Tuesday, October 30, 2012

The British tax system is as screwed-up as our own

We've known for a long time that the US tax system is dysfunctional to the point that no-one (not even the IRS) can fully understand it.  Calls for a simpler, easier-to-understand tax system have been made for years, but special interests continue to agitate against it for their own selfish reasons.  (Most State tax systems are just as bad - see, for example, this bit of convoluted Wisconsin law.)

Now the Telegraph reports that Britain's tax system is just as bad.

France’s tyrannical Sun King knew how to pick his finance ministers.

Jean-Baptiste Colbert, Louis XIV’s most infamous right-hand man, once described the art of taxation as “so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing”.

He would have loved Britain’s shockingly opaque tax system, which sometimes feels as if it has been purposely designed to confuse and fool taxpayers: it is so incomprehensible that millions don’t even realise just how heavily they are being hammered.

With 1m families about to be told that their child benefits are being cut, using a sliding scale based on a definition of income that is different from what people actually earn, hundreds of thousands more people are going to have to fill in tax returns. They will be getting a taste of the bureaucratic madness that businesses, the self-employed and many others have suffered from for years.

Tolley’s tax guide, the Bible in such matters, reached an insane 11,520 pages at last count, more than double the number of pages in the 1997 edition, thanks to Labour’s obsession with micro-managing the economy; but instead of complexity being reduced under the Coalition, as promised by George Osborne, ever more pages are being added.

Compliance costs are still going up, forcing the public to devote ever more unpaid time to unproductive form-filling or to employ expensive accountants. Osborne’s war on Britain’s spaghetti-bowl tax code has failed miserably; not for the first time, the Coalition has been outwitted by the forces of conservatism.

The Treasury continues to tinker as if its continued existence depended upon it, and its attempts at reform inevitably end up complicating matters further. Even the most senior accountants admit that no single individual understands the tax system: I was told recently that even assembling a team of 20 crack tax experts in a room would not be enough to pass a definitive judgment on many of its more obscure features.

. . .

It is not just complexity that is crippling taxpayers: the rules keep changing, which makes planning impossible. The latest Finance Act ran to a hopeless 670 pages, on top of 404 pages in 2011. Because court cases are the only way to work out what legislation actually implies, rules can be torn up on the whim of a judge – and, increasingly, one based in Europe rather than London.

What is most depressing is the patchwork of taxes and rates. The same flow of income is routinely not taxed just once or even twice but three or four times as it moves through the system, leaving those who produced it with little more than pocket money.

. . .

Such cripplingly high tax rates would trigger a revolt if they were widely understood. But because they are so well camouflaged, the Government is able to get away with taxing even people on the minimum wage at extortionate rates.

. . .

Our tax system is a chain around the economy’s ankles, a crippling burden that is destroying jobs and wealth. It is broken and in need of radical reform.

There's more at the link.

Sounds familiar, doesn't it?




Murphy's Law said...

Yep I've often thought that if the average American knew how much he or she was *really* being taxed, it's be on like Donkey Kong and we'd have 535 new legislators in short order. Sadly, a majority don't know and don't care, so long as they get a bit of "free" stuff back.

Roy said...

Just eliminating withholding would start the tax revolt.

How many people do you know who when asked the question: "How much tax did you pay this year?"

Answer it with: "I didn't pay anything, I got a refund."

trailbee said...

I sure would like to meet someone who could tell me how they did that! Retired and paying through the nose - and we don't even own stocks and/or bonds! Fall in the under $65K bracket. Flat tax where are you?

perlhaqr said...

Roy: I have for many years advocated a two part strategy; Not merely eliminate but actually forbid withholding, so that people are required to write a single lump sum check to the IRS, and move Tax Day to October 15th. (Or move election day to May 1st.) But I want people to have to know how much they're paying, and to do it just two weeks or so before the elections.