In praise of Britain’s tax system

A thought occurred to me listening to the discussion of value added tax on Vox’s the Weeds podcast this week: how lucky I am that I have to spend so little time thinking about paying tax. I’m not poor or financially insecure enough to have to scrutinise each pay slip and watch the money into the bank. I’m not rich or financially savvy enough to think about tax efficiency or avoidance. But it’s not just me: millions of British people are in a similar position.

I guess it’s a little weird to be grateful for Pay As You Earn. But really, it’s pretty great that the finance team in my office and the Government between them figure out how much tax I owe, skim it off the top and just give me what’s left, without me lifting a finger. And this works for around two-thirds of British taxpayers. By contrast, the US has more tax returns than households in any given year. (The relative simplicity of the UK tax system helps here too).

Similarly, it’s not until you travel abroad (or buy certain business services) that you realise how annoying it would be not to have sales taxes (VAT, duty etc) included in the price of things you buy. I can’t have been the only person to have gone into a shop abroad, bought something and spent five minutes trying to figure out why it cost 20% more than I expected. That’s irritating for me, I can only imagine what it’s like for people struggling to figure out what they can afford on the shelves with the money in their pocket. Again, maybe we should be grateful for the fact that shopping trips don’t regularly involve tricky arithmetic.

The American right have tended to resist measures like PAYE and advertising prices net of taxes on political grounds. As Ronald Reagan put it, they think “paying taxes should hurt”. I’d be interested to know if it really works that way – if people in countries like the US think they pay more in tax, and tax payment has more salience compared to countries like the UK. But you don’t have to be a firebreathing libertarian to think that the ease and obliquity of paying tax in the UK might have costs: perhaps it does make us more complacent about how much we pay and where it’s going. It might well be a bad thing that having to file a tax return is a minor disincentive against leaving salaried work and becoming self-employed.

But one recurring theme of this blog (and a core idea of behavioural public policy) is that we often underestimate the importance and value of convenience. Even if you’re pretty sure that getting people to attend more to their taxes would have advantages, you need to also be sure that those advantages are worth the stress, frustration and complexity that you’re thrusting upon them. For my part, I’m glad that the British right has not tried to make my tax paperwork more onerous and my life more difficult.

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