IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
The Taxpayers’ Alliance has published a summary of its final report, proposing a Single Income Tax to tax streams of income once. As stated by Allister Heath, Chairman of the TPA Tax Commission, "the old order is broken and needs radical reform. But we are also realists: our proposals, while far-reaching, are practical".
1. Taxes should be cut to 33 per cent of national income
2. Marginal tax rates should not exceed 30 per cent
3. Taxes on capital and labour income should be replaced with a tax on distributed income
4. Transaction, wealth and inheritance taxes should be abolished
Inspired by supply-side dynamical effects on economic growth, the document sees substantial benefits in limiting government spending to 38 per cent of GDP, the limit beyond which further spending becomes borrowing.
Recalling the merits of historic tax cutting policies (e.g. Kennedy, Reagan (US) and Lawson in the UK) the report stresses the very material advantages of letting citizens spend their money as they see fit. Not only does government have to become more effective when resources are given back to taxpayers; value for money will always be higher in the market sector, as consumers are free to pursue better bargains.
As underlined by the report, "economic growth is crucial, but tax reform must improve the outcomes for individuals and families across the income spectrum. It is important that the tax system be fair and seen to be fair".
Pondering the lessons of the Public Choice school, Matt Ridley states: "It boils down to this: the people who spend taxpayers’ money are no less (or more) immune to selfish motivation than the people who spend their own money."
Moreover, whenever politicians propose to tax this or that industry or particular good, we would do well to remember that only people pay taxes.