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In my last post I discussed the idea of introducing a national rolling forecast instead of an annual budget. The idea of a free flowing analysis and expenditure of government funds offers, in my opinion, a more efficient and practical methodology to perform government payments. In this post I would like to suggest a similar approach to government income collection. The current taxation system with the exception of the PAYE monthly payment system is collected on an annual basis. Even with the PAYE system the rate of taxation and the exemptions are set on an annual basis far in advance of the actual payment of the revenue generated. Thus although the money is taken regularly the amount is inflexible and cannot be changed until the annual review period.
What I am suggesting is a free flowing taxation system that can be collected and altered on a monthly basis providing a flexibility, which enables many advantages. The method I have used to implement this idea is a flat rate of tax. That does not mean everyone pays the same amount of tax it simply means the basis level of tax is a set percentage. This principle provides the opportunity to enable all workers to calculate pay and tax on a monthly basis. Unlike the current progressive taxation system the tax bracket never exceeds a certain amount, which means it can be calculated at any time interval without crossing into a higher payment stream.
This core benefit allows for many advantages. Not only can self employed workers now calculate their tax payment on a monthly basis, but all of the benefits of the PAYE system are available to everyone. For example pension tax relief can be claimed monthly, rather than through the annual self assessment method. The benefit and tax exemption system can be implemented and changed on a monthly basis, which not only allows for changes to fit in with government decisions but also allows for macroeconomic controls through these alterations. It also provides the opportunity to merge the taxation system, welfare system and pension system into one model.
The first key is the simplicity of the flat rate tax, which makes the calculations easier and flexible. The second key is the implementation of the taxation system through a computer program, which can be downloaded on a monthly basis with the parameters set for the taxation and benefits system. This is something that is more than an idea. I have actually developed such a system and computer program, which does exactly that. A few years ago I developed the work for a political party and then ended up having the work sent to the Ministry of Finance in Prague, which was reviewed for consideration by the Czech Republic.
If you are interested in viewing a video tutorial about the program and downloading the software you can at the below links. The tutorial runs for around twenty five minutes and the program is run on Java, you will need the Java Runtime Environment to run it.
The Tutorial.
http://www.morganisteconomics.org.uk/Video/MinimumIncomeTaxationModel.zip
The Software.
http://www.morganisteconomics.org.uk/javawebstart/TaxationModel/dist/Taxation_Model.jar
"What I am suggesting is a free flowing taxation system that can be collected and altered on a monthly basis providing a flexibility, which enables many advantages. The method I have used to implement this idea is a flat rate of tax. That does not mean everyone pays the same amount of tax it simply means the basis level of tax is a set percentage. This principle provides the opportunity to enable all workers to calculate pay and tax on a monthly basis. Unlike the current progressive taxation system the tax bracket never exceeds a certain amount, which means it can be calculated at any time interval without crossing into a higher payment stream."
Can you decode this please?
If you are self employed the amount you earn during the year will change and is unpredictable. Depending on how much you earn you may be taken into a new tax bracket. If there is a flat rate of tax you will not go into another tax bracket regardless of how much you earn. This means you can calculate tax at any time period without the risk of paying a higher rate of tax than you anticipated, as a result of surpassing the higher tax bracket later on in the year, which is currently possible.
This means the self employed can now pay tax on a monthly basis like someone who is in the PAYE system. This has many advantages, pension tax relief can be claims at source (immediately), tax rebates can be made monthly and the pension and welfare system can be adjoined to the taxation system.
If you want further explanation of the concept watch the video tutorial linked in the article, which provides a 25 minute explanation of the concept and implementation.