Good news continues to come out of the United Kingdom. Today its unemployment fell to a new low of 7.4%. GDP and jobs numbers in the UK have also painted a rosy picture for a while now. The Chancellor of the Exchequer, George Osborne, wrote a piece in yesterday’s Wall Street Journal on how Britain has been managing its recovery.
Critically, the UK has improved its taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. system substantially. It is moving towards a more competitive, more neutral tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. that treats all sorts of economic activity equally. While they have been willing to increase sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es – a neutral, simple tax – they are also reducing the costly corporate tax. Corporate taxes tend to substantially reduce the welfare of everyone – both the owners of corporate stock and the workers who depend on heavy capital investments. They have also abolished crippling financial transaction taxes.
Britain’s tax system is far from perfect, but its recent improvements are substantial and praiseworthy. Mr. Osborne fundamentally understands the idea that countries must compete for new investment. Investments – like new manufacturing plants or shopping centers – help ordinary people conduct economic activity and be productive. The recent tax reforms in the UK are, by and large, excellent policy designed to improve the economic prospects of everyday individuals. It is heartening to see how much those prospects have improved in 2013.
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