Is our tax system fit for purpose?

For decades now scientists have been looking for the all encompassing ‘theory of everything’. It’s a so-far vain search for a unifying theory that explains all the as yet unexplainable mysteries of our universe.
Maybe the scientists need to take a leaf out of our new Government’s ‘single benefit’ – one benefit introduced by Ian Duncan Smith to replace the myriad of existing payments.
In fact maybe the scientists and the government could work together to perform the same miracles on our tax system which the Nobel Prize-winning economist Sir James Mirrlees described in a recent report as “opaque and unnecessarily complex”.
Most taxpayers, and everyone who completes a self-assessment return annually, would surely agree with that assessment.
So how would it be for you, for example, if instead of Income Tax, Capital Gains Tax and Inheritance Tax we just had ‘Tax’? Could we even add Council Tax to that list?
And should we just call National Insurance a tax as well and add it into the mix? The days when your NI contributions were ring-fenced to provide pension and social security benefits are long gone. Is it not the case not that NI payments received by the government are just added into the big ‘tax’ pot now anyway?
Changes to Child Benefit and Pension Contribution limits a few years ago threw up strange anomalies in the taxation system. It seemed really unfair, for example, that an income of £1 over the basic rate tax threshold could result in the loss of child benefit for some while others could earn almost twice as much but remain under the higher rate radar and so continue to receive the benefit. Likewise the changes to pension contribution limits could see members of final salary schemes hit with an unexpected and difficult to calculate tax charge if they receive a big increase in salary in any one particular year. At the same time an interesting quirk of the personal allowance rules meant that anyone earning between £100,000 and around £112,000 would actually pay tax at a marginal rate of 60%.
Now if your income is significantly less than that you might not care too much about the fate of these high earners. So does that open up a whole new argument – for another time perhaps – that many of them should be paying more tax to help reduce the level of the cuts that we have just been told that we have to suffer?
So not only is the tax system complicated and unwieldy in its current format but it also seems to randomly reward and penalise certain taxpayers for no real reason!
Oh, and all of this is before we look at what would happen to the tax system across the UK if the Scottish Government decided to use its tax raising powers! Would that add yet another layer of complexity and confusion?
What do you think?

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