Ah, tax

Nobody likes tax. Or at least, nobody likes paying tax, but it's ok if other people pay tax, ideally the more the better. Much of tax law seems to revolve around not paying tax, ironically.

In fact, tax law is extremely verbose in some countries! In the USA the statute itself - the Internal Revenue Code - runs to about 2,650 pages in the Government Printing Office's two volumes (Tax Foundation). A serious practitioner needs the compilation that annotates every statute with the relevant cases, and that runs to roughly 70,000 pages. Complying with all of it costs taxpayers an estimated 6.9 billion hours a year (National Taxpayers Union Foundation), which is a lot of effort spent working out what you owe.

All this makes one think that perhaps tax can be simpler - maybe even more fair.

I live in London and pay tax. I believe people should pay tax because we have to fund some common services that we all rely on. In the UK people still love the NHS - our national healthcare setup - and they are willing to pay for that. There's the military, roads, education and many other things that we expect the government to provide. If you are a Libertarian, you prefer to look after yourself and not have the government ask you for tax, but I suspect that dedicated Libertarians are generally quite well off.

Tax in the UK is supposed to be progressive; that's where the better off you are financially, the more tax you pay. But, not just at a flat percentage. The idea is that you pay a higher percentage, too. This super-charges the amount of tax being paid by high earners, while giving the lowest earners a much lower rate. In the UK these days it comes down to this: the top 10% of income tax payers are liable for around 60% of all income tax, while the bottom half of income tax payers are liable for under 10% of it, and the bottom 10% for about 0.4% (HMRC, 2022-23).

Many will say this is the way to do it; people paying a lot will say this is not fair, typically.

Tax seems way complicated though - there's a whole industry of accountants and software providers that exist just to help you calculate your tax. That can't be right. Can we come up with a new tax regime that would tick more boxes and make more people less unhappy?

The idea

Let's explore a simple idea!

Tax consumption only. No income tax, no capital gains tax, no corporation tax. One tax, collected where money leaves the economy instead of where it arrives. Basically, it's a VAT on everything.

Let's say we still want this tax to be progressive.

So our twist on a flat VAT rate is ... the rate is not flat. The rate goes up with the final bill. Bread and milk in the bottom bracket, a yacht at the top. Food under some sensible value, utilities, the genuinely unavoidable things - exempt. Everything else pays a percentage that is printed right there on the receipt, based on the size of the receipt. And if something is too awkward to price properly, it gets the flat rate. Call it 30%.

It is a satisfying idea. Some people today can avoid income tax by never quite having income - they borrow against assets, they defer, they structure. But they still have to spend money to enjoy their lives, and a tax that waits at the till catches them anywhere in the world they shop.

That was the version in my head when I started. It survives about ten minutes of thinking.

Three other simple ideas

Mine is not the only one doing the rounds. Three other regimes get taken seriously, and all three are being argued about right now rather than filed away in a journal.

The flat tax

I have wanted this one to be true every time I have filled in a tax return.

One rate for everybody, with a generous allowance so that the lowest earners pay nothing at all, and most of the reliefs and deductions abolished. It is the oldest simple idea in the book: Hall and Rabushka put theirs on a postcard in 1981, and people have been proposing it ever since.

Estonia is the proof, and the proof is maddening: they file their taxes online in about five minutes. A country that can do that is showing off, not making an argument. Their flat personal rate has been running since the 1990s, 22% today, and they come first on the Tax Foundation's competitiveness index - twelve years running.

The Estonians keep improving it, too. Until this year the basic exemption tapered away between €14,400 and €25,200 of income, which loaded a punishing effective rate onto people in the middle - the sort of wrinkle that quietly ruins a simple tax. In January they scrapped the taper and gave everyone a flat €700 a month instead, up from a maximum of €654, claimed through one employer, with a little more for pensioners. The allowance is the flaw every flat tax has to solve, and they fixed theirs by simplifying further rather than by adding brackets.

None of this fixes the bigger hole. A flat tax is still a tax on income, so a billionaire living on borrowed money and unrealised gains pays it on almost nothing at all. Same hole as before, just with tidier paperwork.

References: The Flat Tax, Hall and Rabushka (Hoover Institution); Estonian Tax and Customs Board on the basic exemption; OECD, Assessing Estonia's Security Tax Act; IMF, Options to Strengthen the Tax System in Estonia; Tax Foundation, International Tax Competitiveness Index 2025; Tax Foundation, Growth and Opportunity Tax Reform Plan.

A national sales tax with a rebate

Abolish the income tax, the payroll taxes and the inheritance tax, and replace the lot with a single national sales tax on almost everything. Then, so that it does not flatten the poor, send every household a monthly cheque that covers the tax on the essentials, up to the poverty line.

I should be honest here: my idea and this one end up in the same place. Mine makes the tax progressive on the receipt; this one makes it flat everywhere and progressive at the bank. It answers the awkward question better, so it is the version I would defend in an argument.

This is the most ambitious of the three, and there is a real bill behind it: America's FairTax Act, reintroduced repeatedly and most recently as H.R.25 in the 119th Congress. It sets the rate at 23% on a tax-inclusive basis, which is 30% of the price on the sticker, and it carries a clause that kills the whole tax unless the constitutional amendment permitting an income tax is repealed within seven years. That tells you what its authors think of future governments.

The appeal is obvious: no household ever files a return, and a billionaire's yacht is taxed at the till exactly like your kettle. Businesses collect it, the states run it, and the revenue service stops existing.

The problem is arithmetic, and it bites both of us. Independent costings put the rate needed to replace the lost revenue far above the advertised 23%. The American Action Forum reckoned around 28% inclusive, or 38% on the pre-tax price, and that was for the 2023 version of the bill. Once you are near 30%, the promise reads: your shopping costs a third more, and here is a cheque.

The second problem is the one I would worry about most. A retail sales tax is easier to dodge than a VAT, because it is collected only at the last link in the chain, and the last link can go missing. The rebate is what keeps the scheme politically survivable, and it is also the first thing a future government would quietly erode.

References: H.R.25, FairTax Act of 2025 (Congress.gov); Tax Policy Center, What is the Fair Tax?; American Action Forum, Evaluation and Macroeconomic Impact of the FairTax; Center for American Progress critique.

The land value tax

Of the four ideas in this piece, this is the one I would most like to be right.

Tax the value of the land and nothing you build on it. This one is ancient - Henry George wrote it up in 1879 - and it has an unusually broad fan club: Adam Smith thought it reasonable, and Milton Friedman called it the least bad tax. Nobody can make more land, so taxing it does not discourage anybody from producing it. You cannot hide it, you cannot move it offshore, and you cannot restructure it into a subsidiary in Dublin. We know exactly where it is; it is under your feet.

Estonia already runs one: their property tax falls on land only, not on the buildings, which is one of the reasons they keep winning that index. Wales has been studying replacing council tax and business rates with a land value tax. The Greens want one, and have promised to survey every landholding in the country to prepare for it.

What worries me is how small the base is. Take the buildings out and there is much less to tax than people assume: when the New Economics Foundation costed replacing business rates with a land tax in 2019, it found you would need rates of about 3.6% to 3.8% of the capital value of commercial land to raise £4-5 billion.

Then there is the valuation office. Every assessment would be disputed by whoever it landed on, and a pensioner on a valuable plot with a small income has a real problem paying it. There is something faintly comic about a tax that requires a national argument about what a field in Surrey is worth. It is a very good tax. On its own it is not a tax system.

References: New Economics Foundation, Funding local government with a land value tax; Chartered Institute of Taxation, Welsh government launches land value tax study; CIOT, Green Party 2024 manifesto analysis; Tax Foundation, International Tax Competitiveness Index 2025.

What I take from this

Three of the four ideas here take the tax off the payslip altogether. Mine, the sales tax and the land tax charge you for spending, owning or occupying instead, and only the flat tax stays where we are. That is the dividing line that matters, and it is not left against right.

I should turn the test on my own idea before someone else does. A till in Britain cannot tax a yacht bought in Monaco, and a rate that climbs with the receipt invites people to split receipts, so anyone rich enough to care about the rate is also rich enough to work around it. It would also have to replace income tax, national insurance, corporation tax and capital gains tax, on a much higher headline rate than the 30% I waved around - the FairTax numbers are the clue, and mine has the same bill to pay. I do not have a clean answer to any of that. I have an idea that has survived more than ten minutes, which is more than I expected.

We are not starting from nothing, either. Britain already has a consumption tax: VAT, at 20%, which raised about £180 billion in the 2025-26 tax year. Income tax and national insurance between them brought in more than £500 billion (HMRC). So the question in this country is not whether to tax spending, but what a bigger spending tax would replace - income tax, national insurance, corporation tax, or none of them, in which case it is just a tax rise with a nicer story.

Which one you prefer comes down to what you are willing to trust with the job: a single rate, a receipt, or a valuation office. I would rather trust the receipt, and I would rather tax the money when it comes out than the work when it goes in. I am not sure that makes me right. It does make me consistent.