Liberal Democrat Tax Announcement

The Liberal Democrats have today announced a new tax policy.

As tax policies go, it’s not bad – a step in the right direction, but it’s still an attempt to patch up a broken system rather than create a better one. The LD’s objectives – to make taxation fairer and more progressive, by eliminating loopholes and exemptions – are admirable; but will struggle when the problem isn’t in the tax code, but the tax base.

Income, while it might seem the most obvious thing to tax, is very difficult – because it’s hard to measure. The tax system differentiates income and capital gains, and taxes one at a lower rate. The lib dems have said that under their new policy they will be taxed at the same rate. But while capital gains tax has its own system of  allowances, there will still be tax-avoidance hay to be made by deciding whether a particular dob of dough is income or capital gains.

The answer: tax it all as cashflow.  No arguments, a lot less work for tax advisers.

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