Note these are not my words… Courtesy of the TPA:
First stage in campaign to make the case for the dynamics effects of tax cuts
The TaxPayers’ Alliance and Stockholm Network have published a new pamphlet on the proposals for a British flat tax by Allister Heath – Associate Editor of The Spectator magazine and Deputy Editor of The Business newspaper. You can download the full pamphlet here (pdf 4Mb).
The pamphlet – ‘A Flat Tax: Towards a British Model’ – shows that a flat tax would be a simpler and fairer way of taxing people in Britain and that it would boost the economy. According to Heath, “The results of the simulation for my 28% flat tax plan with merged NICs and income tax, zero double taxation of profits and a £9,000 personal allowance show that the poor would benefit hugely from a flat tax; the rich would at first gain almost nothing on average because of the elimination of their favourite loopholes but the massively lower marginal tax rates they would face would still lead to an explosion of work, risk-taking and entrepreneurship, giving the economy a huge fillip.”
He concludes: “While the UK is procrastinating over the flat tax, it is becoming increasingly uncompetitive in the global market for capital and skilled workers, with even governments that have no truck with the radicalism of a fully flat tax nevertheless busily trimming marginal rates on income, profits, capital gains, dividends and inheritance. Over the next decade, the flat tax will be to politics and the global economy what privatisation was to the 1980s and 1990s: it will rejuvenate those countries that adopt it first, while relegating those that drag their feet to a second economic division characterised by sluggish growth, rising unemployment and reduced living standards. The race to be the first Western country with a flat tax is on; the rewards for the winner will be immense.”
In a foreword to the pamphlet, Steve Forbes, Editor-in-Chief of Forbes magazine, makes a similar point: “The flat tax would enormously help western Europe to come out of its economic doldrums and generate desperately needed growth. Countries such as France and Germany are plagued with high employment, which leads to destabilising social unrest. Britain needs the flat tax. Yes, the country transformed itself from Europe’s sick man of the 1960s and ’70s into the economic dynamo of the past two decades. But an endless array of ’stealth’ taxes is starting to clog Britain’s economic arteries. The flat tax will clean those arteries and enable the U.K. again to grow rapidly.”
While this pamphlet will be sent to the tax reform commissions currently being run by the Conservatives and the Liberal Democrats, the pamphlet is the first stage in the TPA’s campaign to win the argument for the “dynamic effects of tax cuts” – which we see as the key intellectual challenge facing low-tax campaigns in Britain. By that we mean we reject the “static” argument that cutting taxes leads to a corresponding fall in tax revenue and instead we believe that cutting taxes leads to an increase in economic activity that can lead to higher revenues (the pamphlet highlights a number of examples where this has occurred).
This point is a key element in Heath’s argument. Anticipating an attack by Gordon Brown on “public service cuts”, Heath argues, “flat tax supporters should point to the available academic literature to argue that around 40% (or a similar figure) of the static revenue losses would be recouped through dynamic effect; they should present this proposition as not only empirically and theoretically rigorous but also obviously common sense. To help buttress their argument, they ought to launch a campaign to ensure that tax forecasting be conducted using dynamic assumptions and commission a major international economic consultancy or a team of academics to develop a dynamic model for the UK economy.” Heath also explained this issue in an article for The Business last weekend.
As regular readers of our blog will know, the TPA has been following developments in the US closely where the US Government has just created a new “Division on Dynamic Analysis” within the US Treasury. The Division – which has a staff of 6 and a modest budget of $500,000 – will look at how proposed changes to the tax code will affect tax revenues and the economy generally using dynamic not static analysis. The TPA believes that the British Treasury should invest in a similar project – perhaps the one area of government where we favour more spending! We hope that our campaign will create such a climate that the British Treasury accepts the need for this.
We stress that this campaign is the key intellectual challenge. The TPA will continue to develop its more popular case and is continuing its plans to take the TPA nationwide (more on this will follow soon).
Further reading
You can download the full text of the pamphlet here.
You can read Allister Heath’s article summarising the pamphlet here.
You can read more about the US Government’s Division on Dynamic Analysis here.
You can read more about the TPA’s campaign strategy here.
THE TAXPAYERS’ ALLIANCE
Vigilant House, 120 Wilton Road, London SW1V 1JZ
www.taxpayersalliance.com
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