Monday, December 16, 2013

Faber: Best tax is Flat Tax

The English philosopher and political economist John Stuart Mill took the view that
 “unless … savings are exempted from income tax, the contributors are twice taxed on what they save, and only once on what they spend.”

The Swedish Nobel Laureate, economist, sociologist, and politician Karl Gunmar Myrdal opined: “Taxation is the most flexible and effective but also dangerous instrument of social reform. One has to know precisely what one is doing lest the results diverge greatly from one’s intentions.”

Canadian politician and Cabinet Minister Sir Thomas White had it right when he said, “In such experience as I have had with taxation — and it has been considerable — there is only one tax that is popular, and that is the tax that is on the other fellow”.

Personally, I have spent a considerable amount of time on taxation issues. My doctoral thesis was on the financial reforms of Sir Robert Peel, which when implemented in 1842 included the introduction of an income tax as a permanent tax on high income earners. (The top rate was 7%.) At the same time, numerous indirect taxes and import duties were eliminated, which greatly simplified the tax system.

In my humble opinion, the probably fairest tax is a flat tax on incomes (no deductibles such as the interest payments on debts, children allowances, or investment tax credits, and no subsidies for any interest groups) which is levied on all income earners and corporations, churches, missions, charities, pension funds, government officials and governmental organisations, etc. at a maximum rate of between 10% and 15% per annum.