Single tax rate proposed

[Xenia]

www.google.com/hostednews/ukpress/article/ALeqM5ifFvHAcJMXsx54rwIVBum8nj31Ww?docId=N0212261337479067198A an in the Times p4

2020 Tax commission and IoD propose

one rate of income tax (30%),

abolition of stamp duty and national insurance,

public spending to reduce to a third of national income (been over 40% of last 30 years)

Replacing corporate and capital gains tax with 30% tax on dividends, interest and rent

Scrap air passenger duty

Fule duty cut by 5p a litre

Would mean a £3400 tax cut for a two earn erhousehold on £28,000.

Says would lead to 8.4% increase in GDP after 15 years.

Sounds very good. Might even get Cameron re-elected if he adopts the plan.

First of all, a quick clarification - The Tax Commission is a pressure group founded by the Tax Payers Alliance and the Institute of Directors. This isn't government policy at all and I have to say, with the coalition in the driving seat, it isn't likely to become policy anytime soon either.

Right, now that that's out the way, let's ask the question as to whether it should be government policy or not. In my opinion, it most definitely should be a policy. I've been banging on about flat tax systems for donkey's years. They are very common across Eastern Europe and there is lots of proof that they work. I am convinced of both the argument for flat systems and of the mathematics behind the argument.

From what I can see here though, the proposal set forth by the Tax Commission could go further.

1. I would like to see the personal allowance match the approximate annual salary of someone on minimum wage (currently around 12.5k IIRC) and the link between raising minimum wage and raising the personal allowance protected by law. This takes the very poorest in our society out of paying tax completely.
2. I'd like to see the personal allowance of parents to be transferable - in the past, this has been seen as prejudicial against single parents so why not widen the remit of who can receive the personal allowance to include, for example, grandparents or other family members who may help to raise a child (or rather, who would help to raise a child if there was a financial compensation available).
3. That the yields from any dividends, interest or rent (and I would also throw in pensions and perhaps even non-disability related benefits into the mix too) should be put in the same pot as income for tax calculation purposes, so that the 30% tax to be paid receives the benefits of the personal allowance first.

I am very enthusiastic about these flat tax systems although, when the Tories can't even defuse the dog-bomb of the 50p rate (a cynical ploy that many on the left are happy to concede was pure Brownian malevolence) without the hard of thinking taking to the streets, God knows how they are going to sell the abolition of the top and middle rates of tax and the subsequent increasing of the lowest rate by half! I just can't see it happening for the time being.

I know. It was nice to see it in the Times but it is not likely to be adopted. Both the main parties have similar policies. There is little to choose between the two of them at present.

They are not increasing the lowest rate by half. Tax and NI is 32% now. This is a drop in tax/NI to 30%.

i don't agree with inheritance tax being scrapped. why should i pay 30%+ tax on money I've worked hard for and someone else pay no tax on income they've put absolutely no effort into getting. I also think inheritance with no tax funnels money into families and discourages social mobility (and i say this as a torrie supporter)

I'm not convinced about mrpants first suggestion of only people on 12k+ paying tax. I think its good for everyone to pay a little tax if they are earning as it gives everyone a stake in society. you all have some pain and some gain

I did not thinki inheritance tax was on the list above although I would support its abolition as it is voluntary tax on the stupid anyway. You only pay it if you have been silly enough not to pass your wealth on to your children more than 7 years before you die.

National insurance is 12% and tax 20% so that's 32%. This proposal of 30% for all is a cut for most people. It would make the UK a much more attractive place to do business and that creates jobs.

It represents a huge tax hike for pensioners - a group who are not well positioned to alter their circumstances to make up for the loss, especially given the hit they have already taken with low interest rates and, for the more recently retired, low annuity rates.

Xenia "They are not increasing the lowest rate by half. Tax and NI is 32% now. This is a drop in tax/NI to 30%"

I know that - you are preaching to the choir here. The thing is that unless this sort of thing is spelt out in grunts of one sylable, someone will see their income tax go from 20% to 30%. That Nat Ins has also been abolished will pass some people by!

I'm a big supporter of simplifying the tax system and getting rid of the ridiculous thresholds that create so many daft loopholes. However, even though it would probably reap a lot of benefits, it's a political no-win. Any tax increases on pensioners and similar would be grasped by campaigners as unfair. And worse, many of those now paying 40% and 50% tax would end up paying less. And as we're all supposed to hate the rich these days and kick them at every opportunity that would be universally denounced as a 'bad thing'.

dreamingofsun "I'm not convinced about mrpants first suggestion of only people on 12k+ paying tax. I think its good for everyone to pay a little tax if they are earning as it gives everyone a stake in society. you all have some pain and some gain"

There are plenty of opportunities to pay tax if you really want to. For example, you could buy yourself a Greggs pasty on which you have to pay VAT these days, you can pay your council tax, you could buy some cigarettes, alcohol or petrol. You can even put a bet on the gee-gees if you like. Why would you want to pay National Insurance specifically? I don't buy into the arguement that it is somehow virtuous to pay tax on your income.

As for the utter madness which sees the poorest of our society getting taxed on their income only to have a top up payment made in the form of Working Families Tax Credit - can anyone defend this system?

mrpants - i didn't think pensioners paid NI, so for them it would be a big hike.

dreamingofsun - correct, pensioners don't pay NI. This is one of the reasons why a higher personal allowance should be brought in. Obviously, there will be a crossover point (unfortunately, I don't have time to work out where it falls as I'm pressed for time) where pensioners will end up paying more than they would have done, but those on lower incomes will be better off.

Cogito That's exactly why it just won't happen.

mrpants - so the mum down the road who does PT work to pay for exotic foreign holidays (to supplement her husband's massive salary) will be fine as her tax's reduced; but the pensioner who's worked hard and saved hard all their lives so they can live just a little when they retire will be stuffed.

We could raise the allowance for pensioners, increase their state pension to compensate or some combination of the two. Let's face it, the tax system for the over 65's is so bloody complicated that one loophole would still be a big simplification.

The other thing to do would be to reverse Browns pension grab and once again let dividends paid on pension funds be accrued tax free - but that's a different story...

love your last point

isn't working tax credit to help families, who are going to have extra cost. so single young people, for example, are unlikely to have quite the same financial burden (generalisation i know, but not so many mouths to feed)

It looks good. I've never understood the point of NI as it is not ring fenced and is just a stealth tax. It would presumably save a lot of money by scrapping it.

Taxes like inheritance tax are just iniquitous as tax has already been paid during the lifetime of the person who has died. It is just an envy tax in my opinion and disincentivises saving for old age.

I also think they need to reduce the size of the state and get it bloody well out of our lives. We can only do that if it is reduced in size.

I don't agree that inheritance tax is necessarily a voluntary tax on the stupid as Xenia puts it. My husband and I are pensioners and have already given away a lot - helping one member of the family with a severely disabled child and another who has suffered a severe illness, plus charitable bequests - not to avoid tax but to help, avoiding some tax is collateral benefit.

But, no one knows how long they are going to live. If you pop your clogs early on it's OK to give it away but if you live into really old age and either need help or residential care it doesn't make sense to deplete savings to the point where you throw yourself on the mercy of the state. Nor does that benefit the taxpayers who have to fund your care. And at a cost of £30,000 a year, savings don't last very long.

People could move into a house costing £100k and give the balance away to their children and avoid IHT. Plenty of children care for their parents too in many cultures in the UK.

On the tax point most pensioners have tiny incomes. Very very few for example are affected even by the new abolition of their extra age allowance so it is not very many who would be hit. Also those who pay 40% tax now which is about £40k pension income a year would find their tax woudl go down to 30%. I don't think this plan would cause any problems for pensioners at all. Rich pensioners would get a tax reduction. Isn't the average pension about £10k a year or something like that? There was a lot in the press about how low most state sector pensions are.

"Taxes like inheritance tax are just iniquitous as tax has already been paid during the lifetime of the person who has died. It is just an envy tax in my opinion and disincentivises saving for old age."

Rubbish. IHT is usually due because of ludicrous rises in property prices - totally unearned.

yy Swedish. But the better solution to this is to scrap the PPR exemption and make people pay tax on house sale profits, rather than inheritance tax (which is far more easily avoided so a bot toothless anyway).

mini - would that not disincentivise older people downsizing though and freeing up larger houses for families?

"it is voluntary tax on the stupid anyway. You only pay it if you have been silly enough not to pass your wealth on to your children more than 7 years before you die."

xenia you've said some offensive things in the past, but that really is a work of art. My father died of aggressive stomach cancer at 58. My mother died, again of aggressive cancer, 5 years later, aged 61.

Strangely, they hadn't handed over all their money to us in their early 50s. Stupid people that they were .