Mary Dejevsky: Taxpayers of the world, unite

A flat tax offers a simpler, fairer and more efficient way of transferring money to the Government
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The Queen's Speech was all of a piece with the election campaign: some marginal rethinking, some trimming, some technocratic tinkering in the name of improving efficiency. Why, one wonders, do American-style think-tanks bother setting up in this country at all when governments (and oppositions) are so reluctant to embrace really new ideas?

The Queen's Speech was all of a piece with the election campaign: some marginal rethinking, some trimming, some technocratic tinkering in the name of improving efficiency. Why, one wonders, do American-style think-tanks bother setting up in this country at all when governments (and oppositions) are so reluctant to embrace really new ideas?

And the time is surely ripening for at least one of these ideas: the so-called "flat tax". What more tantalising remedy for an economy facing slowdown and a Chancellor contemplating a large black hole a few years hence than a system of taxation that streamlines collection and also releases more cash for consumer spending. It might even increase the total government take - but that would be a bonus.

Nor would the introduction of such a system be a leap into the unknown. The "flat tax" already functions well in many of the "new" European countries and in Russia. With a personal tax-free allowance and all other income taxed at a flat rate of between 26 per cent (Estonia) and 13 per cent (Russia), these economies are growing rapidly, taxes are paid and there is next to no evasion.

So successful is the flat tax deemed to have been, that neighbouring countries are having to consider sharp reductions in their own rates of tax or watch investment move east. When even stagnant, reform-averse old Germany is toying with tax reforms that would sharply reduce and simplify rates, you have little choice but to conclude that the flat tax is an idea that deserves wider imitation.

So what is stopping the flat tax spreading throughout the developed world? Why have the "old" European countries and Britain, not to speak of that missionary of free enterprise, the United States, been so slow to consider - and so downright condescending about - the whole idea? My own enthusiasm for the flat tax may offer a clue.

I first came across it when following Steve Forbes' abortive US presidential campaigns in 1996 and 2000. The flat tax was the only memorable feature of his platform, and it elicited two responses. Cynics and opponents on the left accused the millionaire publisher of trying to engineer a tax windfall for himself and other wealthy Americans. It was obvious on the campaign trail, however, that much of Steve Forbes' support came not from the wealthy - who could cheerfully afford to vote Democrat - but from blue-collar Americans and small businessmen, who felt crushed beneath the weight of the multi-volume US tax code.

A flat tax seemed to them, as it does to me, and now to millions of "new" Europeans, to offer a simpler, fairer and infinitely more efficient way of transferring money from the governed to the Government than anything else on offer. The savings are obvious: savings for most of us in the tax we pay; savings for many, too, in the time and money spent calculating payments and maximising benefits. There would be savings for the tax authorities, too, in calculating, checking and second-guessing the ever-evolving tax dodges .

So where is the catch? It may now be apparent that what most of us flat-taxers have in common is not only a preference for practice over theory, but our non-existent paper qualifications in economics. A flat tax is a simple and elegant solution to the tax equation, but it is not one for government economists. These estimable individuals have devoted their lives to devising tax systems that maximise revenue while conforming to the government orthodoxy of the day - be it squeezing the rich, encouraging enterprise, trickle-down wealth or whatever.

The flat tax has a separate set of enemies among tax specialists whose livelihood depends on providing expensive help to clients wanting to minimise their liability. Economists and tax specialists form a powerful closed shop whose arguments start and end with the one we know so well: economists/tax advisers know best; what right have you, a mere amateur, to challenge their authority?

Their next argument - that a flat tax would not work - has had to be refined in the light of the compelling evidence to the contrary. Their new position is that, while a flat tax may work, for a while, in less developed economies peopled with free-market novices who would otherwise pay no tax at all, we Western sophisticates need a more complicated tax code to match our more advanced government machinery. Those innocents to the east will in time see the wisdom of our ways.

Their argument of last resort is that a flat tax is "unfair". Those who see the function of income tax as progressive contend that a flat tax penalises the poor, because they spend a larger proportion of their income on necessities. They insist that a personal allowance large enough to compensate for this loss would require a flat tax rate so high as to negate its attraction.

But this has not been the experience in those countries where the flat tax operates. And some projections show that even in advanced economies, the rich would pay more under a flat tax system than they do at present, because it becomes much harder for the rich to shelter their income behind special tax schemes.

Simpler, fairer, requiring a minimalist tax inspectorate and less enforcement ... All that is wrong with the flat tax is that it endangers too many vested interests. Taxpayers of the world, unite! You have everything to gain.

m.dejevsky@independent.co.uk

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