onsdag 23 april 2008

10p tax rate Balls-up

Aren't those who are criticising the Chancellor for abolishing the 10p tax rate attacking the wrong target?

The 10p tax rate never did make sense - it is probably more trouble than the amount collected is worth. Tax allowances should at least equate to what someone on the statutory minimum wage can earn in a 40 hour week. This might mean a higher tax basic rate once the new threshold was reached, but very low earners would end up paying no income tax at all, and the majority would pay about the same in total.

But the underlying problem is that Income Tax in practice is a soak-the-poor system. It is also a very expensive one, with annual running costs of around £25 billion and causing a astonishing annual deadweight loss to the UK economy estimated at £138 billion - this being the value of production that would otherwise occur were it not for the disincentive effect of the tax system itself.
[http://www.iea.org.uk/record.jsp?ID=320&type=news]

The present tax system evolved 60 years ago when most people were in stable employment, often for large organisations. In these days of "labour market flexibility", globalisation, tax havens and electronic transfer of funds, it is unfit for purpose, obsolete and unable to raise the amount of revenue needed to satisfy present-day expectations of what government should provide. Reform is overdue.

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