Dead Men Left

Monday, September 12, 2005

Flat tax, flat earth II

It is an entirely mad scheme:

Almost 30 million people would be out of pocket under a 'flat tax' regime which would raise as much money as the current system, the Treasury claims...

However, Treasury number-crunchers calculate that charging the same rate of income tax across the whole economy would leave between 25 and 30 million people worse off if it were to bring in enough revenue to maintain current spending levels.

As was pointed out by HIOP in the Tomb's comment boxes, the real virtue of the flat-tax is its ability to repackage the decimation of government spending as a progressive, sensible measure that simultaneously helps the deserving poor and gives the rest of us nice fat wodge of cash. Thatcher was never able to "roll back the frontiers of the state" as she wished: as a share of GDP, government expenditure barely moved between 1979 to 1990.

But the flat tax revolutionaries think they have the answer, though it's not pretty:

The right-wing Adam Smith Institute, one of the few groups to have produced detailed proposals for a flat tax in the UK so far, admits that its plan, which would levy it at 22 per cent, with a personal allowance of £15,000, would initially result in a £60 billion reduction in annual government revenue.

If they're feeling apologetic, this is followed by a certain amount of hand-flapping about the Laffer Curve, vague pronouncments about the productivity rewards that would be reaped and the repeated belief that government revenues would eventually recover. It seems a little implausible to ask all this to make up for a £60bn shortfall, but of course that's not really the point.

What's unsettling is that, after years of economic defensiveness - including the spectacle, in this year's election, of Tories desperately claiming they had no plans to significantly cut government spending - the Conservatives are recovering something of their backbone.

The constraints that used to make even centrist politicians think twice about advocating a proposal so patently unfair and inequitable are atrophying. The consensus between the parties that rising inequality is essentially an economic and social ill has evaporated. The professional and the managerial classes now live in a universe in which their ever higher income is regarded as an entitlement. No obligation exists to the society of which they are part and, as a result, the infrastructure of social justice and equalisation of opportunity should essentially be paid for by those who might benefit - the poor.