Can a Single Tax Rate System Work?

Do you think a single-rate tax system will work? Leave your comments below

Should We Create a Single Tax Rate in the United Kingdom?

Part of the deal to ensure that Scotland will remain part of the United Kingdom, was to provide the Scottish Government with maximum devolved governing powers, which includes full control over income tax and welfare. The Labour party has now fully agreed that Scotland should have these independent powers to set their own income tax rate and use that tax revenue to help develop their local economy. But, with the possibility of getting full income tax powers, poses the question of what should the income tax rate be? It also allows the rest of the UK to start to consider whether our overall income tax system is adequate or should we now create a new income tax system (especially with the potential of a new global financial crisis on the horrizon).

Why should we change the current UK Tax System?

Although this blog is primarily about income tax, the entire tax system in the UK is often described as over-complicated, with many tax loopholes. Some believe that we pay too much in tax, in fact the UK's population is one of the highest taxed in the World. However, billions are lost every year to tax avoidance schemes and loopholes, while the middle class suffers from over-taxation. Therefore, it is time to start to reconsider the entire tax system.

A more tax efficient economy can allow our economy to grow by encouraging greater spending, increase in jobs, and business growth - which will help bring an end to austerity cuts on public services, while attracting more opportunities to the United Kingdom.

What to change the UK Tax System to?

The income tax system is currently over-complicated, with those who are on the fringes of each tax band feeling the most burdened in times of economic instability. One prominent proposal is to introduce a single rate tax system, where regardless of income, everyone pays the same tax rate, while ensuring that all tax loopholes are eradicated under the new tax laws. For those who are on the lower end of the income scale, should be provided with tax allowances and public income top-ups (which are already in place).

Now a lot of people may argue why the "rich" should pay the same tax as someone who receives an average salary. And it is true that the more wealthy you become, the more you should contribute back into the economy. However, should those who work hard to either establish a successful high revenue business, or have worked their way up in their jobs, be "rewarded" by being taxed more - by having over half of the money they have earned going on tax? Most wealth is now self-created rather than inherited, in contrast to 30 years ago where the top 1%'s wealth largely stemmed from inherited wealth. Therefore, a single tax system will be fair for everyone in society.

How to Implement the System?

Creating a new tax system will mean that a bundle of new laws will have to be passed in a step by step process, over a course of years. There will need to be a process of consultations with businesses, as well as members of the general public. Once the first stage has been complete (i.e. actually changing the tax rate) then any tax loopholes and excessive tax allowances should be made illegal.

Staggering the process of the implementation a unified single tax system, will allow there to be enough notice for people and businesses to adjust to the new system and prepare for the new way tax will be collected, and implemented. It will also allow the economy and financial markets to continue to have growth, while mitigating any impacts on short-term austerity cuts.

Consequences of New Tax Laws for a Single Tax Rate System

Setting a universal tax rate will provide a more fair, simple and robust tax system where everyone contributes equally to the economy. This will provide people with more cash, thereby allowing more spending. Businesses and employers will be able to use money saved in employment taxes to provide more jobs, while the closing of tax avoidance schemes and loopholes will be eradicated, adding billions to the total tax received by the government. The combination of the above will mitigate any early losses suffered in tax revenue due to lower tax rates, and encourage more businesses to seek to establish a presence in the United Kingdom.

Conclusion

A single tax rate system can provide a much more robust, yet simple taxing system. With the eradication of loopholes and the extention of lower income support, the system can become a more fair way for the United Kingdom (or any country) to collect tax revenue from their citizens. The benefits of having a unified, lower general tax rate, can encourage greater spending, thereby increasing the amount of jobs and businesses contributing to the economy. Public spending in the long run may even be able to be increased, but with the demands of the welfare state decreasing, as a result of more spending, job creation and opportunities. However, implementing a new tax system will take time, consultation and careful planning to ensure that benefits are realised in both the financial markets and overall society, to mitigate any early losses to income tax revenue. A single rate tax system can build a fairer, yet more efficient system for governments to collect tax revenue, and can even assist in building a more stable economy.

But what do you think? Is the current system adequate? What would you change? Will a single rate tax system even work? Leave your comments below.

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