The Single Income Tax - The 2020 Tax Commission

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356 reward in the form of skills and credentials they can exchange for a higher income. Their studies may also produce positive social effects for which no one is charged. The students’ education may make them better citizens who are better able to hold politicians to account through the ballot box. That would mean there was a positive externality to going to university. By contrast, someone who burns petrol in order to power their car pays a price for the petrol and the car and gets a certain return in the form of greater mobility. They will also create pollution and congestion, having a negative effect on wider society. That means there are negative externalities to burning petrol in order to drive. If government intervenes and places a tax on an activity that creates a negative externality, or provides a subsidy to an activity that creates a positive externality, then it can theoretically improve efficiency by better aligning private incentives with the social good. The taxes or subsidies should be equal to the harm or benefit that is placed on society so that each individual’s actions reflect the costs and benefits to society. People should then produce an efficient amount of the positive or negative externality. There are problems with that idea even in theory. Nobel Laureate Ronald Coase pointed out the biggest problem.673 He established that, in a hypothetical world with zero transaction costs, the market would perfectly correct for externalities. If someone suffered as the result of a negative externality they would offer to pay the person creating it to stop. If they placed a greater value on preventing the externality than the person producing the externality did on pursuing the activity that created it, then they would pay the person producing the externality enough that they would stop. On the other hand, if the value they placed on stopping the activity was less than the value the person creating the externality placed on being able to continue to do so then they would not offer enough, and the externality would continue to be created. Coase identifies the limits of this reasoning himself. The Coase Theorem, as his theory has since become known, only works in a world of zero transaction costs. There are innumerable reasons why it is often extremely difficult, if not impossible, for the rest of society to pay someone for producing a public good or not producing a negative externality. Global warming offers a clear example: the potential harms to each individual created by someone else burning a litre of petrol are infinitesimally small, but the externality could be significant on a global scale. It would be utterly impractical for everyone to club together and put in their tiny fractions of a penny in order to pay someone to drive less. However, attempts to correct for externalities through Pigovian taxes are also subject to transaction costs. There are a variety of reasons why politicians might get interventions intended to correct for externalities wrong. They have to work out the right level for the tax or subsidy; they need to ensure the intervention itself is efficient (administering a tax may be costly, for example, or it could hurt the economy); they may need to balance a series of positive and negative externalities created by a single activity; rent seekers may distort an intervention so that it serves their private interests rather than the social good. With those problems, governments need to avoid rushing to subsidise every public good and tax every negative externality. The taxes are often set at too high a rate to be justified by the externalities they are supposed to address. Motorists are charged billions in excessive tax (Section 7.2.1). 673. Coase, R. H. The Problem of Social Cost, Journal of Law and Economics, October 1960 Chapter seven | Other consumption taxes
Tobacco taxes are justified on the basis of supposed externalities that are mostly not even really external costs (Section 7.2.2). And Air Passenger Duty is excessive, redundant and ineffective (Section 7.2.3). The fundamental problem with these taxes is that they are generally either a substantial source of revenue but do not change behaviour, or they change behaviour and that shrinks the base and undermines their ability to raise revenue (Section 7.2.4). Given that many of the Pigovian taxes are among the most regressive, when they are ineffective or poorly justified they are a particularly unpleasant and unfair burden on families (Section 7.2.5). 7.2.1. Britain’s motoring taxes are extremely high by international standards and not justified by the costs of climate change or road building and maintenance British motoring taxes are very high not just by international standards but even by comparison with other countries in Europe. In September 2011, tax accounted for 60 per cent of the pump price of petrol in the UK, a greater percentage than in any other EU country.674 Figure 7.4: Tax component in pump price of unleaded petrol in EU – 27 countries, %, September 2011 Tax component (%) 70 60 50 40 30 20 10 0 Cyprus Bulgaria Luxembourg Spain Romania Malta Latvia Slovenia Lithuania Estonia Poland Hungary Czech Republic Austria Denmark Ireland Italy Portugal Slovakia France Belgium Finland Germany Sweden Netherlands Greece UK Tax accounted for 58 per cent of the pump price of diesel, again the highest share in the EU.675 With non-European developed countries like the United States charging considerably less, and many developing countries subsidising motor fuel, the UK’s motoring taxes are among the highest in the world. Only Turkey appears to charge more. VAT is also paid on motor fuel and the purchase of new cars so both Fuel Duty and Vehicle Excise Duty, in their entirety, constitute a premium on the level of taxation judged fair across a range of other products. Fuel Duty and Vehicle Excise Duty are therefore entirely green taxes except to the extent they compensate for other externalities such as the need for road building and maintenance. 674. DECC Quarterly Energy Prices, Table 5.1.1 675. Op. cit TaxPayers’ Alliance | Institute of Directors 357
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The Single Income Tax Final report
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The Single Income Tax Final report
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Prologue To create the conditions f
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Contents 6 Contents Prologue 3 Fore
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8 Contents 3.1.2. Under a range of
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10 Contents 4.3.5. Family formation
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12 Contents 8.1.2. Fiscal decentral
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14 Contents Rao, M.G., Tax System R
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16 Forewords Allister Heath Editor
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18 Matthew Elliott Co-founder and C
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Biographies of the Commissioners Al
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22 Graeme Leach, Chief Economist an
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Marginal tax rates should not excee
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26 Those proposals would result in
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28 so the elasticities are central
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30 As Table 1.1 shows, the impact o
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Chapter two Taxes in Britain are to
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it is today and did not exceed the
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Table 2.2: Ratios of total tax rece
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Average workers would have to work
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General government expenditure Priv
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Government final current expenditur
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Table 2.7: Chartered Institute of T
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Pages with cases Pages without case
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“The last decade has also seen an
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“I sought to abolish a tax at eve
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There are many ethical questions th
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for a society to function, but an e
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The use of tax reliefs in ways that
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“It is said one of Emperor Nero
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tions by people who, in some cases,
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64 3. Taxes should be cut to 33 per
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The old HM Treasury rule-of-thumb,
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68 A tax on success UK celebrities
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The more high-skilled the labour, t
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72 rise from the 40p top marginal r
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74 everyone to have a decent life,
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76 Deciding what we want Peter and
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78 made most strongly in Nozick’s
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80 example. That is simply choosing
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82 should support a state-funded in
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84 while continuing to fund these s
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“The more money that the governme
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Matt Ridley is the awardwinning aut
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“Whereas private extravagance is
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92 So here is a question: is it bet
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“Artificial light was an unimagin
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“Free markets allow you to cooper
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“The concept of the tithe is also
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100 state comes before the individu
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“The aim of zakat is not to satis
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104 of people: tax payers and tax c
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106 Author Title (year) Country Bra
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Politicians making decisions can an
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110 It is reasonable to argue that
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112 make inadequate returns. There
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114 A system of taxation and govern
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116 the individual rather than soci
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Putting the case for spending on ed
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120 Activity: author Unit/organisat
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122 Activity: author Unit/organisat
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124 1997 to 2007, it would have sav
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As a result of the logic of collect
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Brennan and Buchanan’s Leviathan
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130 The UK actually scores highly,
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132 errors that resulted from overe
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134 Author Data coverage Main expla
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136 Compounded total growth, potent
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138 the tax structure rather than t
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At its peak in 1993, spending in Sw
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142 UK non-oil GDP Time trend pre 2
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144 Leadership is key and not just
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69 per cent agree that “if the go
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When asked if ‘people like me’
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150 Figure 3.13: In the current eco
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“We shall cut income tax at all l
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154 3.5.3.1.3. The 1988 Budget Prob
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For most voters the Poll Tax repres
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“… the soundest way to raise th
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160 was the Democratic nominee. The
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162 In 1983, when Labor entered off
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164 have survived. This in part pro
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166 Those substantial disparities a
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168 appropriately to local conditio
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There is an independent negative cr
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172 The IMF staffers found that the
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Public sector pay is 7.8 per cent h
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176 intensity of intergenerational
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178 Real PDE Real GDP Figure 3.17:
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180 Figure 3.19: Ratio of Smoothed
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The consolidations that turned out
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184 - The value added under the var
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186 revised version in 1987 succeed
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188 That statement must give at lea
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190 4. Marginal tax rates should no
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192 2001-02 2011-12 2012-13 2013-14
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“The number of people who pay no
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196 Production and Consumption Effi
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198 offers, the latter effect (i.e.
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“Corporate income taxes can affec
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202 the two is not tax evasion (alt
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“Higher tax burdens raise the pri
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There are numerous economic studies
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208 Table 4.2: Countries and jurisd
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210 made about the engine of growth
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212 Larger businesses have differen
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214 79 per cent agreed that Nationa
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216 0.35 TIE 0.45 TIE 0.55 TIE “N
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218 Feldstein and Feenberg looked a
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220 Personal income tax and employe
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222 As a result, at the time that t
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224 Table 4.5: Revenue raised by th
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226 open economies have lower maxim
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228 Tax rate Realisations Sea but t
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230 increase. And a higher CGT will
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232 The argument that there is a so
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234 High earners will, thanks to th
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236 Percentages of disposable incom
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The critical test should be whether
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Other researchers had already come
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242 preposterous to argue, as Wilki
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244 This was puzzling, since the wo
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246 Other scholars have attempted t
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Many studies of optimal taxation as
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250 amount of tax a single person o
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252 4.3.6. There is not a credible
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254 Incentives, behaviour and justi
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256 have less, and it is not at all
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Chapter five Taxes on capital and l
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Numerous empirical studies show tha
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5.1.3. Financial Transaction Taxes
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There is a stamp duty on shares in
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The Economist recently showed the t
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Corporation Tax lacks public legiti
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Table 5.1: Corporate flows of funds
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would be created for them to acquir
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dividends who were UK companies wou
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■ Original Company agrees to cove
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of removing distortions and an obvi
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Figure 5.3: Landlord with a propert
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And the fact that they do not gener
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capital gains by selling assets to
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Income from capital should be taxed
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UK Government. Capital payments sho
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as neutral between different taxpay
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If companies do not pay dividends o
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[M]any participants were resistant
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for jobs on the basis of experience
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Despite these technicalities the Fu
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■ Married Couples Allowance: Civi
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5.2.3.1.8. Interaction with benefit
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Page 365 and 366: Duty on hydrocarbon oils & Vehicle
Page 367 and 368: Chapter eight Local authorities sho
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Page 386 and 387: 384 Appendix - earlier tax reviews
Page 388 and 389: 386 the tax system is critically ex
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Page 392 and 393: 390 special treatment for special i
Page 394 and 395: 392 A Tax System for New Zealand’
Page 396 and 397: 394 Evaluation of the 2006 Tax Refo
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Page 402 and 403: 400 Heath surveys the academic lite
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406 HM Treasury Report on Flat Taxe
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408 Final Report of the Tax Policy
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410 overreliance on business and pe
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412 and consumption taxes correspon
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414 for poverty is to be found”.7
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416 gradually and not through a gig
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Acknowledgements The Commissioners
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