Avoiding and evading taxes - time for a flat tax


I can see Nick Clegg's problem. Many activists at his LibDem conference would prefer their party to remain poor, even if they thereby remain out of office. They do not want their party to be infected with Conservatism. So Clegg has to justify his decision to do a deal with the Conservatives, while insisting that he's sticking, as far as feasible, with LibDem policies.

Typical of this is his insistence that rich folks should pay their 'fair share' of tax. On radio this morning he was proclaiming that the LibDems had been crucial in raising the tax threshold for the poorest (a policy that ASI has long supported) and raised the capital gains tax rate so that wealthy people could not pay a much lower rate of tax by taking their pay as gains rather than wages. He said that, as a result of LibDem influence, the coalition government is planning "to come down like a ton of bricks on people who avoid or evade taxes".

Pardon? Avoidance and evasion are two different things. Evasion is illegal – as when you lie about your earnings in order to pay less tax. Avoidance, though, is perfectly legal – as when you transfer some of your wealth into a trust for your children, so that they do not have to pay inheritance tax on it. What kind of a government 'comes down like a ton of bricks' on actions that are perfectly legal?

Perhaps it was a slip of the tongue, and he just meant evasion. But actually the words 'avoidance' and 'evasion' have been used in the same sentence over and over during the last few days. This seems deliberate. Or, perhaps by 'coming down like a ton of bricks' he means simply that he intends to change the law to close more legal loopholes. This sounds like Mr Clegg has been infected by the Gordon Brown Treasury view, that our money is actually theirs (since they know how to spend it better than we do), apart from whatever they grudgingly return to us.

There is one way to prevent people exploiting loopholes and paying less tax by employing expensive lawyers and accountants to shuffle their money around. That is to make taxes so low and so simple that there is no point and no chance of doing so. A tax system where it is obvious what people are expected to pay. We need a flat tax, and we need it now.