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Flat Taxes Would Benefit Scotland 09/06/2005

A simplified system of ‘flat taxes’ would benefit the economy of the UK and Scotland, according to a new report published by the Policy Institute, a Scottish think tank.

Flat Taxes, The Case For Radical Tax Reform, is by John Chown, a tax expert who has advised several Eastern European countries that have experienced high growth after reforming their tax codes.

Flat tax systems, where a single rate is applied to income taxes, have a number of advantages, according to Chown. “Above all, they simplify the tax system. They reduce distortions to normal economic behaviour caused by people trying to minimise their exposure to tax. The economy thus works more efficiently.”

Chown also points to lower collection and compliance costs. “This means that overall tax rates could be reduced to generate the same amount of revenue. This fall in taxation would itself contribute to higher economic growth, generating a virtuous circle of higher revenues and lower taxes”.

But Chown says that if a flat tax approach is to work here, we have to understand the limitations of flat taxes as they have been implemented in the East. “The central flaw with the tax regimes in Eastern Europe is that they deal only with income tax and ignore social security contributions”.

“A flat rate of income tax in Britain should involve eliminating the higher rate of tax, reducing the 10% band to zero, and incorporating National Insurance contributions”, he says.

Even with such a change, rates would still remain high in the UK, and we would probably need a lower rate for investment income. Chown stresses that “flat tax reform is above all a matter of efficiency, not a panacea for ushering in a low tax economy.”

Nonetheless, he recommends that “Scottish politicians would do well to advocate a simpler tax regime, at whatever constitutional level such decisions are ultimately made.” He goes on to say that a flat tax system might aid a transition to fiscal autonomy. The paper is available in full under 'Rearch & Publications' on this web site.
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