Commentary

Tax Reform, Her Majesty’s Style

The Internal Revenue Service long has offered to figure people’s taxes. Most Americans, greedy cheapskates that they are, prefer to do the job themselves. But let’s hope the IRS isn’t talking to Her Majesty’s Revenue & Customs service across the Pond.

Great Britain employs the “Pay As You Earn” (PAYE) system. It’s roughly equivalent to withholding.

Naturally, the tax collectors said they want to make “the system easier to administer; to improve service levels for individual customers; and to ensure accurate tax deductions.” What this means in practice isn’t entirely clear. After all, tax collectors “serve” citizens in the same way that prison guards “serve” inmates. Presumably Revenue & Customs is most concerned about collecting all of the booty it believes to be due from its citizens.

While the existing system works reasonably well, according to Her Majesty’s finest, “there are some limitations. For example, where people have more than one concurrent job or pension, or have volatile employment patterns, this can mean that people may not pay the correct tax during the year and intervention from HMRC after the end of the tax year may be necessary in some cases to correct this. Some of these limitations have been demonstrated in the levels of overpayments and underpayments over recent years.”

Thus, the tax authority has come up with some proposals to improve the tax system. The first idea is relatively mundane: a “Real Time Information” system to speed the flow of information from employers to government. There is a whiff of Big Brother in the idea, but only a whiff, since “Responsibility for the calculation of the amounts of tax, NIC [National Insurance Contributions] and student loan repayments and their deduction would remain with employers,” stated the tax collectors. The “Real Time Information” system likely would be administratively more efficient, but citizens must always remember that when it comes to tax collection efficiency often conflicts with liberty.

Still, Her Majesty’s tax collectors did not stop there. They offered an even better idea, “one possible longer-term proposal which could build on Real Time Information and deliver significant further benefits for individuals, employers and HMRC.” Revenue & Customs emphasized that there’s nothing unusual about its idea. The measure “would make it better able to deal with the challenges of the modern world of work.” You know, people change jobs, win pay increases or suffer pay cuts, and otherwise vary their circumstances. Life is just so very messy and inefficient. How unfair to the many dispassionate, selfless, and devoted public servants.

What does the British agency suggest? Employers should simply pay the government which, in turn, would give workers whatever the government believes they are due. How very simple! It would be a bit like the Cuban model, whereby Western investors hand workers’ pay (in hard currency) to the government, which then gives the pay (in pesos) to the employees.

Her Majesty’s servants explained: “the majority of employer payrolls are connected to the electronic payment infrastructure. Under Centralized Deductions the employer would send the gross payment through the electronic payment system to a central calculator where the deductions calculated by HMRC would be made automatically. The resulting net payment would then be sent to the individual’s bank account and the deductions would be paid directly to the Government.” Those paid by check or cash would not be affected. Although the government would certainly urge these companies to quickly enter the Modern Age.

In fairness, Her Majesty’s tax collectors recognize that such an idea might make people nervous. The agency emphasized that it wouldn’t grab employees’ bank accounts along with their wages. Stated Revenue & Customs: “At no stage would HMRC or its agents have direct access to any money or information contained in the recipient’s bank account or indeed the bank account itself. The tax calculation would be made between the employer’s payment transmission and the receipt of that instruction by the employers and employees banks. The system would adhere to the high standards of taxpayer confidentiality that characterizes the existing system.”

Whew, that’s a relief!

The agency argued that its “Centralized Deductions” proposal is win-win. Employers would save money. Employees “would no longer need to understand tax codes, which are a means of hiding an individual’s personal circumstances from the employer.” And Revenue & Customs would have to work less and less hard to get the “correct” amount of tax.

It seems not everyone in Britain is enthused with the idea. Among the short-sighted observers apparently determined to deny their government needed revenue was George Bull of Baker Tilly, who told CNBC: “If HMRC has direct access to employees’ bank accounts and makes a mistake, people are going to feel very exposed and vulnerable.” With characteristic British understatement, Richard Baron, head of the business organization Institute of Directors, argued: “This document contains a lot of good ideas. But the idea that HMRC should be trusted with the gross pay of employees is not one of them.”

Not a “good idea” indeed.

President Obama wants to raise taxes on “the rich,” penalize us if we don’t buy health insurance, and impose a massive energy tax. And that’s undoubtedly just the start. With an annual deficit of $1.3 trillion, national debt of $13.5 trillion, and unfunded entitlements liabilities of more than $100 trillion, politicians in Washington are likely to spend the rest of their careers looking for any means possible to wring more revenue out of hapless taxpayers.

At least the president hasn’t suggested that we all send our salaries to the IRS, which would then send back to us however much it believed to be appropriate.

Yet.

For people who believe that all money really belongs to government in the first place, the proposal from Her Majesty’s tax collectors is logical and just. It’s probably only a matter of time before this idea jumps across the Atlantic and ends up as a plank in the Democratic Party platform.

Which is a good reason for Americans to get out and vote on November 2. We can’t stop people from believing that everyone’s salary belongs to government. But we can stop such people from serving in Congress and White House.

Doug Bandow is a senior fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is the author and editor of several books, including The Politics of Plunder: Misgovernment in Washington (Transaction).