2007 April 04 » Tax Research UK

Dangerous Ideas in Development ‚ÄòWhy Are Aid Donors Frightened of Taxation?’

Development Comments Off

Apr 042007

I thought a meeting to be held on Tuesday 24 April 2007 in the Boothroyd Room, Portcullis House, Westminster SW1A 2LW might appeal to some readers. As the press notice says:

Despite its potential to minimise the corrosive impacts of high aid dependence on governance, and to replace aid in the long term, aid agencies take little interest in issues of taxation. Mick Moore, IDS Research Fellow, will discuss why this is, and whether agencies need to be challenged to take taxation more seriously in future.

Mick will be joined by John Christensen, Director of the Tax Justice Network, who will discuss the impact of international tax avoidance on development. The meeting will be chaired by Ann McKechin MP, Chair of the APPG-DAT.

The event is free but places are limited. Please email c.matthews@ids.ac.uk to reserve your place, and feel free to forward this invitation to any colleagues or associates who may wish to attend.

Flat tax – definitely not a classic

Flat tax Comments Off

Apr 042007

In view of the previous story I was amused to note that the Hoover press re-issued Hall and Rabushka’s ‘Flat Tax’ book yesterday.

Apparently it’s now achieved ‘classic’ status. A classic con, maybe. A work of folly, perhaps. A contribution to welfare? No, definitely not. But then Rabuska never intended that. In his opinion a tax system should ensure that the 95% of low income earners provide a life of luxury for the 5% of high income earners. He told me so.

When is a flat tax far from flat?

Flat tax Comments Off

Apr 042007

Flat taxes get more absurd by the day, and the injustice they create increases. Take the new Czech proposal as an example. The claim is that they will have a 15% flat tax. Well, that’s not true.

As MSN reports, it’s not a flat tax because the corporation tax rate is to be 19%. That blows the theory apart.

Worse though, for employees the tax will operate on their gross pay INCLUDING employer’s social security contributions. This does, I suppose, recognise the fact that economically these are borne by labour anyway, but as MSN reports, the consequence is an effective flat tax rate of 23% on average. How is that possible? Well, employer’s contributions in the Czech republic are 35% on top of 12.5% paid by the employee.

Now, I can only make the 23% work if the comparison is being made with a 15% rate on earnings after employee social security contributions, so I suspect MSN (and the FT from whom they got this story) have this calculation wrong. But the real ‘flat’ tax rate on earned income is over 20% on the basis of what I think to be correct assumptions, in addition to which there is 12.5% social security, or about 33% in all. Investment income will instead qualify for ‘flat tax’ at 15%.

So much for flat taxes.

It really is time the press stopped calling them by this name. They are a con trick. They are neither flat, or low rate, or simple. At which point none of the claimed advantages of them exist. Unless your objective is to shift the burden of tax onto working people, for which they are excellent.