Thursday, March 24, 2011

Tax Reform

Now, I'm all for combining income tax and national insurance. The latter is a tax, pure and simple, so it should firstly be called a tax and secondly incorporated into that other direct tax on our income. Simplify the system; make it more transparent. And yeah, the rate of income tax would go up if NI was incorporated into it. But that is also a good thing. Not because I want to pay more tax, mind, but because the plainer we make it to everyone just how much money we end up being forced to give to the government, the more likely people are to start protesting about it.

But, of course, not everyone agrees. However I do have to say that this is a pretty dumb reservation:
Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, described the mechanics of the income tax and National Insurance merger as a "minefield".

"It is a lot easier said than done," he said.
As an aside, let's just take a moment to note that this is a tax accountant complaining about taxes being made simpler. Hmmm, wonder whether he might have a vested interest in a complicated tax system?

But let's look at the substance, if we can call it that, of what this chap is saying. Of course, changing a system is often difficult, and fraught with problems. So what do we do? Overcome those problems. Anything else is a manifesto for the worst sort of political conservatism. It is basically saying it is broke, but we can't be arsed to fix it.

Just imagine if humans throughout history had the same mindset. "This divine right of kings business seems a bit problematic to me". "Yeah, but the transition to another system is going to be tough though". "Ok, let's not bother". Apply this mindset to the American War of Independence, or to World War Two, or the Space Race. Nothing even remotely challenging has ever got done or will ever get done with this sort of defeatist mindset.

Of course, there may be many reasons why projects shouldn't be undertaken. Morality is key, as is the practicality of the overall project - the Marxist utopia might sound grand, but the transition to it involves dictatorship, and it is underpinned by certain unlikely assumptions about human nature, so let's not bother after all. But if the sole objections to a plan are that it might be problematic to make it happen, it is probably a sign that you should start trying to solve those problems rather than bleating about them. Particularly if, like incorporation of NI into income tax, short term complication will lead to long term transparency and ease of use.

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At 3:56 pm , Anonymous Timac said...

I found out some basic info about a Socialist friend of mine like what his council tax band is, how much he smokes and drinks, income etc. He was truly shocked at how much pennies in every pound he earned went straight to the government. I haven't converted him to small state/ low tax yet but the whole point of Labour's tax strategy seemed to be to hide as much of it as possible, he sees this now at least.

At 4:55 pm , Blogger The Nameless Libertarian said...

Exactly. So many people just don't get how much the state takes from them partly because the policy of the government on tax is generally to be as evasive as possible.

At 6:13 pm , Anonymous JonP said...

On the other hand more complexity makes avoidance easier.

I doubt that any simplification of the tax system will benefit anyone but the Government.

At 9:15 pm , Blogger JohnRS said...

I really cannot see how this is at all difficult.

Currently we have 20% and 40% income tax rates plus the disgraceful 50% socialist envy rate. We also have NI (ie the jobs tax) 11% rate.

Even one of B.Liars edjukashunally challenge numpties can add simple figures together. So on April 6th we end up with 31% and 51% as the two income tax rates, possibly with a tweak to the personal allowance. Where's the problem or am I missing something?

At 10:06 pm , Anonymous Jim said...

@John R: er yes you are missing quite a lot.

Case 1: man has one main job, not that well paid so takes 2 part time jobs. Part time jobs pay less NI contributions lower limit so he pays no NI on them. Merge income tax & NI = he pays more tax than previously.

Case 2: Anyone living on investment income would pay 12% more tax as unearned income does not pay NI.

Case 3: Anyone over pensionable age who works would pay 12% more tax as they do not pay NI now.

Case 4: The self employed have NI rates specific to them, which are lower than for employed people, as they get fewer benefits. So combining income tax and NI into one rate would result in a tax rise for all the self employed.

Case 5: Benefits in kind currently attract income tax but not NI. All company car drivers would immediately get a 12% tax hike.

Then factor in that many people many be involved in some way in combinations of 1,2,3,4 and 5 and it gets very complicated very quickly.

Unless you plan to make the merger a way of raising taxes, making the two systems into one is not as easy as you make out.

At 10:51 pm , Blogger The Nameless Libertarian said...


The fact that it might be complicated is not an acceptable reason for not doing it. Yeah, it might not be as simple as it might sound, but none of the examples you give are in any way insurmountable.


At 1:05 pm , Anonymous Jim said...

Oh I agree its a good thing to do, I just don't think it can be achieved in the current climate, without raising a lot of people's tax bills.

The only way I can see that it can be achieved is when there is plenty of money in the kitty to give away, and thus rates for everyone can be equalised at a new lower headline figure. Thus no-one loses, everyone gains, just some more than others.

I would also like to see employers NI contributions abolished and everyone's salary uprated pro rata to show what they really are earning, and how much the State is taking from them shown on the payslip. Which is about 45% even for basic rate taxpayers.


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