Skip to main content

A tide in the affairs of men

Last night Cicero attended a talk given by Steve Forbes, the American publisher and former presidential candidate at the London Junto- a discussion group for financiers, loosely modeled upon Ben Franklin's original Junto.

Ben Franklin famously said "Certainty? In this world nothing is certain but death and taxes.". So it was particularly appropriate that the leading American advocate of flat tax should be speaking to the group.

Cicero has been involved with the Baltic countries since he first discovered the Estonian Legation in London in 1979 and Estonia has been in the vanguard of the flat tax movement in Europe. Following Estonia, Latvia, Lithuania, Romania, Russia, Slovakia, Ukraine, Serbia and Montenegro have all adopted modified flat tax regimes, with new countries joining the list quite regularly.

So far, no Western European state has adopted flat taxes.

A major benefit of a flat tax is that since there are no deductibles, it becomes extremely simple to calculate- thus the expensive tax bureaucracy and the large number of accountants required to help taxpayers fill in the complicated forms are no longer needed. It is therefore a huge saving in collection costs. In Estonia the tax form is a single sheet of A4 that can even be completed online, if you wish.

Perhaps a part of the reason that Western Europe has not adopted the flat system, is that there are several misconceptions about what the results of a flat tax actually are. A single tax rate is seen as being unfair to the poor- since, as a proportion the rich pay the same rate as the less well off. Yet, if the tax free threshold is set high enough even an average tax payer can pay very low levels of income tax- and the system is therefore still progressive.

Indeed, the high rates of taxation under the "progressive" regime, together with a large number of "middle class" tax credits has meant that many of the poorest pay a far higher proportion of income in tax than the middle class, while the rich actually now pay least of all. The wealthy establish a network of off shore structures in order to shelter their assets or income from income or capital gain tax, and since the tax rates can be 40% or 50%, it is economic to spend money to create these complicated and expensive structures.

The policy of Gordon Brown- creating very large tax credit systems- has succeeded to some degree in creating a client relationship for many citizens with the state. The state has increased its power over the citizen by offering tax credit payments. The problem is that the increasing costs of administering these gigantic programmes is creating a fiscal drag- the costs are slowing down our economy.

Steve Forbes spoke very much about American conditions- yet, although the British tax code is not yet as complicated as the US, it is certainly heading in that direction. If we are to avoid the cul-de-sac of an almighty fiscal bureaucracy, we must act quickly to simplify taxation.

Fair, Simple, and cheap to collect should be our watch words- it is time for the British Liberal Democrats to speak up for a tax system that actually delivers these things. The current taxation system does none of these things- Brown's policy (and Cameron's acceptance of it) must be challenged.

As the flat tax tide rises across Europe, it is time for the United Kingdom Liberal Democrats to debate these issues honestly and openly.



Anonymous said…
Flat Rate income tax would also function efficiently in tandem with Land Value Tax.

A flat tax on income would be both simpler and fairer than the present shambles, and would inevitably allow for a reduction of the overall tax burden because of the resultant efficiency savings. It is the best option for financing central government; less bureaucracy, less tax, a smaller state.

Ideally, a much greater percentage of tax would be raised locally, through land value taxation, shifting the tax burden onto unearned wealth as opposed to earned income, and kick-starting local regeneration through non-taxable land improvements.
Cicero said…
Yes- I completely agree with this!!
Anonymous said…
I agree.

I don't understand why so many people (including many in the LibDems, witness the 50p debate) insist in believing that income tax is fair, and that a 'progressive' income tax is a good idea. Perhaps people really don't understand the difference between income and wealth...

I share your unease at the way tax credits change the relationship between state and individual. Its part of the whole welfare system we have, which creates dependency on the state and a belief in the state 'owing you'. Entitlement culture and state dependency seems to be responsible for many problems in society today.

Popular posts from this blog

Post Truth and Justice

The past decade has seen the rise of so-called "post truth" politics.  Instead of mere misrepresentation of facts to serve an argument, political figures began to put forward arguments which denied easily provable facts, and then blustered and browbeat those who pointed out the lie. 

The political class was able to get away with "post truth" positions because the infrastructure that reported their activity has been suborned directly into the process. In short, the media abandoned long-cherished traditions of objectivity and began a slow slide into undeclared bias and partisanship. 

The "fourth estate" was always a key piece of how democratic societies worked, since the press, and later the broadcast media could shape opinion by the way they reported on the political process. As a result there has never been a golden age of objective media, but nevertheless individual reporters acquired better or worse reputations for the quality of their reporting and the j…

Breaking the Brexit logjam

The fundamental problem of Brexit has not been that the UK voted to leave the European Union. The problem has been the fact that the vote was hijacked by ignorant, grandstanding fools who interpreted the vote as a will to sever all and every link between the UK and the European Union. That was then and is now a catastrophic policy. To default to WTO rules, when any member of the WTO could stop that policy was a recipe for the UK to be held hostage by any state with an act to grind against us. A crash out from the EU, without any structure to cope, was an act of recklessness that should disqualify anyone advocating it from any position of power whatsoever. That is now the most likely option because the Conservative leadership, abetted by the cowardly extremism of Corbyn, neither understood the scale of the crisis, now had any vision of how to tackle it.

Theresa May is a weak and hapless Prime Minster, and her problems started when she failed to realize that there was a compromise that w…

The rumbling financial markets

Security specialists use a variety of ways to address the risks that they face: and these risk assessments are made in the certain knowledge that the actors in the system hold only incomplete information. Although much mocked at the time, Donald Rumsfeld’s categorization of “known unknowns” and “unknown unknowns”, is now generally recognized as a succinct summery of his strategic quandaries.
By contrast, actors in the financial markets have a more sanguine assessment of the risks they deal with: they divide them into two kinds of risk: quantifiable and unquantifiable. Unquantifiable risk is not generally considered, since there is usually no financial profit that can be made except from pure supposition. Therefore for the purposes of the financial markets, any given event is priced relative to its level of probability, that is to say its quantifiable risk. 
Depending on the market, higher levels of risk generally carry higher prices, lower levels generally lower prices. Clearly such an…