Web Analytics Trust People (once an Englishman in Philly): To flat or not to flat...

Thursday, March 17, 2005

To flat or not to flat...

As Poland brings in a flat tax rate of 18% I felt I ought to impart my own views on the purported "flat tax revolution". It involves a single level of taxation - set at a high enough level that those on the lowest incomes pay nothing - which can be so low because it does away with all the costly credits, exceptions and allowances with which our current system is encumbered. The low rate encourages payment, because the incentives for avoidance are so low, and there are therefore no "loopholes" which we have to spend more money on debating plugging.

A wide range of tax regimes are adopting it, and have found that the low flat rate actually gives them a greater tax revenue than their abolished and complicated predecessor. The theory is that when tax rates are cut the richest people end up paying a higher share of the total since they stop avoiding and evading taxes and put their effort into earning more instead. As such they have more money to be taxed on and will pay a greater proportion of the total. The economic expansion is supposed to render a greater total income (with less expenditure on the inland revenue) with a lower overall tax rate.

Now when I first heard about this, I have to admit I hadmy concerns. Would it really work? Or was it a right-wing economists fantasy? However, as I see more and more countries adopting it - especially those new EU members who have such potential for growth - I have to admit that it seems to work, and have been doing a fair bit of reading around the subject.

As I see it, there are a number of barriers which must be jumped on the way to introduction in Britain, which I hope to summarise and debunk over the next few days. Now, of course, in the throes of an election campaign is not the time we can expect to see such a radical idea on the political agenda.


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