Monday, May 14, 2007

Abolish VAT?

The Times (14 May) says that the business leaders in the UK are pressing for a tax overhaul, involving simplification and lower rates (see also: Blog - 8 April). The Free Lunch – Fairness with Freedom argues for quite a different tax reform for individuals which would help business too. Governments raise tax mainly by taking away some of the effort of workers and producers of products or services, thus VAT is a tax on every slice of value added to a product or service, and income tax takes some of the effort of every individual’s hard work. These taxes directly penalize creativity and can sometimes be a disincentive to work, especially for those on welfare benefits.

A far better tax is to take a slice of the value gained by land. Land values rise when a community is considered to be a good place to live in or invest in and this happens because virtually everyone in that society is contributing to its success and it is considered to have a settled future. A large percentage of the spending needs of Governments could be met by an annual levy on the underlying value of all land. Income tax, VAT and other taxes would be cut and eventually abolished.

The Free Lunch suggests that part of the money raised would be recycled back as a Citizen’s Royalty - an annual payment to everyone - so that everyone would be rewarded for their contribution to the economic success of the whole. This would also help poor homeowners to pay their land tax. An added advantage of a Citizen's Royalty (also known as Basic Income or Citizen’s Income) is that welfare payments would be hugely simplified. For more on these radical yet simple ideas buy the book.


No comments: