Introduce free markets, abandon production penalties

24 Principle : Taxation should not interfere with free markets in labour, goods and services

25 The following taxes depend on economic production and therefore act as production penalties: Income Tax, National Insurance, VAT, Corporation Tax, CGT, Stamp Duties

By design, they impair the free exchange of labour, goods and/or services They conflict with the above principle They have no role in any sound tax system, and constitute major distortions in the economy Harmful and unnecessary, they should be phased out

Charging the beneficiary

27 Businesses generally charge each customer a market price for the supply of goods or services which benefit that customer The market price balances the overall forces of supply and demand The government should use the same principle for taxation Understanding the nature of "the customer" is a central issue

28 The legitimate "customers" of government activity are the owners of houses and land in the area governed The owners of houses benefit from nearby roads, schools, hospitals, parks, police, flood defences The owners are the ultimate beneficiary whether or not the house is owner-occupied or let to tenants People renting property may receive these amenities, but pay for their value in their rent. Renters should not pay tax towards these amenities in addition to paying rent for them as at present.

29. Principle : Taxation should only be levied on the ultimate beneficiaries of government, in particular, owners of land and houses

30 An alternative principle is sometimes advocated, that of "ability to pay" Superficially attractive, this concept is entirely without merit. The ultimate burden of tax is transmitted through the economy so the suppliers of economic inputs whereupon the ability to pay cannot be measured for taxation Whenever tax exceeds the ability to pay production is lost or transfers to the black market

31 Where the government confers a benefit exceeding the tax paid for the benefit, an implicit subsidy exists Implicit and explicit private subsidies tend to undermine the public interest goals of tax policy and should to be avoided

32 Principle : Taxation should be levied for the full market value of the benefit conferred by government, so avoid implicit subsidies

Welfare payments must be considered with tax

33 Principle : The welfare system should be fully integrated with tax

34 The welfare system functions in ways similar to the tax system, but with the financial flows reversed While taxes like Income Tax act as production penalties, welfare payments such as Jobseeker's Allowance function as idleness rewards. Means tested welfare payments reward profligacy, penalise saving There is no role for rewarding idleness in a sound tax and welfare system Means tests induce fraud and bureaucracy while disempowering citizens

35. Principle : Means-tests and employment tests should not be part of policy

36. The consequence of excluding means tests and employment tests is that any welfare payments should be made equally to all persons This concept has been developed by welfare reform advocates who call it a "Citizens' Income", or a "Citizens' Dividend" It is a universal welfare comparable to universal healthcare or universal school education

37. Principle : A universal "Citizens' Dividend" should be paid equally to all

38 Such a Citizens' Dividend does not distort economic incentives because it is independent of any changes to economic behaviour It neither rewards nor penalises economic activity, nor does it reward any particular family structure It empowers ordinary people facilitating their investment in study, business or family life It improves negotiating power with employers, and eliminates the need for a statutory minimum wage

39 A Citizens' Dividend is exactly analogous to the dividends paid to shareholders of a business

In this case, it is the return to citizens as shareholders in society It is paid for entirely from payments made by the beneficiaries of government amenities and services

Political reality must be fundamental to tax policy

40. Countless efforts at tax reform have been attempted across the globe. Each has been guided by principles and political pragmatics The result has been a dramatic increase in the complexity of tax and welfare systems to the point where ordinary people cannot understand it Even top experts consistently fail to predict how tax revenues, welfare payments will develop over time Individuals generally have mistaken concepts about how much they pay, how much they are entitled to and how proposals would affect them

41 Because people are generally mistaken about the impacts of policy changes, any reforms proposals quickly produce anxiety and opposition, while vested interests stoke deliberately confusion and misdirect political opinion.

42 Proposals like Land Value Taxation (LVT) have been discussed for many decades, but failed to overcome the political difficulties and obstacles presented by the vested interests

43 Tax complexity has become a major problem to deal with, but attempts to simplify the system have consistently failed A new approach to tax and welfare reform is essential.

44 A tax and welfare system based around the fundamental principles here is very simple Money is spent into circulation by government for the supply of services to property owners Money is collected from property owners according to the full monthly amenity value of the site locations. The surplus is distributed as a dividend to citizens on an equal per-capita basis.

45 Principle : Changes to existing tax policy create instability, confusion, political uncertainty, financial risk and must be minimised

46 The transition of the tax system to one based on these fundamental principles must avoid creating economic and financial turbulence. It must avoid giving out big windfalls at public expense. And it must avoid creating losers and people who believe they are losers https://publications.parliament.uk/pa/cm201011/cmselect/cmtreasy/memo/taxpolicy/m32.htm

47 The new principle of tax reform is the creation of a right to opt in to a new system of taxation and welfare People should not receive a big windfall from the public when they choose to join the new system and leave the old As people leave the old system, it will become clear to all that the new system is superior, and in consequence the transition can be rapid This principle overcomes political barriers

48 It will not be usually be possible for a person to leave the entirety of the old system in a single step The transition involves contracting with government not to pay particular types of tax in exchange for accepting an equivalent burden.

49 Payments from property owners should be regular, index linked to market values and based upon contract law, not on politically determined tax laws Payments are independent of legal residence or personality Citizens, corporations, nondomiciles are treated equally, removing a major cause of distortion and complexity. Establishing such payment contracts should be voluntary act which releases the person from defined obligations under the old system

50 The Systemic Fiscal Reform Group calls these payment obligations on property "Location Value Covenants" (LVCs), which are legal covenants running with the land They obligate the owner to pay government a defined perpetual revenue stream

Recommendations

51 We recommend The Committee l investigates the principles and implementation of Location Value Covenants l investigates the impact of private money issue in the tax system l investigates the Citizens' Dividend as an alternative to welfare payments l makes public interest the sole determinant of tax principles and rejects the advice of vested interests in the financial, real estate and accounting industries l declares the present tax system to be not fit for purpose and beyond repair l adopts the principles contained here for transitioning to a new system

Conclusion

52 Development of the tax system has been constrained by political reality and driven by the demands of vested interests in finance and real estate The fundamental principles of tax policy should explicitly incorporate the money system and the welfare system The tax system is not fit for purpose and is beyond repair It should be replaced by an efficient, neutral and distortionfree system based around clearly defined recurrent payments from owners of land, immovable property and natural resources based on contract law. Means-tested welfare should be replaced by a Citizens' Dividend distributing the financial surpluses of government arising from such reforms

53 The transition to a new, principled tax system should be on an "opt-in" basis where people can choose to permanently leave the old system when they can benefit from so doing. The effect of such a transition would be an rapid and dramatic revival in economic performance without battling political headwinds

54 The principles outlined here fully meet all the objectives of the OECD tax report and the Mirrlees Review They meet Smith's canons of taxation and adhere to orthodox and common heterodox academic analysis They are comprehensible and achievable January 2011