8 September 2005The Independent
They seek it here, they seek it there. Those dedicated followers of political fashion in the Palace of Westminster are pining for this season's elusive must-have item: a flat tax. The shadow Chancellor George Osborne is eyeing it hungrily. The Liberal Democrats are flirting with it. Even Tony Blair, according to a gossip column, is whispering about it.
It's not hard to see what caught their eye. The flat tax is one of those rare things in British politics: a simple new idea with obvious popular appeal.
Are you sick of the mind-bending complexity of the tax system? Are you tired of navigating your way through a thousand loopholes? Do you want to be able to sack your accountant? Then take one flat tax before bedtime and your woes will dissolve.
Under a flat tax system, the Government would set one simple tax rate - say, 30 pence in the pound - and apply it to absolutely everyone. You, me, Asda: we'd all pay the same. The only people who would get out of paying would be low-income workers earning below a certain threshold - say, £12,000 a year - who would be exempt altogether. No loopholes, no special interests, and no accountants needed. You could fill in your own tax return in five minutes.
But all this pretty rhetoric hides a basic fact. The flat tax would mean a massive shifting of tax away from corporations and the rich towards ordinary people. If you drastically cut the top rate of tax - as any flat tax, by definition, must - the need for government cash for schools and hospitals doesn't evaporate. It simply moves further down the economic chain, to middle-income earners.
This isn't only my view. The people who created the flat tax idea in the early 1980s - academics Robert Hall and Alvin Rabushka - are honest enough to admit "it is an obvious mathematical law that lower taxes on the successful will have to be made up for by higher taxes on average people". Ah, but don't worry: they add that "the truly successful will get a better and better deal", and it will be "a tremendous boon for the economic elite".
So in reality, the flat tax is a huge tax cut for the rich, repackaged in equality-tinted language. For decades, most of the right has admitted this and ruled out the idea as too extreme. Ronald Reagan's White House - that bastion of business-hating, tax-raising Bolshevism - rejected the proposals on the grounds that "any" flat tax "would involve a significant redistribution of tax liability" away from the wealthy and on to ordinary taxpayers.
As Republican candidate for President in 1996, Bob Dole angrily waved away the idea of a flat tax, saying: "The one thing I will not do is shift the tax burden from the super-rich to the middle class."
Does George Osborne really want to take the Tory party way out to the right of even Reagan and Dole? Do the Liberal Democrats or (oh dear God, no) Tony Blair really want to occupy this territory?
In one fell swoop, the flat tax would abolish a principle that has determined British income tax policies since Lloyd George's "People's Budget" of 1909: the rich should pay a higher proportion of their income than the poor. British people have supported this progressive income tax for nearly a century not because we dislike or envy the rich, but because we sense that a grossly unequal society - a flat-tax world where the rich spiral off into the stratosphere - would be a tougher, crueller place to live. The recent book, The Impact of Inequality: How to Make Sick Societies Healthier, by Richard Wilkinson, backs up this collective instinct with detailed medical evidence. Many people imagine that while extreme poverty - starvation, thirst, or destitution - obviously kills people, relative poverty is not really a problem. After all, if you have a dishwasher, a mobile phone, and enough food to eat, what difference does it make just to know there are even richer people living up the road?
But the evidence shows that relative inequality kills too. For example, in Greece, people live longer than they do in the United States, even though their GDP is less than half that of their cousins across the Atlantic. A child born in Bangladesh is likely to live longer than a child born in South Central Los Angeles.
The reason? It's not just drugs, shootings and poor diet. If you factor them out, the differential is still sky-high. These premature deaths happen because poor people in America have premature stress-induced heart attacks on a massive scale.
The strain of living in a society where you are at the bottom of a very unequal heap, where you are reminded in small symbolic ways every day that you are the lowest of the low, causes your body to physically change. Your levels of cortisol soar, your heart sickens, and you are far more vulnerable to illness. And that's before you even consider that high levels of inequality also send crime rates soaring.
The best weapon any democratic government has against this toxic inequality is progressive income tax. It nudges the rich a bit closer to the middle, and it lifts the poor a little higher up. The debate now should be about how to make the British tax system far more progressive, with a 50 per cent top rate of tax and less dependence on indirect taxes like VAT that hit the poor hardest.
But instead - because the Government is so meek - it is moving in the opposite direction. If we adopt a flat tax, we will watch inequality, cortisol levels and crime rise inexorably.
But the salesmen of the flat tax are extremely smart. Like a waiter placing two delicious, distracting cherries on to a tub of lard, they have managed to distract from this and make the flat tax synonymous with two quite good ideas: closing tax loopholes, and lifting the tax threshold so that more poor people are exempt from income tax. I agree with both - but why would you have to abolish progressive taxation in order to achieve them?
As if this was not enough, the flat taxers have shown nuclear-strength chutzpah in claiming their plans to slash the top rate of tax are actually a way to make the rich pay more. Cut the taxes of the rich, they say, and they will be more likely to comply with the law and cough up, rather than wriggle and writhe and turn to an army of accountants to get them out of it.
Is there any other group of lawbreakers we would coddle in this way? If the super-rich are ripping off the national exchequer - and they are, on a grotesque scale - then the solution is to enforce the law with maximum force and international co-operation, not to remake the system according to their criminal whims.
However appealing it might seem at first, the flat tax can only make Britain fall flat on its back. It's time to toss this year's political equivalent to the Jimmy Choo kitten-heel into the dustbin of history.
