Thursday, 5 May 2011

Transferrable allowances?

I was reading a post on Tim Worstall's site that started out as an indictment of the taxation system but some interesting points came up in the comments.  People were talking about making the tax free allowance transferable within a household - if one person works and supports another who doesn't, then why shouldn't they be able to share their tax free allowance.

It's something that I've considered before, but I'd take it further.  Why stop at household level?  Why not make the tax free allowance saleable?

Consider: If I pay 20% tax and my tax free allowance of £6750 (or whatever it is these days), then that allowance is worth 20% x 6750 = £1,350 to me.  To someone paying 40% tax, it would be worth £2,700 - so if I sold it for £2k, I'd be £650 better off, and the purchaser would be £700 better off.  Everyone wins (except the state - but the state needs cutting back massively anyway).

Now, there's only so many people earning enough to put them at the 40% rate of tax, and it may well be that the total allowances from everyone in the country is enough to reduce all of their incomes below the 40% level - in which case those people who didn't get off their backsides and sell their allowance quickly would lose out.  So why not just scrap the higher rate tax and the tax free allowance altogether and dish out some sort of citizen's income (while taxing all other income) instead.  If you made it big enough, you could even wipe out most of the welfare state.

So - transferable allowances could lead to flat rate taxation and citizen's income - what's not to like?  :D

(do please note that hte proposed merger of NI and Income tax would change the numbers significantly, but don't change the argument)

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