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Written by Blog Editor
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The idea of a flat rate income tax system is attractive, and the
arguments in favour are well rehearsed. It is simple, transparent to
the taxpayer and easy to manage, with low administrative costs; it
enhances the incentive to work; if it is extended to investment income
it encourages the saving and investment necessary to stimulate economic
growth in a competitive global market; it attracts entrepreneurs from
abroad to a business friendly environment; it provides the conditions
for increased employment; counter-intuitively, and given a sufficiently
generous non-taxable personal allowance, it favours the lower paid over
the affluent; and it quickly leads to higher tax receipts that enable
government spending elsewhere.
Flat rate income tax has existed for many years, but has only recently
attracted widespread attention after its adoption, to good effect, by
several East European countries. On the evidence, which is becoming
extensive, there is little to object to and, yet, it is likely to be
difficult to introduce such a system to the UK, principally for reasons
of short-term affordability and popular perception. It is an
unfortunate fact that, whilst the benefits of a flat tax have been
widely discussed by a growing number of advocates, the considerable
obstacles that could decisively frustrate its realisation in the UK
have largely been ignored. These difficulties need properly to be
exposed and addressed if flat tax is not to remain wishful thinking.
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Written by Graham Cunningham
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Seventeen years on from the political assassination of Margaret
Thatcher, her legacy seems to be an enduring transformation of our
national economic fortunes. Her political courage was the sledgehammer
that was needed to knock Britain out of its pathetic performance as a
manufacturing nation. Seventeen years of media establishment vendetta
however have sought to deny her any of the credit. This travesty of the
truth has been made possible because there is in Britain a widespread
ignorance of our economic history.
Self-delusion and decline
The hard fact is that our relative decline in manufacturing began
right back in the second half of the 19th Century, as soon in other
words, as better adapted societies like Germany and the USA began to
compete with us. It had continued relentlessly ever since. No economic
policies of either political party had ever made a jot of long-term
fundamental difference.
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Written by Dr Fred Hansen
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Proposals to healthcare reform should be judged not on the
goodness of their intentions but rather on the basis of there results –
in other words: nobody washes a hired car
The focus on consumer choice within both major parties
seems to respond to the core weakness of the British health system, as
reported by patients (A Coulter, Picker Institute BMJ: 331, 19/11/05,
pp 1199). The deplorable heritage of the NHS - its cold war bureaucracy
and a paternalistic doctor-patient relationship – is the very opposite
of choice. And there are many doubts whether the recently introduced
patient choice between hospitals for elective surgery is the most
urgent kind of choice that people are coveting. Over 500 consultants of
Doctors for Reform have declared: “The NHS was conceived more than half
a century ago, at a time of rationing and considerable poverty. We once
believed it was the finest healthcare system in the world. Today few
healthcare professionals would make that claim.” Indeed Britain seems
to be coping worse than other Western countries with soaring health
costs and is dramatically falling behind other Western countries in
such crucial things as cancer survival rates.
The intangible revolution
Quite a different issue is to predict the future of the NHS in a
competitive global health market. As everybody knows, here are
economies of scale, particularly in purely knowledge-based goods. This
is what some experts like Roger Boothe call the intangible revolution.
They maintain that the economic potential and wealth creation of the
knowledge-based technology of the future is enormous. This is
especially true for the health sector which in the future will produce
lots of intangible products and services. But today, as a closed
market, the NHS simply cannot compete with the lower prices of the much
larger international markets. That’s the bad news. The good news is
that the globalization of healthcare services and products is the best
way to contain exploding costs everywhere. Surprisingly loss of control
over health expenditures happens in very many countries, regardless of
ideology and the way health care is organized – from central Europe to
the United States of America.
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Written by Dr Madsen Pirie
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The libertarian science-fiction writer Robert Heinlein famously
observed that “there ain’t no such thing as a free lunch,” but today’s
producers and retailers are increasingly faced by a public which
expects one. Our economy has a habit of turning what was once an item
of value into a throwaway freebie, and the economics of this are making
people rethink their ideas.
When George Orwell was Down and Out in Paris and London, he observed
that homeless people, then called “tramps,” would pick cigarettes from
the gutter and sometimes roll their own from the residual tobacco
(there were few filter tips in his day). The problem was matches; these
were a valuable commodity among the destitute community, for few would
spend the few coppers a box cost, even if they had the money. Now, of
course, free matches are widely available, and not as many people buy
them. They use free boxes which carry advertising, or they use cheap
disposable lighters at a tiny fraction of what a lighter used to cost.
The obvious question is “What happened to the match companies?” Given
that not nearly as many matches are sold, how do they make their money?
Some of them went out of business, some diversified, and some survived
by making the boxes and books of matches which are given away, making
money from the companies which offer them, rather than from the public
direct.
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Written by Samuel Nguyen
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1. Doesn’t flat tax simply mean cutting taxes?
On the contrary, it usually involves increasing the total amount of
taxation. It involves setting a single rate of income tax, which in
practice is almost always lower than most of the existing graduated
rates. But a lower rate does not mean a lower yield. In practice
countries which have introduced flat tax have increased tax revenues.
2. Surely a flat tax will give the government less to spend on social needs?
No. It should have more to spend. A flat tax raises the tax base in
three ways. Because the flat rate is low and simple, people no longer
resort to complicated means of sheltering their income from tax. Out go
the complex schemes under which companies trade off-shore from
addresses in the Caribbean. Out go the trusts and the claims for tax
allowances and write-offs. It becomes cheaper to pay the tax than to
pay the accountants.
This means that more income becomes taxable. People who previously
evaded tax illegally now find it more worthwhile to pay the new low
rate than to risk prosecution and imprisonment. This means that much of
the ‘black economy’ surfaces and is taxed.
Finally the tax base rises in a third way. Because the rates are low,
the incentive to do more work, to invest, and to expand are all
increased, so the size of the economy also increases as more wealth and
jobs are created. And the wealth stays, too, because people find it
less necessary to emigrate.
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Written by Keith Boyfield
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My father was a trustee of the Lancashire miners’ convalescence home,
located in Blackpool. Jo Gormley, the miners’ leader - who you may
recall used to tip off MI5 about the activities of Arthur Scargill -
appointed his own brother (a classic example of nepotism) to run this
luxurious palace, which my father would regularly visit.
Bearing in mind these memories of my youth, it was alarming to
discover the fuss earlier this month that centred around the regulation
of the beach donkeys in Blackpool.
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Written by Dr Eamonn Butler
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A four-year study by the Environment Agency has confirmed what many of
us, with our back-of-the-envelope calculations, had already worked out:
that disposable nappies are no worse for the environment than washable
ones.
It might seem intuitively obvious that washables are best. You
just wash and re-use them, instead of throwing them into a plastic bag
and letting them mount up at landfill sites, leaking methane into the
air and other unmentionables into the soil. But when the agency looked
at the whole life-cycle of washables and disposables, it found "little
or no difference" in the environmental impact.
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Written by Dr Eamonn Butler
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THE average Brit spends five months of the year working for the
government. From January 1st to May 31st this year, every penny you
have earned has gone to the Treasury. Only from then do you start to
earn money for yourself.
Each year, the Adam Smith Institute calculates the date, which we call Tax Freedom Day.
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Written by Dr Eamonn Butler
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Recently I was asked what I would do if I were made Chancellor for a
day. The first thing, obviously, is to introduce the Flat Tax – as
around a dozen countries already have done, including four EU members.
Everyone would pay the same rate – around 22%.
Doesn’t that just help the rich and leave a big hole in the public
finances? Well, no. As Britain and America have found after tax cuts in
the past – under Coolidge, Kennedy, Reagan, and Thatcher – the rich end
up paying more. When taxes are low, there is less point in avoiding or
evading them, or moving abroad.
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Written by Keith Boyfield
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Politicians across the European Union claim to be in favour of cutting
red tape. Nevertheless, the regulatory burden on business and citizens
alike continues to grow. At the latest count, the acquis communautaire,
the accumulated EU rule-book, ran to 16,000 pages.
In our new Adam Smith Institute study, we set out a "road map"
which explains how policymakers can begin to cull the mounting stack of
regulatory rules, both across the EU and within member states.
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