A Move Toward Transparency On Tax

Image from ConservativeHome.com
Image from ConservativeHome.com

 

It may be a small, mostly cosmetic change, but for once it is a change that small government and libertarian-leaning conservatives can really get behind.

Ben Gummer MP, who has made tax transparency a major focus of his parliamentary career, is today proposing that National Insurance be renamed the “earnings tax”.

The Telegraph reports:

National Insurance, a 100-year old charge on employers and employees, will be renamed “earnings tax”, the Chancellor has signalled.

The change, which will be proposed in legislation to be published on Tuesday, is the first step towards merging income tax with National Insurance.

Ben Gummer MP, a rising star Tory backbencher who has been campaigning on tax transparency, will propose the change in a Commons Bill on Tuesday.

On the face of it, perhaps nothing to get too excited about. After all, nothing is being done here to address the punishingly high rates or the legacy of fiscal drag that has seen people on relatively standard incomes being taxed at the top rate.

But Gummer’s proposal is significant because it is the first step toward the government finally and explicitly admitting the obvious – that National Insurance is a second income tax in all but name. The money collected is vast, all goes into the same pot, and is in no way strictly reserved for specific purposes as the “insurance” moniker suggests.

At the present time, Ed Miliband and Ed Balls are able to rail against the Conservative/Liberal Democrat government and accuse them of enacting “massive tax cuts” for the rich – by which they mean reversing half of Gordon Brown’s gargantuan tax increase – and keep a straight face while doing so.

Using the innocuous term “50p” tax which evokes the small sum of fifty pence rather than the cold reality – half of each additional pound earned, for top band taxpayers – is bad enough. But high tax advocates such as those in the Labour Party are also aided by the fact that discussion of income tax alone does not come close to recognising the full tax burden.

The Telegraph shows the full extent of this second income tax:

National Insurance rakes in billions every year for the Treasury. Anyone who is employed and earns between £149 and £797 a week pays 12 per cent of their income in National Insurance. A further 2 per cent is paid on all earnings over that level.

It is doubtful whether, if asked, most people would correctly identify the top rate of tax as being 59% – a staggeringly high level that immediately makes Britain’s anaemic economic growth statistics much more understandable.

Therefore, from a fiscally responsible and small government-advocating stance, anything that helps the public consciousness to start to recognise income tax and national insurance as nothing but two sides of the same coin can only be a good thing.

ConservativeHome also recognises the importance of this seemingly small proposal:

There’s a fundamental, sound principle here – which has been championed by the TaxPayers’ Alliance among others.

It is clearly unfair and immoral for taxpayers to be misled about the level and function of taxation. National Insurance is income tax in disguise, but many people still think it actually pays into a pot for their own social security.

Hopefully the Chancellor will listen to Gummer, and it will be a step on the road to merging NI with Income Tax altogether.

Indeed, merging NI (or whatever name it ultimately goes by) and Income Tax should be the end goal. Just as Ben Gummer successfully campaigned for taxpayers to receive a yearly statement showing exactly how their tax contributions were split up to fund the operations of government

The proposal will doubtless meet with strong resistance, primarily from those on the left who continue to support high taxation and high spending with such fervour that they almost seem to be an end in themselves. It is not in the interests of such people for the public to have full visibility of the amount of tax they pay – the more confusing it is, the more easily their distortions and rhetorical sleights of hand about the tax burden are believed and accepted.

ConservativeHome also notes this fact:

There’s a test for Labour here, too. They will instinctively dislike the idea, given that it will make it harder for future governments to raise taxes by stealth. But Ed Miliband rails against opaque, complex and misleading charging by companies as a rip-off which harms consumers – surely they should hold the taxman to the same principles?

Surely they should hold the taxman to the principle of transparency, perhaps, but inevitably in practice they do not – a century of experience tells us so.

While transgressions by the private sector are immediately jumped on, the failures and mistakes of the public sector are excused or overlooked time and time again, and are then counter-intuitively used as justification for increasing spending and expanding the public sector even more. Private sector failure and opacity, in other words, is punished while public sector opacity is encouraged and rewarded.

Transparency is the ultimate antidote to the big tax/big spending status quo, and to the policies of those who continue to view fiscal policy as a tool for punishing success. Britain needs Ben Gummer’s medicine, and the government should now give tax transparency its full-throated support.

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