Tax Simplification Report

[John Short]

A report on simplifying the tax system in the UK has just been published. It may be called a polemic by some of the PFMBoarders, and may not stand a chance of being seriously considered but a lot of it merits consideration merely on the simplification issue. 

If it had recommended two rates of say 20% and 40% instead of a single rate of 30% for income tax, it may be more acceptable, but then the benefit of having a 30% rate for unearned income leading to indifference between sources of income would be lost: unless of course these were taxed at the 40% rate.  The abolition of National Insurance (or amalgamation into Income Tax) and new taxes for Local Government (including a local income tax) to raise at least 50% of requirements are part of the package.  The overall aim of the package is to aim at a 33 per cent tax to GDP ratio which clearly means a cut in public expenditure.  Resultant growth would cut the welfare budget it opines but that would not be enough.  So where would the cuts come from?  Defence........?

The full report contains an extensive bibliography.
http://www.2020tax.org/
Summary Report
http://www.2020tax.org/2020summary.pdf
Full report: 
http://www.2020tax.org/2020tc.pdf

[harnett]

Wow - controversial stuff.

Can't pretend to have read the whole report but am concerned about some elements picked up in the summary:

1.  It appears that taxing the wealthy is reduced on two counts a) the abolition of wealth taxes (inheritance, stamp duty etc.) b) a reduction in the higher rates of tax for high earners

2.  Further to the above company profits would not be taxed, though tax havens maintained which smacks of an opportunity to avoid tax on income once the profits are distributed

3.  Local authorities would be required to raise more tax locally - again easier for the wealthier local authorities and disciminatory against the poorer ones (remember the poll tax?)

4.  The reduction in the % of GDP in the public sector to 33% takes us to pre war levels i.e. before the full establishment of the welfare state.  I may agree if defence was the loser in such a reduction but given the implicit political import of the rest of the report I'd be more worried that the target was the welfare state.

5.  The principle is stated that all that matters regarding taxation is total income.  I have difficulty with this given the recent decline in the Gini Coefficient in UK.  Surely wealth should be targeted in a fair society.

Having said that, I'm all for simplification such as the amalgamation of NI and income tax (unless NI was ringfenced to provide social insurance - which isn't the case at present) and also a reduction in loopholes that would not only ensure the wealthy/high earners pay tax but also reduce the need for tax consultants!

All in all, give me the Mirlees report any day over this.  It appears highly politicised and aimed at benefitting the rich minority.

[John Short]

An argument for tax simplification.
http://uk.finance.yahoo.com/news/formula-one-drives-tax-rate-202615059.html