Tuesday, 21 September 2010

Trust HMRC with your PAYE?

The folks at CentreRight are waking up to the lunatic proposals from HMRC that Thaddeus J. Wilson blogged about a couple of weeks ago.

Just as taxpayers finally lose confidence in the ability of the Revenue to calculate PAYE correctly, HMRC offers to take the matter out of our hands and present us with a fait accompli. The power grab implicit in the latest HMRC proposals – currently under consultation - to receive all salaries direct from employers, process all deductions and then hand to us what remains, should worry anyone who values freedom.

On Wednesday HMRC Chief Executive Dame Lesley Strathey told the Treasury Select Committee that the Revenue was backing down on its threat to charge taxpayers interest on repayments of tax underpaid through Revenue error. But there is no sign yet that “Centralised Deductions” will be strangled at birth.

The most obvious problem is that HMRC, with their demonstrated organisational and IT incompetence, can't be trusted to pay people the correct amount, on time. More insidiously, this move would further entrench the idea that the government is entitled to our pay, and that we should make do on our allowance.

Here's the comment I left at CentreRight:

Income tax is inherently invasive. It's bad enough that the taxmen get to pry into our lives, but all of the machinery in place to allow HMRC to monitor our accounts and our mail could easily be turned to more sinister purposes.

A much better solution would be to abolish income tax.

Income tax imposes compliance costs, avoidance costs, and dead-weight costs. Millions are spent on tax inspectors and HMRC IT infrastructure. Millions more are wasted by taxpayers who devote their time and energy to filling in forms, or to avoiding taxes, rather than focusing on productive work.

Worse still are the dead-weight costs


This is the cost of all the beneficial transactions that don't take place because taxes make the difference between an attractive exchange and one that isn't worth the bother. Suppose I have a job that I'm willing to pay someone £1000 to do. There may be a number of people willing to do that job for £1000, but none who are willing to do it for the after-tax amount (£600, say). When the exchange doesn't happen, both parties suffer.

Our taxes should be

  • minimally invasive
  • cheap to enforce
  • easy to comply with
  • difficult to avoid
  • minimally distortive
  • prominent (nobody should forget they're paying tax)
  • and of course, low! (people will generally do a better job of spending their money than the government will)
For more on the deadweight costs of taxation, I recommend this article by Jamie Whyte.

For more on the dangers of invasive taxation, see here.

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