PROPONENTS of a flat tax rate, such as Michael Fry, always try to sell it on the grounds it is simple compared to the labyrinth of the UK tax system (Confessions of a justified tax avoider ... and why a flat tax would stop fiddles, The National, November 14).
That is nothing like the whole story. They also try to claim it is progressive because those on low incomes would pay slightly less as a proportion of income than those on higher incomes. This, too, is a misrepresentation of the full truth, which is unsurprising when one learns that the two strongest proponents of a flat tax in the UK are the Taxpayers’ Alliance and the Institute of Directors, two organisations not known for being socially progressive.
The first point about a flat tax rate is that it only applies to direct taxes such income tax, which is around 27 per cent of all the taxes we pay. The two aforementioned proponents would also apply it to National Insurance which is bad news for pensioners who no longer pay National Insurance because they would end up paying a lot more than at present.
Flat taxers do not like to mention that all the indirect taxes – like VAT, alcohol and tobacco duties and fuel duties – are not part of the deal. Yet these taxes make up a bigger proportion for low-income taxpayers than for those on high incomes, so much so that the bottom 20 per cent of earners actually pay a higher proportion of their income in tax than the top 20 per cent. By only addressing direct taxes, a flat tax makes little difference to those on lower incomes but delivers big tax cuts to those on higher incomes.
Flat taxers, in their quest for simplicity, would not stop at abolishing the higher rates of income tax but also call for the removal of taxes on company profits, capital gains tax, stamp duty, and inheritance tax. It does not take a genius to see who are the people most likely to gain by such taxes being abolished.
Mr Fry would have us believe that simplifying the tax system would mean tax dodgers would pay up. Aye right. Flat taxes still leave loopholes such as the opportunity to avoid tax by transferring one’s employment income to a company and not withdrawing it as a salary or a dividend. It would be completely untaxed while it remained within the company.
Mr Fry uses phrases such as the “rapacious state” to further the myth that taxes are extorted out of us. The majority of us pay our taxes willingly (HMRC testify to this) because we value the services and the infrastructure which make society tick reasonably harmoniously.
We would do well to remember the words of Alvin Rabushka, the co-founder of the flat tax idea: “We should get rid of welfare programmes, we need to have purely private pensions and get rid of state-sponsored pensions. We need private schools and private hospitals and private roads and private mail delivery and private transportation and private everything else. Government shouldn’t be doing any of that stuff. And if it didn’t do any of that stuff it wouldn’t need all of that tax money.” That is the real agenda of the flat taxers.
Andrew M Fraser
Inverness
WHEN I started work in what was then the Inland Revenue, in 1976, the top rate of income tax was 83 per cent. Many paid it, and the years after the war until then were some of the most productive and saw the biggest changes in living standards for the poor, as they moved up the classes. Free education and healthcare were part of the dividend.
Having visited all the Nordic countries over the last 18 months, and seen their socio/economic set-ups, there seems to be a correlation. So for once Michael Fry does not convince me.
Norman Mackenzie
via thenational.scot
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