The Case for Income Tax Reform.
Posted by: u5227470736789439 on 07 May 2008
The recent rumpus over the increase in Taxation for the five million or so of the lowest income people [low paid workers, some pensioners, and other smaller groups] with the abolition of the 10% tax bracket, and the implementation of 20% would have been solved without difficulty if the Personal Allowances had been raised in accordance with keeping the Tax take at a no change situation. This simple fact seems to have escaped Mr Brown, and he has been caught out by it.
I would propose a more radical approach to Income Tax:All personal allowances would be set at the level which is at or just above what is considered the poverty line.
If the poverty line is statistically considered £9000 PA, then the personal allowance would be set at this level or just above, so that any individual is not taken into poverty because of taxation. Then I would propose a single rate of taxation for all income, capital gain, corporate taxation, and other income related taxation to keep the situation, net no change in the first instance for the Treasury.
I am sure there are some very bright and knowledgeable people here, who can add more to this, than I, but I reckon the idea has several advantages. Simplicity and therefore fewer loopholes to be taken advantage of, and less demand for a huge superstructure of tax collectors working for the Government, themselves adding a massive cost [and a cost with no economically positive aspect] to an already stressed exchequer. This even without considering that Civil Servants now have a virtually uniquely privileged position with regard to pensions, which will cost a huge amount for a very long time into the future, so the more the numbers involved is reduced the better for everyone.
It would ease the lives of a huge number of people at the bottom of the earnings pile as well, and leave only the iniquitous Council Tax in place as more or less a Pole tax.
The Council tax has about doubled in the last ten years, whereas the lowest paids' rate of income has been much less than a doubling over the decade.
Therefore the Council Tax has become a proportionally much greater burden on the poorest people than the current issue with the abolition of the 10% bracket, and on an annual basis. This also seems to have escaped general note or comment.
George
Posted on: 08 May 2008 by Phil Cork
Posted on: 08 May 2008 by djftw
George,
I absolutely love your idea of fixing the personal allowance above the poverty line, together with (if I understand you correctly) a flat tax, above that threshold. However, if you want the distribution to favour the lower end of the income scale, set the threshold higher still, and keep the rate a bit higher otherwise you risk effectively giving a tax hike to middle income families whilst giving the wealthiest a tax cut!
Not sure if fixing corporate rates at the same level would necessarily work, I think some tweaking might be required to keep the business sector competitive in the global market. Also, I would want various exemptions on your capital gains policy, for example on property bought as a home or business premises rather than as an investment, pensions, inheritance etc.
On the current rather annoying local poll (council) tax, why not make the councils fiscally autonomous, cut the national rate of VAT, and allow councils to levy a local sales tax? Encourage competition between neighboring councils, who can offer the best schools for the lowest shopping bills etc. and hopefully much greater efficiency would arise. Having examined the budgets of various councils whilst on the NEAC I couldn't believe how much they spent on some things!
Mind you, I would probably be making my own family somewhat worse off, as although we're in a high council tax band there are seven of us on the property! And I can't say we exactly get value for money now, I think the only council service we use is the bin and recycling collection, and being the environmentally conscious people we are the bin is rarely even half full!
Regards,
Dom
Posted on: 08 May 2008 by 555
1st point is taxes must be fair & therefore have to be based on ability to pay.
Council Tax, IHT, VAT, TV License,
etc are all unfair because they don't take this in to account.
IMHO scrapping all these,
& having a national & local income tax has the best potential for fairness.
Posted on: 08 May 2008 by KenM
555,
But the tax rates would have to be progressive. The enormous and increasing disparity between the incomes of rich and poor is unjust and unjustifiable. The best way to correct this injustice would be to have different tax bands. And of course, to stop UK earners avoiding and evading taxes.
I am puzzled though as to why IHT is included in your "unfair" list. People inheriting something have done nothing to merit having it so why should the state not take a share. It's only payable over a threshhold value, so poorer beneficiaries are protected.
Ken
Posted on: 08 May 2008 by 555
Hi Ken
I absolutely agree the tax rates would have to be progressive,
have different tax bands, and stopping evasion is important.
I have a number of issues with IHT.
It is not judged on ability to pay which makes it a fundamentally unfair tax.
I think the question should be why should the state take a share?
The deceased has been paying taxes most of their life,
so the estate is what remains after the exchequer has been paid.
Arguably IHT is a tax on the financially prudent.
For 2008/09 the nil rate band is £312,000,
so the threshhold is low & after that IHT is payable at a vast rate of 40%.
Currently an estate with a value of £312K pays no tax,
an estate of £1m pays £275,200 which seems disproportionate.
At the very least it should be banded like IT IMHO.
The IHT system also penalises those who die suddenly;
If you live to average age you have time to use various allowances;
e.g. trusts, gifting & the seven year rule, etc.
If you die suddenly through accident/disease these things can't be used.
Posted on: 08 May 2008 by KenM
There may be a case for banding, but I am not really convinced.
If my wife and I were to die very soon, my children would pay IHT. So what? It's money they have not worked for and the four of them would inherit a nice little sum. In the meantime, I'm busy spending some of it.
Ken
Posted on: 08 May 2008 by 555
If you prefer Mr. Darling gets his hands on your hard earned,
rather than your children, that's your prerogative.
However as it currently operates IMHO IHT is a fundamentally unfair tax.
ATB - John
Posted on: 08 May 2008 by Stephen Tate
IHT has already been taxed,so.., they tax it again. genius
Posted on: 09 May 2008 by u5227470736789439
Though I tend to think that Inheritance Tax is an odd concept, I am very pleased to read the responses to the idea of a Flat-rate Income tax. There is certainly an argument that is well enough put that beyond a certain point there should be [and of course is currently] a higher rate of Income Taxation.
As for the notion that we are all armchair experts, I disagree that the opinion of an expert is more valid than any other, unless that opinion is convincingly argued. I put no extra store on the opinion of an expert, merely because he or she is called an expert, unless the expert can concisely explain why what they say is right.
We are all born, and we all die, and in between the two events we all have the chance to make a contribution.
I am not sure that we have put the world to right, but the ideas proposed are certainly worth thinking about.
George
Posted on: 10 May 2008 by KenM
George,
For the most part, people choose their positions out of self-interest. Those with large estates or with hopes of inheriting large sums favour abolishing IHT. The childless want to tax families and so on.
The main problem which I can see with a flat rate tax is that wherever the level is set, it will principally benefit those most able to pay more, the richest. If it is to be revenue neutral, it therefore has to penalise people less well able to pay and this would be unfair.
I would prefer to see a more highly banded system using (as suggested by 555) a combination of local and national income taxes. Critics will object to increased complexity, just as has been done to justify removal of the 10% band. Have they yet to hear of computers?
Ken
Posted on: 10 May 2008 by 555
The argument against local IT due to complexity falls apart because HMRC have all the infrastructure in place.
Some work would have to be done,
but it's nothing like setting up a new system from scratch.
Posted on: 10 May 2008 by u5227470736789439
quote:
Originally posted by KenM:
George,
For the most part, people choose their positions out of self-interest. Those with large estates or with hopes of inheriting large sums favour abolishing IHT. The childless want to tax families and so on.
The main problem which I can see with a flat rate tax is that wherever the level is set, it will principally benefit those most able to pay more, the richest. If it is to be revenue neutral, it therefore has to penalise people less well able to pay and this would be unfair.
I would prefer to see a more highly banded system using (as suggested by 555) a combination of local and national income taxes. Critics will object to increased complexity, just as has been done to justify removal of the 10% band. Have they yet to hear of computers?
Ken
Dear Ken,
As per usual, I must be the exception. I expect to receive no large [or small]
inheritance: I missed mine in 2000, which would have been one fifth of 7.5 million GBP, because my mother invoked Viking law which states the eldest child shall keep the farm in business. For which read, in the modern reading, the half of the estate. I think it fair to point out that she was not a farmer.. My two cousins and my aunt [junior sister] got the half while my mother, who is married to someone six years younger than me and by now has become a British subject got the other half. I could be frustrated that my old grandfather's wish - not fulfilled by my grandmother and stymied by my mother - was not carried out. I guess things would be different other wise, and I could quite happily have paid the IHT.
So I could easily see both sides of the point!
George
Posted on: 11 May 2008 by djftw
No, the argument against local IT as it is being done in Scotland now is that a lot of families would be worse off, if you live on your own though chances are you'll be better off, obviously depends on your income and what council tax band you were in before.
Posted on: 11 May 2008 by 555
News to me djftw! Where is there a local IT in Scotland?
Any change results in winners & losers.
Council tax is fundamentally flawed because ability to pay isn't taken into account,
unless those liable are on certain means-tested benefits.
A family/person with a large income might pay more with a local IT,
but arguably they can afford to compared to a senior citizen living on a meagre pension.
quote:
For the most part, people choose their positions out of self-interest.
quote:
I must be the exception.
I have no expectation of inheriting anything.
IHT is obviously flawed IMHO, & unfair taxes ultimately aren't in the interests of anyone.
Posted on: 11 May 2008 by Bob McC
I must tell my cousin in Edinburgh she is paying local taxes, she isn't aware of it!
Posted on: 11 May 2008 by Willy
quote:
Originally posted by 555:
The argument against local IT due to complexity falls apart because HMRC have all the infrastructure in place.
Some work would have to be done,
but it's nothing like setting up a new system from scratch.
My accountant is all for the local income tax. He's got his new car picked out already. No prizes for guessing who'll be paying for it
Willy.
Posted on: 11 May 2008 by 555
You need an accountant & you can afford an accountant;
no doubt you'll get loads of sympathy if local IT happens.
Posted on: 11 May 2008 by Willy
quote:
Originally posted by 555:
You need an accountant & you can afford an accountant;
no doubt you'll get loads of sympathy if local IT happens.
I'll not hold my breath waiting for the sympathy, let alone a tax system that is sufficiently simple that I don't have to employ an accountant to explain it all to HMRC every year! It's got to be over 5 years now since I last had a year without some mistake on the part of HMRC. Last year they mannaged 2 cock-ups. I suppose that could be viewed as improved productivity
Willy.
Posted on: 12 May 2008 by djftw
quote:
News to me djftw! Where is there a local IT in Scotland?
I said would! It's not been bought in yet. The SNP are calling it a local income tax, but admittedly it isn't really, it's abolishing council tax and raising the basic rate by 3p in Scotland.
Posted on: 12 May 2008 by 555
quote:
I said would!
As President of Pedants UK I must point out you posted 'now' then 'would' which caused the confusion. Why isn't increasing IT & abolishing CT a local IT?
Posted on: 12 May 2008 by Bob McC
Furthermore the Scottish tax to replace council tax is merely a suggestion which if adopted will be from 2012. They need it ratified by the English parliament to implement it.
Posted on: 13 May 2008 by djftw
quote:
Originally posted by 555:
quote:
I said would!
As President of Pedants UK I must point out you posted 'now' then 'would' which caused the confusion. Why isn't increasing IT & abolishing CT a local IT?
You win the award for pedantry! I should have said "now being considered".
I would differentiate what is being proposed for Scotland from a true local income tax in that it will not be set by and collected for the local authorities, but is in fact a Scottish national tax which the Scottish Executive will then distribute to Councils as they see fit.
Now back to pedantry!
quote:
They need it ratified by the English parliament to implement it.
Erm no, they need an Act of Parliament to be passed by the Parliament of The United Kingdom. There hasn't been any such thing as "The English Parliament" since 1707.
Posted on: 13 May 2008 by 555
I resign! Dom for of Pedants UK!
Posted on: 13 May 2008 by JamieWednesday
Ah well, I see Darling's sorted it now then...
Posted on: 13 May 2008 by Bob McC
Of course it is the English parliament. It is the parliament that sits in England as opposed to the parliament that sits in Edinburgh.
