Cashflow Tax

A Tax Revolution

Time for Tax Reform, not Tax Tinkering

Thirty years after the publication of the Meade Report, its recommendations still make economic sense; and now, implementation is totally practical and easily automated through the banking system.

This paper has detailed proposals for a simple but revolutionary tax system,  merging tax and benefits and drastically simplifying collection and administration.

The main tax base would be Cashflow, not income. Tax would be  levied at one relatively high rate on cashflow – being money spent – and at another, much lower – possibly zero –  annual rate on assets, being accumulated savings. This form of taxation is sometimes called Expenditure Tax, but it’s paid directly by taxpayers so it can be made formally progressive, unlike indirect consumption taxes such as VAT. It was recommended by an IFS study published thirty years ago, the Meade Report; however, this paper has suggestions for using IT greatly to simplify collection and administration, which wouldn’t have been possible when Professor Meade reported.

Corporation Tax would be abolished as being regressive, with corporate profits taxed when shareholders, directors and employees spend them: but in exchange for their new tax-free status, corporations would be required to operate with total transparency, holding no secrets from their shareholders.

Benefits would be  paid as negative tax – both tax and benefits being calculated on the difference between actual cash flow and an individual’s Tax Allowance – eliminating the poverty trap; but unlike other negative income tax schemes, it isn’t a universal  basic income scheme: everyone would have to pursue a Constructive Occupation such as work, jobseeking or caring to be entitled to a tax allowance and hence, benefits.

Taxes would be collected for the government by banks, not by employers, who would no longer have to administer PAYE.

Download the paper ( about 700kB, pdf)