Letter to the Financial Times by Philip Booth

Sir, John Kay confuses two issues in his comment on the flat tax (“Why tax cannot be expressed on a postcard”, February 8). Even a flat tax might not be as simple as some hope because there will be legitimate dispute about the definition of income, as well as about whether it should be individuals or households that form the basis for taxation. There are various ways of resolving such disputes, using the courts and common law as well as explicit regulations.

But having established a working definition of income and of the unit for taxation, the case for a flat tax remains. All income above a threshold should be taxed at the same rate and a single rate sales tax should be levied on all spending rather than, as present, at two different rates and only on half of spending.

Distortionary taxes cause welfare losses and graduated income taxes lead voters to support programmes believing the costs will be met by other, richer voters. This leads to the misallocation of resources and the over-provision of government services.

Philip Booth, Editorial and Programme Director, Institute of Economic Affairs, London SW1P 3LB