Monday, 28 May 2012

The single income tax

I've long thought that tax simplification should receive cross-party support. Aside from the accountants and bureaucrats, nobody gains from a complex tax code. With a simpler system, the government could get higher revenue at lower rates (though of course I'd prefer for it to get lower revenue at much lower rates).

I haven't yet found time to read all 421 pages (!) of The Single Income Tax (PDF), but the summary is promising:

To create the conditions for stronger economic growth and more jobs, while treating taxpayers fairly, the Government must reform taxes to make them lower, simpler and more transparent.

To achieve this, the 2020 Tax Commission recommends the Single Income Tax, which can be introduced in six steps:

  1. Taxes should be cut to 33 per cent of national income
  2. Marginal tax rates should not exceed 30 per cent, and the personal allowance should rise to £10,000
  3. Taxes on capital and labour income disguised as business taxes should be abolished, and replaced with a tax on distributed income
  4. Transaction, wealth and inheritance taxes should be abolished
  5. Other consumption taxes need to stay for now, but transport taxes should be cut
  6. Local authorities should raise half of their spending power from local taxes

Browsing through the table of contents, I found a conciliatory point that seemed questionable:

  • 2.7. Tax evasion is immoral as well as illegal, and in some cases legal tax avoidance is also immoral

But without such sops to the 'statist quo', the report would probably have been rejected out of hand by those in power. As Anthony Evans, a commissioner on the report, puts it:

Personally, I find it hard to truly advocate 30% tax rates. But this isn’t about what we’d like in theory. It’s about mapping out a direction of travel, shifting debate, and engaging with policymakers and the public. If you believe such aims are futile, then you may be disappointed. But if you want a well researched and implementable proposal for radical tax changes – this is it.

And as Alistair Heath says, tax reform is long overdue but has potential to dramatically increase prosperity:

IT is time for Britain to make a vital choice. Our economy is stagnant, with unemployment at horrendous levels, crippled by excessive public spending and a punitive tax system. There are two options. We can either tweak the status quo – try to keep a lid on spending, reform bits of the public sector and hope for the best. Such a soft option may stave off an immediate budgetary crisis but it will condemn Britain to permanent relative decline. Or we can change course: reduce public spending as a share of GDP more significantly, adopt an entirely new tax system fit for the 21st Century and establish the UK as a global trading hub, generating renewed prosperity for all those who live and work here.
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