ThisapproachhasalreadybeenadoptedbyasmallnumberofcountriesbutitsadvocatesoftenpointtotheBalticstates,andEstonia,asthemostprofoundbeneficiariesofadoptionofthissimpleapproach。

Clearly,theideaofamoveawayfromagraduatedapproachtotaxationisunpopularinsomecornersandtheUKsTreasuryhasindicatedthatitsanalysisfindslittletocommendtheapproach。

Couldthis,however,havemorethanalittletodowithLeft-of-centreidealsratherthaneconomicanalysis?

Thetwoarenotmutuallyexclusive。

Bullsoftheflatratetaxpointoutthe23%flatrateinEstonia,thecollapseininflationratestowardslowlevels,andhighgrowthrateswhichhavebeenachievedinthateconomy。

Unfortunately,however,attributingthisundoubtedeconomicsuccessstorysolely,orlargely,tochangesintaxationpolicyisoverlysimplistic。

Despitecautioninreadingtoomuchintoinappropriatecomparisonsandstatisticswhicharetoutedontheissue,therearecrediblereasonsforbelievingthattheflattaxideawillcontinuetogaintractionincomingyears。

Theattractionsofaflatratetaxare,importantly,thatitissimpleandeasytounderstand。

Bysimplifyingthetaxrulesthenthegovernmentmayfindthattaxyieldsrise,astaxevasiondeclines,withfewerloopholestoexploit。

Ontheissueofwhetheraflatratetaxisequitableornot,lowincomeearnersmayfindthemselvesbetteroff,asexemptionlevels(orpersonalallowances)forindividualsareraised。

Theflatratetaxcouldalsoactasanincentivetoreducevoluntaryunemployment。

Atpresent,thegraduatedsystemoftaxratesmaymeanthatthereisinsufficientincentivetoworkatlowerincomelevels。

Furthermore,onecanarguethatsimplifyingthetaxsystemmayleadtoamoreefficientallocationofresources。

Asidefromthefactthatfeweraccountantsmayberequired,fewerdistortionsmayevidencethemselvesasafunctionoftaxtreatment。

Despitethese(apparently)clearadvantages,somepolicymakersmaywelltaketheviewthattheirabilitytopursuesocialorredistributivepolicyobjectivesthroughuseoftaxincentiveswillbereduced。

Furthermore,andasisobviousfromconstruction,aflattaxwilllargelybenefittheverywelloff(whogetalowereffectivetaxrate)andtheverylowincomebrackets(whobenefitfromabiggerexemption)。

Themajoritymaywellbeworseoff。

WhiletheBalticsapparentlyshowusthatflattaxisthewayforward,weshouldnotignorethefactthatarguably,unliketheUK,theseareassufferedhighincidenceofgeneralisedtaxevasion,and(helpfully)thepolicyactuallybenefitedahighproportiononthepopulation。

Furthermore,anyoneassessingthebenefitsofaflatratetaxbylookingattheheadline23%rateappliedinEstoniaignoresthefactthattheeffectivetaxratethereiscloserto45%。

Thisisnottosaythatafullerexpositionofthecaseforandagainstflatratetaxesisnotappropriatebut,aswithallheadlinespromisinginterestingreading,onehastotakecare。

GeorgeOsborne,theUKsShadowChancellor,isadvocatingthepolicyandtherecentelectioninGermanyhighlightedthatthedebateisspreadingacrossEuropeintocorecountries。

Lowertaxesaresomethingthatmostwouldwelcomeandasimplificationofoverlycomplextaxlegislationwouldbebeneficial。

Lowertaxesandalowershareofgovernmentspendingshouldbenefitthemediumtermeconomicgrowthoutlook。

Nonetheless,andawayfromtheeconomictheoriesandcomparisonswithsuccessstoriesinverydifferenteconomicenvironments,thecasehasstilltobemade。

Overcomingmonthsandyears,however,thethemeislikelytogaingroundinpoliticalcircles。

Movingthedebateintothemainstreamis,however,goingtotaketime。

Dismissaloftheflattaxideaasapoliticalgimmickisfoolhardy,however。

OneoftheclearestlegacieswhichGordonBrownwillleaveus,asidefromself-proclaimedeconomicstabilityandanindependentcentralbank,willbeahideouslycomplexanddistortedtaxsystem。

Regardlessofwhetheritisimplemented,simplificationofexistingtaxrulesisthetonictothecurrentfiscalfrivolity。

Littlewonderthatthetinkeringchancellordoesnotappeartobeafan。

ByPaulNiven,HeadofStrategyatFCAssetManagemen

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