fraud.

The whole thing becomes a nightmare. Just how do you operate a tax allowance system that doesn’t unfairly discriminate against non-married couples, same-sex couples, siblings living together, couples living apart, or anyone else, without leaving the system open to abuse by unscrupulous tax dodgers?

The solution

Fortunately, there is a very simple answer to this dilemma: Scrap personal tax allowances and give everyone a Basic Income instead, paid on an individual basis.

With no personal tax allowances to manage, the government will no longer need to take any interest in who is living with who or what their romantic relationship might be. It’s a win for equality and a win for privacy, too.

Once again, Basic Income provides the simplest, most efficient and fairest solution to a problem that’s been lingering for decades.