onsdag 21 mars 2007

Where is the Chancellor's common sense?

Income tax is a lousy tax, as it contradicts all the established maxims of taxation, such as those formulated by Adam Smith. It is immensely complicated and more harmful than is normally recognised. It can be shown that it is responsible for a raft of economic ills, and the idea that it is related to ability to pay is an absurd fiction. As the American millionairess Leona Helmsley famously said, "Only the little people pay taxes." And by reducing the standard rate of tax but leaving the allowances unchanged, Gordon Brown is certainly making sure that the poorest bear the brunt. Is this plain cynicism, as a bid for the votes of those who are slightly better paid, who could swing election results?

The effect will be to hold down the underclass still further, as the higher tax makes work less worth-while and helps to drive people with few skills out of the employment market altogether, as they cannot afford to go to work.

Nevertheless, if we are going to have this tax, it should at least be structured so as to keep it as simple as possible. Abolishing the 20p tax band makes sense because it simplifies the system. But why did he not simply raise the threshold instead of reducing the standard rate by 2p?

People on low wages should not be paying income tax, and the threshold should certainly not be less than anyone would earn if they worked a 40 hour week on the statutory minimum wage; this would give a threshold of around £10,000. This would mean having a much higher standard rate, but the advantage would be that a lot of people on low pay would drop out of the tax net altogether, reducing employment costs and thereby promoting employment of the very people who presently find difficulting in obtaining work.

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