Simplifying the tax system

Because I’ve been looking at the tax system in the course of the last week, I’ve been considering some of the arguments for “simplification” and the possibility of a flat tax. Some of the allowances and approaches being used are bizarre, and several complications seem unnecessary – for example, the calculation of NIC on a weekly basis when everything else is monthly or annual, the arcane mechanisms for clawback, and the lack of integration with tax credits.

However, I’ve argued in the past that attempts to simplify social security systems are illusory. Benefits have too many aims, they deal with too many people in complex and changing circumstances. The same arguments seem to me to apply with as much force to taxation. Taxation is supposed to do many things at once. Richard Murphy begins with five: raising revenue, repricing, redistribution, fiscal policy and solidarity (though Richard found a way to begin the last two with an “R”). To that I can add at least two others – changing behaviour (incentives, disincentives and subsidies) and conveying a moral position (e.g. in support for families). Add to that the complexity of people’s lives, the things that are being taxed, and the constant changes in circumstances, and I am sceptical that taxation can ever be anything other than complicated.

That doesn’t mean, that nothing could be simplified, or that the system could not be made more comprehensible – for example, by unifying allowances with credits, or by harmonising rates between employment, self-employment and taxation of companies. One thing is unavoidable; in any reform, there will be gainers and losers. If the system costs the same, then some people will be worse off; if no-one is to be worse off, the system must cost more. There is no way round that.

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