The main differences between our approaches are
- I have maintained the fiction that Employers pay Employers’ NI. Scrapping this and increasing corporation tax to my suggested flat rate of 38% means UK plc is overall no better or worse off BUT labour intensive businesses are a lot better off and propery companies are a bit worse off.
- instead of treating interest as dividends (non deductible, non taxable), I suggested taxing it at half rates and restricting relief for interest to half rates (unless borrowed from bona fide third party).

Under his system, most people seem to be worse off, which makes me think he was a bit pessimistic. Under my suggested system, there are slightly more winners than losers, I have factored in some admin cost savings and may have been a tad optimistic.

Chris – if you have time, please read my Bow Group report and I’ll go through your calculations properly, maybe we can rake over each others’ calculations until we can agree the likely correct figure. My email address is in the report.

Do your calculations take into account the drop in administrative costs?

My article and calculations can be found at http://chris-king-uk.blogspot.com/2006/05/flat-tax-for-uk_09.html

A short cut is to deduct the magic figure of £13,333 from the gross salary and times it by 41%, there’s your total tax/NI bill (try it!!!). I work in tax, this is just one of the tricks of the trade.

Under the current system, a hairdresser on £18,000 pays £4,019. If he or she were allowed to use the same method as higher rate taxpayer, they would pay 41% tax on £4,667, or a total bill of only £1,913, that’s £40 a week better off!

Do you think that our hairdresser cares more about their marginal rate or the £40 a week they are better off?

My figure of £11,000 personal allowance (for example) is not absolute and cast in stone, you can take a figure anywhere between £10,000 and £12,000 really. Most serious flat tax proponents suggest a personal allowance of that order.

Having worked out that an £11,000 personal allowance would lead to a revenue shortfall based on 2004-05 incomes, it stands to reason if we still used an £11,000 personal allowance in the current year 2006-07, when nominal wages are nearly 10% higher, the effect of “fiscal drag” would mean than tax receipts for this year would be more or less the same under my suggested system as they will be under the actual system.

What looks like a “huge gain” is just 10% or so of current PAYE, income tax and Employees’ NI receipts.

I do not claim that my system is the absolute panacea for everything, but LVT will help a little bit, a dead simple system helps a little bit (reduces economic distortions and saves admin and hassle and avoidance), a uniform tax rate helps a little bit, ending the poverty/unemployment trap helps a little bit, scrapping Employer’s NI helps a little bit and so on. All these little bits must add up to an extra 1% on GDP growth or so, so after ten years, GDP would be 10% higher than it otherwise will be.

It not the flattening of the tax structures that gives the simplification. It is the scrapping of all the complicated benefits in kind and various allowances that obfuscate the whole system.

As an example take a look at the self assessment tax form. It is like war and peace.

True, but without having any idea whether it raises revenue/lowers revenue it’s a bit meaningless (as I suppose is the marginal rate).

The Bow Group paper is an interesting paper. I didn’t understand one bit – the huge gain from indexing, insofar as it seems to only apply to the flat tax proposal, not the current system (hence the gain) – and I didn’t like another – the assumption that it would lead to faster growth/huge savings enough to pay for itself (a classic ASI device). But otherwise it was pretty thought-provoking.