"Second, we should align the treatment of different legal forms by applying the same overall tax rate schedule to income derived from employment, self-employment and companies. Different income sources would still be subject to varying combinations of income tax, NICs, capital gains tax and corporation tax. But alignment would mean that an additional pound of income was taxed at the same rate regardless of how it was earned. Broadly, this could be achieved by: (i) aligning the NICs paid by self-employed individuals and those paid by employers and employees combined (preferably in the course of integrating NICs with personal income tax); and (ii) taxing dividend income and capital gains at the same rate schedule as earned income (including employee and employer NICs), with reduced tax rates for dividends and capital gains on shares to reflect corporation tax already paid. Note that alignment does not necessarily require an increase in the corporation tax rate, which would raise concerns around making the UK less competitive. Instead, overall rate alignment could be achieved at the personal level by adjusting dividend and capital gains tax rates while keeping a relatively low corporation tax rate. Note also that the prescription is for the alignment of tax rates and says nothing about the level. Alignment could be achieved through a combination of raising taxes on self-employment and cutting taxes on employment, if desired.
One objection to this approach is the claim that it fails to recognise that lower rates should be used to encourage entrepreneurship and risk taking. It is important to recognise that the difficulty and risk associated with entrepreneurship do not in themselves justify favourable tax treatment. If the market does not provide sufficiently high rewards for such activities, they should not be undertaken. Preferential tax treatment may be justified if markets fail to provide the appropriate incentives for entrepreneurship. We may be concerned, for example, that too few new ideas will be tried out because innovators do not reap all of the rewards (some ‘spill over’ to other businesses that can learn from the experiences of the innovator). Or, we may worry that some small and/or new firms find it prohibitively expensive to raise external finance for their new ventures. But blanket reductions in tax rates for all the self-employed and company owner-managers are poorly targeted at alleviating such concerns. Most small businesses are not particularly innovative and do not generate significant spillover benefits to wider society. From newsagents to IT contractors, they consist of people quietly going about the (perfectly honourable) business of making a living by providing valuable goods and services to others – much as most ordinary employees do. Moreover, those individuals who get the lowest rates (for example, owner-managers who can afford to retain income in a company and access entrepreneurs’ relief) aren’t even necessarily those that are the most entrepreneurial. Even if there are some benefits that arise because some genuine entrepreneurs get lower taxes, there is little evidence that those gains are big enough to justify scattering tax benefits so widely and creating all of the problems associated with boundaries in the tax system.
A similar opportunity may arise after Matthew Taylor publishes his review into employment practices in the modern economy this summer. This won’t cover tax issues, but it will almost certainly call for action in other related areas. If the government decides to extend some benefits to the self-employed (for example, parental benefits) they could team this with tax changes.
Ultimately, any reform worth doing will create losers. This is inevitable given that there is currently a large group of taxpayers who are receiving substantial benefits at the expense of others (including the 85% of the workforce who are employees). The losers will no doubt be more vociferous than the winners. This should not prevent us from fixing the tax system."
https://www.taxjournal.com/articles/...-work-20042017
Vociferous losers - get ready to be bent over by Tory Brexit!
DOOMED!
One objection to this approach is the claim that it fails to recognise that lower rates should be used to encourage entrepreneurship and risk taking. It is important to recognise that the difficulty and risk associated with entrepreneurship do not in themselves justify favourable tax treatment. If the market does not provide sufficiently high rewards for such activities, they should not be undertaken. Preferential tax treatment may be justified if markets fail to provide the appropriate incentives for entrepreneurship. We may be concerned, for example, that too few new ideas will be tried out because innovators do not reap all of the rewards (some ‘spill over’ to other businesses that can learn from the experiences of the innovator). Or, we may worry that some small and/or new firms find it prohibitively expensive to raise external finance for their new ventures. But blanket reductions in tax rates for all the self-employed and company owner-managers are poorly targeted at alleviating such concerns. Most small businesses are not particularly innovative and do not generate significant spillover benefits to wider society. From newsagents to IT contractors, they consist of people quietly going about the (perfectly honourable) business of making a living by providing valuable goods and services to others – much as most ordinary employees do. Moreover, those individuals who get the lowest rates (for example, owner-managers who can afford to retain income in a company and access entrepreneurs’ relief) aren’t even necessarily those that are the most entrepreneurial. Even if there are some benefits that arise because some genuine entrepreneurs get lower taxes, there is little evidence that those gains are big enough to justify scattering tax benefits so widely and creating all of the problems associated with boundaries in the tax system.
A similar opportunity may arise after Matthew Taylor publishes his review into employment practices in the modern economy this summer. This won’t cover tax issues, but it will almost certainly call for action in other related areas. If the government decides to extend some benefits to the self-employed (for example, parental benefits) they could team this with tax changes.
Ultimately, any reform worth doing will create losers. This is inevitable given that there is currently a large group of taxpayers who are receiving substantial benefits at the expense of others (including the 85% of the workforce who are employees). The losers will no doubt be more vociferous than the winners. This should not prevent us from fixing the tax system."
https://www.taxjournal.com/articles/...-work-20042017
Vociferous losers - get ready to be bent over by Tory Brexit!
DOOMED!
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