h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

As many will be aware, the Govt is about to begin taxing the lower-paid more heavily. This brings attention to what I understand is considered to be one of the most complicated tax regimes in the world. The heavy tax burden on the less well-off is intended to be relieved by a system of state benefits, but take-up on these is low.

How do people here feel about a Flat Tax system? Figures I've seen bandied around include a £12000 personal allowance then a flat 22% tax on everything above that.

For more info :

http://www.politicalog.co.uk/?p=373
and
http://www.heritage.org/Research/Taxes/bg1866.cfm
http://news.bbc.co.uk/1/hi/business/4444717.stm

I don't think you should have to claim what you are entitled to - the system of credits favors the fiddlers and malingerers.

I think the system of "Tax Credits" is effectively putting a massive number of people on state benefits. The kind of people who would be scared by Tory plans to cut benefits.

As one of the people will suffer most from the 10p tax cut (learning just enough that abolishing it makes a difference, no children, but not old enough to claim several of the working tax credits), I'd still favour a flat tax.
If nothing else the simpler the system, the less people are afraid of it and the easier it is to manage and police.

I'll clarify - when I mention 'no children' I'm simply thinking of tax breaks here. I'm too young to claim most tax breaks. If I had children that would take away the age restriction.

Like Vip, I am paid not-very-much, I have no children, and I am neither old enough nor unwell enough to claim any other benefits. I did sums - I will be paying the Gubmint an extra £20 a month now. £20! That's all my lunch money for two weeks!

I wouldn't mind if I had an 'extra' £20 a month floating about I wasn't using for anything in particular, but I'm living in a close-to-the-edge no-savings way as it is. And I have a better-paid partner. I am exceedingly lucky. If I was single, or of my partner also earned only as much as I do, we'd be in trouble. To quote Dickens: 'Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.'

*Goes off to learn more about left-overs, packed lunch, cheap cuts etc., and to resign herself to a life devoid of cappuccino*

If we want a simpler system, how about a citizen's income? Roughly, this means an automatic payment to every man, woman and child that is tax free and not means tested. The idea is that this replaces most of the current benefit system. There's more detail at:
http://www.citizensincome.org/ - (see leaflet link on the left hand bar).

The problem with flat rate taxes is fairly obvious. Although they can be framed in ways to be to the advantage of the least well off (by increasing personal allowances), ultimately they tend to work in favour of the richest by reducing the amount of tax that they have to pay compared to the status quo in the UK. Looking at the links, (especially the politicalog page) it's not clear that VAT has been taken into account, and I rather think that it hasn't.

I suppose if a flat rate tax were to be set at such a rate that it would improve the position of enough of the least well off and enough middle earners, I'd be in favour of it. My instinct is to oppose anything that lets the rich get richer at the expense of others, and my worry is that even if the personal allowance is set high enough, the result of a flat rate will either lead to a shift in the burden from the richest to some other group, or will lead to cuts in vital services.

I'm appalled at the move to remove the 10% income tax band. That was right up there on my list of Labour achievements, and I'm also appalled at the apparent disincentives to work and the ever increasing complexity of the tax and benefits system. Not only is it inefficient and costly, it's also failing the people who need it most. And all this by a Labour government from a PM who I expected so much more of.

Problem:

You can tax the one person who's right at the top of the pay pyramid at 'punitive' rates and (even if you can actually collect it) the sums raised are far less compared to the amount raised by taxing (even at a low rate), those many, many people right at the bottom of that pyramid.

Down (& up) a level, the same applies, etc.

Add to that the truism that the more you earn the better able you are to pay for tax advice...

Once you have an income tax system in force it will naturally gravitate towards the poorer paying a greater proportion of their income.

Especially when the system is decaying into a "Gimme, Gimme" one ( with the party that wants to change that being reviled by the very people who suffer most).

Ho Hum. Change for the better? Yeah, right.

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That's a brilliant idea, Otto... the Greens and the Alliance parties here have advocated it...

Vicky

why does the flat tax proposal (a regressive tax) always get lumped in with tax simplification? Simplifying the tax code is basically independent of the tax rate vs. income. For example, would it be so hard to calculate a tax table (or give the equation) for a quadratic equation?

I'm not sure how it works in the UK, but in the US the easiest part of the tax calculation is figuring out percentage owed or using the tax table. If that was all there was, it would be easy - regardless of the function used therein.

Another way I'm being taxed (and I'm one of the winner in the current tax shuffle) is in the cost of ecpenses.

I'm allowed to claim 40p a mile for driving my car on company business. I do about 15,000 miles a year on company motoring, and that will probably go up next year.

However it's been 40p a mile for about 8 years now. Thin how much the price of petrol has gone up in that time + standard motoring costs - services etc.

What used to be a little perk has become an expense - it now costs me more than I get to travel for the company. (Except I also get paid for the time travelling - but in terms of true expenses I lose out.)

Good topic for the forum!

£20 a month? Are you sure? I thought I'd read that the maximum "worse off" ness was about £12 a month (still a lot to find when you don't have it, I know)

I'm a bit sceptical about the advantages of simplicity - surely calculators and computers and even tax and NI tables do the hard work. For employees, there's rarely much work involved in end of year tax returns.

I don't think anyone would argue the claims of simplicity over the claims of fairness.

But I think there is a strong case to be made for making the tax and benefit system as simple and as easy to understand as possible. In a UK context, much of the criticism about complexity is about the benefit system rather than the tax system.

Having tax/benefit systems that aren't simple causes a great deal of harm for a number of reasons. Firstly, often (but by no means always) the people who are in most need of benefits and tax breaks are the least able to understand complex systems. Secondly, simple systems are cheaper to run and therefore save money which could be better spent on other things. Thirdly, without a clear tax/benefit system it's almost impossible to have a sensible public policy debate about it - if no-one understands what the rules are now (other than, perhaps, how they pertain to them as individuals), how can voters assess proposed changes? Complicated systems also allow myths and misinformation to flourish, such as about the level of benefits paid to asylum seekers etc.

The rich will always get richer, no matter what tax regime you use. "Money makes money" is a truism plus, as has been mentioned, the rich have the money to employ people to take care of their money. What's a "fair" tax regime? Depends who you talk to. One of the problems with bandings is that quite often a worker doing overtime will slip over a band and it can happen that they end up with pennies for hours of extra work. Another question is the sheer plethora of taxes. Income Tax, NI, VAT, Council Tax, Climate Change Tax, Airport Tax, etc etc etc. I'm a big fan of smaller government and am therefore in favour of less money going to government. Tax should be used for the benefit of all, not to employ personal press teams for politicians and the like. I also think our armed forces exist for the defence of the nation, not for imposing political doctrines around the world.

If anything, I'd like to see taxation removed from the power of politicians. It is fundamentally unfair that a party elected by a minority (and that's all of them) can spend the money from all of us according to their pet ideology.

Now that's an interesting idea!

My view is that tax is complicated because life and humans are complicated - none of us have the same set of circumstances so the whole tax and benefit system is complicated to try to deal with many of those complexities. (Too many complicateds - Ed.)

Anyone care to answer why the issue of "flat rate" always gets tied in with "tax code simplification"? The issues don't have to be related, but always are.

"If anything, I'd like to see taxation removed from the power of politicians. It is fundamentally unfair that a party elected by a minority (and that's all of them) can spend the money from all of us according to their pet ideology."

If there's a democratic/accountability deficit (which I think there is), then surely the answer is a more democratic system - some form of proportional representation. The fact that the government is democratically elected (albeit under a flawed system) surely elevates their budget plans beyond merely 'their pet ideology'. If it needs elevating further, let's have a more democratic system.

If government is not to have tax and spend varying powers, who should have this power? And is there any point in democratic government without this?

"Anyone care to answer why the issue of "flat rate" always gets tied in with "tax code simplification"? The issues don't have to be related, but always are."

Well, I think it's because supports of "flat rate" systems are looking for any advantage they can in favour of their argument. Most proposed flat rate systems typically benefit the rich and the super rich most - and this is a rather hard sell. Although efficiency and simplicity needn't solely be virtues of any particular shade of the political spectrum, I guess anything that reduces the size/complexity of government tasks would find especial favour with the political 'right' who would also be more amenable to tax cuts for the rich.

www.thesalarycalculator.co.uk

I lose about £3 per month on it. Not a lot, but when you consider it's been brought in so that big earners are £10 quid or so better off per month it does stick in the throat.

Why am I (and 2 other co-workers) losing out so that someone in a flash suit can afford a bit more blow at the end of the month?

I think most people would agree that my suits are far from flash.

I have been fleeced by this government continuously since they came to power.

Giving me £10 a month back does not really make up for the extra £150 pounds a month I am having to put into my pension to make up what Gordon has done to British pensions.

If we then go into what it's costing me to put 4 daughters through university........

Let's face it, in an attempt to have the last word in his last budget, Gordon has alienated the last few people who might still have voted for him.

And if he thinks that the rest of us are going to vote for him because he's refunding what I pay extra week in car tax....... then he truly is off his charley !

Bloody hell, don't have to mention University twice.

Which figure do you think is higher?
a) The mortgage on my parents' first house in 1985
b) The amount of debt my brother will be in when he graduates in 2010

[here's a clue, a) is £15,000 and b) is £18,000]

I feel a bit better knowing everyone's getting screwed over now mind.