The 'Tax Simplifier' series aims to make the case for a much simpler tax code with practical recommendations for policy change on a regular basis. Blogs are published twice per week, on Monday and Thursday. Read David's previous blog on capital allowances. You can follow David on Twitter @TaxSimplifier.
Tax reform typically creates winners and losers.
Whilst policymakers would naturally prefer that the losers said to themselves “We are fortunate to have enjoyed a tax advantage which was not really justified, and are now content for this to be removed for a more effective tax system for our fellow citizens”, this tends not to happen! It should be assumed that the losers from tax reform will kick up a stink. The winners, by contrast, can be assumed to be much less vocal in expressing their appreciation.
This is why it is often said that the best time to introduce tax reform is when tax rates are falling, so that the losers might be assuaged and quietened to some extent.
And this is why we might be losing an opportunity. Corporation tax rates have been falling for many years. By 2001 the rate had been reduced to 30%, but by April 2014 it will have fallen to 21%.
Yet what consideration has been given to the identification and removal of exemptions and reliefs which are no longer justified? Removing these would enable the headline rate of tax to be reduced further still, and produce a more transparent, less distortive, and better tax system.