Cutting our Tax System Down to Size
5th February 2015
A recent report by the Institute of Directors on tax has stated what a lot of us already think, that the system is punitive and excessively over-complicated. Indeed, the leading article in one of last weekend’s newspapers was that millions of tax payers are being asked to needlessly fill in self-assessment tax returns.
The IoD’s fist proposal was that taxes which raised less than £5 billion should be scrapped. It that was the case, we would say good bye to stamp duty on shares (£3bn), air passenger duty (also £3bn) capital gains tax (around £5bn) and finally inheritance tax (£5bn). The IoD’s report suggests that capital gains tax and inheritance tax should be merged which would eliminate double taxation, arguing that capital gains tax turns assets into consumption and reduces economic growth while inheritance tax is collected on assets that have already been taxed.
The Tory party is aware that raising the inheritance tax threshold to £1m is very popular with certain voters and caused Gordon Brown to postpone an election on the strength of the opposition’s rising popularity. The second plank of the argument in favour of the abolition of these taxes is that any tax which raises less than £5bn should be simplified as much as possible. The 45p tax rate is fiscally counterproductive and the claw-back of child benefits and personal allowances create cripplingly high rates of marginal tax which should be repealed.
The argument from the IoD is that those affected by these oddities within the tax system, namely entrepreneurs, middle managers and small business owners would still be “contributing the major part of the UK’s tax revenues” and that nobody should face eye wateringly high rates of marginal tax. The report concludes that Britain’s middle sized businesses should now enjoy the benefits of tax cuts, having seen the very small and the very large enjoy most of George Osborne’s cuts to corporation tax and other reforms.
Written by Paul Feist, Managing Director