The income tax has always presupposed that, to one degree or another, the government decides how much of what you make is actually yours. Now Britain may go ahead and just make it official. According to CNBC:
“The UK’s tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.”
This bears a lot of resemblance to the withholding tax where a deduction is made from each employee’s paycheck and any excess is rebated in a tax return. That’s bad enough as the withholding tax is more deceptive and thereby the government can raise taxes more easily since people don’t actively have to pay the government, their money is just whisked away. Hell, we even get a “return.” All of that “return” also acts as a 0% loan to the government. With any inflation at all, it’s a loss for the taxpayer and a gain for government.
However, what is being proposed in Britain is much worse. One problem with the income tax (and why I would prefer some sort of consumption tax, perhaps the Fair Tax) is the sheer amount of information the government collects. The IRS basically acts as another intelligence agency, spying on U.S. citizens. Furthermore, the income tax works on the basic assumption that the government owns your labor and allows you to keep a certain percentage (out of nothing other than pure altruism of course). This proposal in Britain institutionalizes both concerns.
It also leaves the doors open for abuse. The article quotes George Bull, head of Tax at Baker Tilly, saying:
“If HMRC has direct access to employees’ bank accounts and makes a mistake, people are going to feel very exposed and vulnerable… the difficulty of getting it back could be high with repayments of tax taking weeks or months.”
Indeed waiting for a resolution could make the rent pass due or put the mortgage into default. Or perhaps such powers could be used to harass citizens in new and even more perverse ways. In the United States, some of these cases have become legendary. The most famous example is probably that of the boxer Joe Louis. Joe Louis made a name for himself after he beat Max Schmeling (Adolf Hitler’s pride and joy) in the 1936 Olympics, became the heavyweight champion, donated hundreds of thousands of dollars to the Naval and Army Relief Fund and then enlisted as a private for $21/month to fight in World War II.
Sounds like an extraordinary guy… but not to the IRS. See the IRS wouldn’t let Louis deduct the money he donated away, taxed any new earnings he got at about 90% (and he had no tax shelters to hide it in). He came out of retirement when he was 36 and again when he was 37 to pay off his “debts” but to no avail as almost all of his earnings were again taxed away. Just to get by, this American hero required assistance, even from his former rival Max Schmeling.
And Britain wants to give its equivalent agency direct access to every penny earned! The abuses that will likely come from such nonsense could make the Joe Louis case look trivial. And sadly, horrible ideas like this have a way of metastasizing across the Western World. Let’s pray it doesn’t.