Friday, May 19, 2006

Flat Tax - improving Heath


Many would benefit from a perusal of Allister Heath's Flat Tax. Especially the parts covering the benefit of lowering marginal tax rates and the morality of high taxes on the successful.

Two quibbles on an otherwise fine work

1. Heath claims as his own statistic the number of pages of UK tax legislation in 2005 compared to 1997. This statistic was fed to him last summer by Conservative Research Department, I know as I counted the pages for the press release I thought of that got into The Times. Naughty

2. He advocates relief for capital expenditure in the year it is incurred. This is what happened in the UK for corporates until the mid-80s when Lawson stopped such nonsense. Why, because it distorted the economy to make capital more attractive than labour and helped contribute to the 3 million unemployed at the time.

Capital is paid for over time, hence corporates borrow and pay interest. Profits taxes should be based as far as possible on accounting profits, the best non-distortionry measure available and the simplest to use.

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