The Adam Smith Institute yesterday published Flat Tax: The British Case [PDF].
In Britain the flat rate might be about 20%. Estonia, which brought in a 26% flat rate a decade ago, is lowering it to 20%. At 20% few people would object to paying the tax, so out would go the exemptions and allowances, and in would come an economic boom. Out, too, would go a legion of tax inspectors; flat tax is simpler and very much less costly to collect.I've always been interested in this idea, believing as I do that the present (UK) tax system is a substantial barrier to business and a constraint of our liberty. In one move it achieves much; delivers smaller government (meaning we don't need to gather so much tax anyway), empowers citizens to understand the system, removes much of the incentive to avoid tax, unleashes an army of financially aware civil servants and accountants to do something more useful towards economic growth ;-) and would do much to dispel the widely held notion that more work is often not worthwhile because it just leads to higher tax.
Undoubtedly there are arguments against, the most important being that the ability for the government to influence consumer behaviour and macroeconomic performance would be reduced. Liberation from a ton of bogus taxes (stamp duty, inheritance, capital gains, corporation tax, VAT) would substantially change behaviours but would remove the present penalties on success, enterprise, tourism etc. I don't have answers to this but I do ultimately believe that a flat tax system would be fairer for all; Progressive without being punitive.
Posted by Paul in Taxation Politics at November 16, 2004 06:06 PM