Changes to personal taxation

[sgtkate]

Currently we pay tax on our income and on our purchases. In another thread while musing about Laffer curves and so on I proposed changing our tax system drastically to only tax on purchases. Zero or low rates on essential items needed for basic survival and living (similar list to what is zero VAT now), but higher rates than at present for luxury, or high end items (I'm sure this would generate discussion as to what is defined by luxury!). I would do things like remove stamp duty on houses and replace with a purchase tax.

 

My thinking behind this is by taxing on purchases it can never be avoided except by not buying the thing. Import tax would be the same rates as if the item was bought in the UK so there would be no benefit from trying to buy overseas to avoid the tax. Offshoring money to a tax haven would be no more, same as paying yourself in dividends to try to avoid tax as it wouldn't be payable any longer.

 

The end goal would be to have an 'average' person earning UK average wages to pay very similar amounts of tax through purchase tax as they do under the current system. People on lower than average incomes would pay slightly less tax than at present, and those who earn more than average would pay slightly more. All based on an average persons spending. Clearly if someone earning £250k a year decided to only buy absolute basics then they'd pay no tax.

 

I'm not taking into account business and corporate tax in this as I really don't have enough knowledge of the complexities here to break it down so simply. And for NI, I'm torn as to whether this should remain income linked or not...

 

I'm sure if it was this simple someone would be doing it already, but I don't think they are. What have I missed? Why wouldn't this work?

[Obelix]

I sent you a PM about this

[TheNugget]

Trouble is, it would make us uncompetitive in a global economy and imports would then have to be heavily taxed to stop people simply buying what they want abroad.

[sgtkate]

I sent you a PM about this

 

You did and I finally got around to doing it!

 

---------- Post added 18-05-2017 at 17:38 ----------

 

Trouble is, it would make us uncompetitive in a global economy and imports would then have to be heavily taxed to stop people simply buying what they want abroad.

 

Can you explain why it would make us uncompetitive in an idiots guide form? Exports wouldn't need to be taxed at the same rate as imports or purchases within the UK. Non-UK residents could claim the VAT back in the same way they currently can.

Imports would be taxed at the same rate as if the item was bought in the UK to avoid exactly that.

[TheNugget]

You did and I finally got around to doing it!

 

---------- Post added 18-05-2017 at 17:38 ----------

 

 

Can you explain why it would make us uncompetitive in an idiots guide form? Exports wouldn't need to be taxed at the same rate as imports or purchases within the UK. Non-UK residents could claim the VAT back in the same way they currently can.

Imports would be taxed at the same rate as if the item was bought in the UK to avoid exactly that.

 

Because if we start taxing imports at a heavy rate then other countries will do the same to our exports to even up the markets. It would become impossible to do Free trade deals with other countries. In my opinion. Although a more qualified economist may disagree.

 

---------- Post added 18-05-2017 at 18:17 ----------

 

Another downside is that manufacturers goods would become hugely expensive (at least in pure cost terms) in the U.K. In comparison to other countries. So all fthe a sudden the UK becomes a second rate market to them.

Edited May 18, 2017 by TheNugget

[Supertramp]

Because if we start taxing imports at a heavy rate then other countries will do the same to our exports to even up the markets. It would become impossible to do Free trade deals with other countries. In my opinion. Although a more qualified economist may disagree.

 

---------- Post added 18-05-2017 at 18:17 ----------

 

Another downside is that manufacturers goods would become hugely expensive (at least in pure cost terms) in the U.K. In comparison to other countries. So all fthe a sudden the UK becomes a second rate market to them.

 

If we tax imports then everyone will tax our exports.

If we only tax purchases and not income, the tax would have to be massive to compensate.

 

People would not spend as much. People with the ability. I.e. the rich (who pay most of the tax that is collected currently) would earn their money in the UK and go spend it elsewhere.

 

It's not a very good idea.

[TheNugget]

If we tax imports then everyone will tax our exports.

If we only tax purchases and not income, the tax would have to be massive to compensate.

 

People would not spend as much. People with the ability. I.e. the rich (who pay most of the tax that is collected currently) would earn their money in the UK and go spend it elsewhere.

 

It's not a very good idea.

 

What he said!

[Danny_Boy]

Currently we pay tax on our income and on our purchases. In another thread while musing about Laffer curves and so on I proposed changing our tax system drastically to only tax on purchases. Zero or low rates on essential items needed for basic survival and living (similar list to what is zero VAT now), but higher rates than at present for luxury, or high end items (I'm sure this would generate discussion as to what is defined by luxury!). I would do things like remove stamp duty on houses and replace with a purchase tax.

 

My thinking behind this is by taxing on purchases it can never be avoided except by not buying the thing. Import tax would be the same rates as if the item was bought in the UK so there would be no benefit from trying to buy overseas to avoid the tax. Offshoring money to a tax haven would be no more, same as paying yourself in dividends to try to avoid tax as it wouldn't be payable any longer.

 

The end goal would be to have an 'average' person earning UK average wages to pay very similar amounts of tax through purchase tax as they do under the current system. People on lower than average incomes would pay slightly less tax than at present, and those who earn more than average would pay slightly more. All based on an average persons spending. Clearly if someone earning £250k a year decided to only buy absolute basics then they'd pay no tax.

 

I'm not taking into account business and corporate tax in this as I really don't have enough knowledge of the complexities here to break it down so simply. And for NI, I'm torn as to whether this should remain income linked or not...

 

I'm sure if it was this simple someone would be doing it already, but I don't think they are. What have I missed? Why wouldn't this work?

 

I too was thinking about income tax and also Labours promise to raise the NMW to £10ph. My main concern was that upping the NMW would increase inflation leaving people earning NMW no better off and making everyone who earns more than NMW worse off. My idea was that instead of raising the NMW could we increase the money we are allowed to earn without paying tax to the level that someone on NMW earns therefore anyone on NMW does not pay any tax. My calculations are guesses but I used 37.5 hours a week and £7.40ph to give £14430 as a tax free allowance. I don't know what I would do to pay for the tax breaks but am open to suggestions.

[El Cid]

Currently we pay tax on our income and on our purchases. In another thread while musing about Laffer curves and so on I proposed changing our tax system drastically to only tax on purchases.

 

Wouldnt the Laffer principle suggest that incomes should be taxed at a low rate?

Since it would be collected, because its easy to collect.

 

If we tax imports then everyone will tax our exports.

 

So we would not lose out.

[TheNugget]

Wouldnt the Laffer principle suggest that incomes should be taxed at a low rate?

Since it would be collected, because its easy to collect.

 

 

 

So we would not lose out.

 

No, we would lose out massively because other countries wouldn't buy our exports they would buy them from other countries with a less aggressive tax.