I wouldn\’t have used that argument myself Richard

Superficially flat taxes look attractive. People like the idea of simplicity. It\’s an easy sell. The fact that it takes 417 pages to explain the proposal suggests that this idea is not simple though, and that\’s because it isn\’t.

What, as opposed to the 17,000 pages of Tolley\’s for the current tax system?

The rest of it is the usual drivel: people are evil for even suggesting that a smaller state might be a useful thing to think about.

14 thoughts on “I wouldn\’t have used that argument myself Richard”

  1. I’d assumed as well that a few of the 417 pages might have to describe how the change compares to the current system and simplifies it, such as the different Schedules, income tax vs NICs, capital gains, etc. (with a very big etc.)

  2. Perhaps if the 17,000 page tax system those 417 were railing against weren’t so utterly beguiling, they could be critiqued in fewer pages?

    Like, say, if it were a simple flat tax?

  3. I was wondering how long it would take you to respond to this – very rare that my criticism of the WGCE, who for me has assumed the manrtle of ‘The most dangerous man in Britain’ precedes yours. Absolutely correct in pointing out the absurdity of the article – I think a Special Operation to abduct the man and get him to Pyongyang where he can see arguably the World’s most ‘Courageous State’ in action is in order….

  4. I’m all for simplifying the tax system, and I’ve not yet read the TPA thingy so I can’t really comment on it properly.. but I’m not buying this idea that a flat tax rate is an answer to very much.

    The bit of tax that is complicated is the bit where we work out how much of something should be taxed, and under what set of rules. Having to then apply tax rates in bands is a pretty simple affair.

    So, taking transactions out of tax is simplification, bringing different types of thing into the same set of rules (e.g. income and capital gains) would be simplification. removing overly complex exemptions (e.g. most of the VAT code) is simplification, scrapping/merging taxes (e.g. NIC) is simplification.

    None of this explains why there should be a flat tax rate which will, necessarily, favour the better off and, thus, enjoy approximately zero popular support.

    So from what I gather, the TPA have suggested a number of ways in which we can simplify the code, but then tried to tag a massive tax cut (for the rich) onto the end of it, pretending that it’s all part of the same noble aim.

    I’d rather the case for lower taxes and the case for simpler taxes be kept distinct, so there’s at least half a hope of getting somewhere on one of them.

  5. @TTG – in the case of the very wealthy, the argument as I understand it comes from current complexity in allowances. With a very simple flat rate tax there is no point paying accountants to minimise your tax bill because there are wheezes you can use. I don’t think there’s actually much of an argument for or against a single flat tax rate, it could easily be progressive, but it would get us away from the current situation where very rich individuals negotiate a payment with the Revenue – from memory, Private Eye quoted the case of Mohamed Fayed a few years ago, whose affairs were so complicated that he’d agreed a flat tax payment of some hundreds of thousands of pounds a year. The Revenue would have used so much manpower investigating his finances that it was simpler and easier to take the money.

  6. Flatcap

    The people with the big bucks will continue to employ experts to help them pay less tax.. not a lot’s going to change for them. If new rules hand them a tax cut then they’ll take it, but probably still poke around to find more savings.

    Where the TPA plan would really benefit would be the realms of the ordinary rich… the comfortable middle class… the £50k-£200k crowd who earn enough to be taxed at the highest rates, but not enough to be easily globally mobile or to pay the accountants and advisors who come up with the best schemes. These are the folks who get a big and easty tax cut ‘paid for’ by reduced public services for all… and tax simplification has nowt to do with it because you could still simplify the tax code but leave in ‘progressive’ bandings.

    Now… I’m not saying these people (of which I am one) shouldn’t pay less tax.. just that their doing so neededn’t be wrapped up with this simplification lark.

    We can pretend that it’s just a co-incidence that a TPA proposal for simplification gives a system which hugely benefits the natural constituency of the TPA.. but then we also have to pretend that it’s a co-incidence that a man who is funded by the union that is funded by the people who design and police our complicated tax code just happens to think that our complicated tax code shouldn’t be de-complicated.

  7. @TTG – if you’re careful about setting the levels (and I think this is the TPA’s intention) is that the lowest paid get a tax cut, middle to high earners stay pretty much where they are and very high earners get a tax increase. You also, at a stroke, eliminate the need for significant chunks of HMRC (such as the entire tax credits division, which seems to function only to give back to the poor what is currently taken off them in tax). Much better, as has been argued on here, to remove the tax burden at all for any earnings up to the equivalent of a full-time job on minimum wage

  8. Flatcap

    The TPA have set the level at 30%, and reduced the base upon which it is applied. 30% is lower than everyones current marginal rate. They want a personal allowance of £10k (which we’re getting anyway, in time) so it’s a tax cut for all, and a relatively bigger one for those on higher and top rate taxes (who have marginal rates of anything up to around 67%, and typically 61% for top rate people from next year)

    As far as I can tell, nobody should pay more tax under their proposals.

  9. you’re confusing marginal and total rates there – I’m in the middle/higher income bracket as mentioned above and on PAYE, and my total tax rate after allowances and various pension schemes is around 35% although I’m well into higher rate tax.

    Personally I’m in favour of by and large keeping the current total tax take from income tax/NI etc largely whole and removing the burden from the lower paid altogether. I suspect that means breaking from the TPA proposal and having a possible gradated scheme with no allowances for pretty much anything other than at the bottom end of income

  10. Flatcap

    I promise you, I’m not confusing anything. The rates I quoted are marginal rates, when taken to include EEs and ERs NIC. 61% is the marginal rate on income above £150k (with 45% top rate) and 67%, the highest rate, is what people currently pay between £100k and £116k due to the PA withdrawal.

    The marginal rate in the 40% bracket is currently 56%, and in the basic rate it is 48% (where marginal EEs NI is 12.8%).

    The TPA’s 30% is, quite clearly, lower than all of these. So they all get a tax cut, and the more you earn, the bigger your cut.

    I would agree that a proposal for simplification should be revenue neutral.. let’s all see and understand what the rates would have to be in order to achieve that.. and let’s not pretend that having differing tax bands would suddenly make it far too complicated.

    *Then*, by all means, state that a cut in public expenditure may be deemed desirable, and that if it were delivered the rates could be lowered accordingly.

    All the discussion about this report is centering on the ‘tax cut for the rich’ element. If they’d done it on a neutral basis, but done the same maths, it might have been greeted differently and a few more people might have found out what tax rate they really pay and/or should pay in order to maintain public services.

  11. The problem with a ‘revenue neutral’ flat tax is that it would immediately highlight the hidden (or at least not very obvious) tax impacts of things like NI and especially Employers NI.

    The disadvantage of the current system is that between the tax-free allowance, tax credits and the lowest tax band this covers enough people who can vote for a ‘tax the rich’ tax policy (actually paid for mainly by middle class taxpayers) because they would benefit from the additional tax revenues without having to personally cough up for it.

    With a flat tax (excluding those below the threshold) people aren’t necessarily demand taxes rise if they are guaranteed that their own taxes will also rise.

    The introduction of a flat tax would also get rid of the bullshit around ‘fiscal drag’ where the 40% rate has been deliberately held back or raised at below wage inflation and consequently dragged middle income wage earners into the 40% tax bracket.

    It is not the simplicity of the flat tax that is most attractive, it is the removal of levers of political manipulation.

    It might actually introduce a downward pressure on tax rates. If this was introduced with a legal requirement to balance the budget this would act as a counter to the ever increasing growth of the state.

    However, the politicians would never allow it.

  12. “The problem with a ‘revenue neutral’ flat tax is that it would immediately highlight the hidden (or at least not very obvious) tax impacts of things like NI and especially Employers NI.”

    Well, you say ‘problem’.. but for everyone other than the people who don’t want everyone to know the extent of hidden taxation it would be, quite obviously, a positive thing.

    “It is not the simplicity of the flat tax that is most attractive, it is the removal of levers of political manipulation”

    I can’t disagree with any of that at all. And of course the politicians won’t allow it. Nor, in the absence of a significant shift away from the current popular notions of ‘fair’ tax, will the wider electorate.

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