Hong Kong only gets about 15% of government revenue from its Salaries Tax, compared to nearly 30% from its various Property and Land Taxes. (By the way often quoted land auctions only raise about 6 to 12%, most revenue comes from Rates, Property tax and Government, rent a sort of land tax). Hong Kong is probably the nearest example of what Adam Smiths idea tax regime might look like. Adam Smith favored Land taxes, not income taxes and Adam Smith institute should really be proposing a Land Valuation Tax. Flat taxes are a bit of a gimmick really that distracts the attention from Adam Smith real argument for Land taxes.

“The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents and the ordinary rent of land are, therefore, perhaps, the species of revenue which can best bear to have a peculiar tax imposed upon them.” Wealth of Nations (1776), Book V, Chap. 2, Art.1

Milton Friedman a keen follower of Adam Smith, also backed land taxes and praised Hong Kong’s tax system, said “So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land”

Income tax should return to what it was, a tax on the rich not the poor, it makes little sense to tax people on incomes as low as £6500 which they cannot possibly live on and then give the money back in complex tax credits.

Consider this, if the Income tax allowance started at £15000 (below that is considered low pay) and NI is scrapped, you could have a single flat 35% income tax rate that would not increase the overall income tax burden on anyone, be a lot simpler and probably more difficult to avoid. I suspect the tax recovery rate would improve on this lower tax rate and the rest would be recovered by a land value tax as Adam Smith proposed. Also other taxes could be scrapped and reduced, if land taxes were adopted.

A major problem with progressive taxation is it is so easy for the rich to avoid and the incentive for special interest groups to argue for tax breaks and accountants to find way avoid it becomes greater the higher the rate. Land taxes are almost impossible to avoid and cheap to collect. Progressive income tax, has an unintended consequence of blinding many on the left to taxes on Wealth and getting people on middle incomes to often pay higher marginal rates than the rich who can convert their income into capital gains at lower rates or move it off shore.

The other thing is you elide between ground and land rents and house rents. Not the same thing at all. The former are very much something to be taxed, the least distorting of all taxes (as Friedman noted, as did Ricardo and Henry George built a whole system on the point).

But it is the land which is taxed, not what is built upon it. The cottage on an acre of Mayfair should be paying the same tax as the mansion on an acre of Mayfair. For it’s the acre of Mayfair which is the scarce good, not the cottage or the mansion.

Other than that you’re right, it’s very much a matter of opinion. Does a rising average tax rate although a static marginal one meet the test of “greater than proportion”? I’d say yes, you no.

And as to the necessary snark:

“in proportion to the revenue which they respectively enjoy under the protection of the state.”

Therefore, revenue which is not enjoyed under the protection of the State should not be taxed by said State. Revenue earned abroad and left abroad should not be taxed….we are all non-doms.

Yes, the ASI has been known to say that.

I`m not convinced that Adam Smith (or any sane person), would be overly concerned that an immensely rich person was only paying a slightly higher percentage of his income in tax than a very rich person was.
Given that this appears to be the only stumbling block to Adam Smith`s “support” of the policy and that otherwise all of the Adam Smith boxes are being ticked, I don`t think it`s misleading for an institute bearing his name to suggest such a policy.

Nice try though.