October 10, 2007

Taxation Simplification

Filed under: Concepts, Economics, Ideas, Observations — Tags: , , , , — conceptualizer @ 12:02 pm

Although only a small improvement, it’s nonetheless good to see some simplification of taxation. Complexity increases the costs inherent in collection and administration, adding no value to the economy while adding opportunities for avoidance and evasion. The honest tax payer is pursued relentlessly, while the difficult target reduces their tax burden. Simplification can be a blunt tool, but by reducing avoidance and evasion it can also be more even-handed. Taxation should be funding the public sector of the economy, but in part has become a tool of the moralist. Differential taxation is used to punish success, hard work and spending on what a few have decided is not good for us. Taxation should be refocused on its purpose and needs to become simpler, less bespoke.
There is a strong case for drastic simplification in taxation. I suggest a gradual migration to zero personal taxation with all tax revenue raised from business. The simplification would produce huge benefits for the economy, but the total tax burden on the economy would remain the same, less the saving in administration costs. It would also encourage a dynamic economy as spending patterns would not be stymied and it would encourage people with money to move to our economy. Business would benefit from simplification of taxation and as a whole be no worse off, because the extra tax they pay will be offset by reductions in wage bills. There will be those businesses that come off better and worse. Those at the extreme ends of the ratio of taxable revenue to employee pay, but it would also tend to encourage reinvestment in research and development as companies seek to minimise their tax bill.

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