getting ready for the budget . 1 . tax reforms for the 1960s . by David Howell . there are two basic points which seem to be a necessary preface to any sensible discussion of taxation reform . the first is that , whether we like it or not , with the increasing demands of a prosperous society , the revenue required by central and local government in the coming years is highly unlikely to get any smaller . the assumption of this article is , therefore , that most of the natural increase in the revenue in 1961 , due to increased wages , salaries , consumption and profits , will be needed by the Chancellor . if he does have &amp;pound;100 m or so to return to the taxpayer then indication is given as to where his priorities should lie . the second point to be made is that tax reform is a very different thing from putting forward a radical scheme for altering the whole tax structure . raising the revenue is already a major administrative miracle . the only proposals for change which can be labelled practical are those which involve the minimum administrative complications when set beside the existing structure . the objectives . this said , it is nevertheless worthwhile trying to define some of the long-run objectives towards which tax reformers should aim . for although progress may be slow , it is no less important to have a clear idea about the direction in which all tax changes should go - something noticeably lacking in recent years . the objectives might be listed like this : 1 - that the system should be efficient . 2 - that it should be fair as between one taxpayer and another . 3 - that it should encourage personal saving and the wider spread of ownership of assets and property . 4 - that it should contain the minimum disincentive to , and where possible should actively encourage , risk-taking , enterprise , exports and investment in efficient production methods . it is the last of these four objectives about which we have heard most in the past year . with a disappointing export performance and a slow rate of economic expansion many people have been turning to the taxation system as the source of the trouble , citing individual cases . yet strangely enough it is here that there is least evidence that the present system offends . nevertheless , the grumbles and complaints are too frequent to be ignored . it is , therefore , with direct taxes on income ( income tax and surtax ) and capital ( death duties and stamp duty ) that we will begin . when talking of our highly progressive system of income tax we often forget that below &amp;pound;2,000 the taxpayer is only charged at progressive rates over a band of &amp;pound;360 . otherwise he ( or she ) is either paying no tax at all or the full standard rate . a sensible first step , therefore , would be to make the ascent to the standard rate more gentle and less forbidding to the millions who are now attempting it . further up the scale , where progression starts again with surtax , one of the most painful transition periods for the taxpayer is when he has to start writing a surtax cheque instead of having tax taken off by PAYE . there is no obstacle in principle or in administration against the abolition of the concept of surtax altogether and the continuation of the income tax scale to the top . even with this change the PAYE deductions at the top end would still be at a near-confiscatory rate . the real objection to taking away more than , say , 15 s in every pound a man earns , is not so much that it is unfair or discouraging to the nation &apos;s decision makers , but that the imposition is grossly inefficient . businessmen threatened with these high rates merely spend more and more time with their accountants seeing how their incomes can be kept out of this range . the temptations increase to draw benefits in kind , and sometimes in unnecessary business expenses , rather than taxable income . the cost to the exchequer of placing a ceiling of 15 s in the &amp;pound; on direct personal taxation would be about &amp;pound;20 m . this should be done . two other important aspects of income taxation worry people . the first is the tax status of married women . where the husband and wife &apos;s combined incomes come to less than &amp;pound;2,100 ( where surtax for a married couple without children starts ) , they have a slight advantage over single persons . but above this level they are severely penalised . when shortage of labour is one of the main checks on our scope for increasing output rapidly , the case for making separate assessments seems particularly strong . the cost to the exchequer of separate assessments for surtax ( or , as we have redefined it , income tax above &amp;pound;2,100 ) on earned income alone , but not on investment income , would be only &amp;pound;4 m . this would still be an encouraging start . capital gains . the second source of concern is the widely-held suspicion that a number of professional dealers in property and shares pay no taxes since their income is mostly in the form of untaxed capital gains . it is from this suspicion that the main support for a capital gains tax comes . the trouble with a capital gains tax is that it hits so many other things as well , including small savings and the smooth working of the capital market , besides being of low and uncertain yield . it is generally recognised as a second best to much more radical schemes for transferring the main burden of taxation from income to expenditure . but the alternative suggestion that the inland revenue should apply its power to levy tax more vigorously against those who earn regular capital gains raises almost insuperable problems of legal definition . thus a capital gains tax , for all its obvious deficiencies , is not without its advocates in all parties . there is no need to regard it for ever as an unmentionable heresy , nor as a general panacea . it can be discussed on purely empirical grounds . this raises the question of capital taxes on the individual . one of the weaknesses of conservative government has been its reluctance to use the tax system as an instrument of policy as its labour predecessors did freely . on the contrary , conservatives have been content to accept a system which works directly against their declared objective of more widespread property ownership . estate duty is a good example . the main victims of estate duty ( which yields about &amp;pound;185 m ) are not ageing millionaires , who can easily make provision to avoid paying it , but middle-aged owners of small family firms , whose death often means the liquidation of the firm to pay death duties , in spite of the 45 per cent rebate allowed on the industrial assets of a business , assessed at market value . the tax should long since have been replaced by a legacy duty - duty paid on the inheritance received rather than what is left . this would actively encourage the spread of property and would allow small firms to pass into wider family ownership without forcing them to close down . it is hard to estimate how much loss to the revenue the changeover , keeping the same rates , would involve , but a figure of &amp;pound;30 m has been quoted . more incentives . further incentives to small savers are also long overdue . stamp duty on share transactions is prohibitively high for the newcomer with less than &amp;pound;500 to invest and exemptions could be made for sums under this . if the Chancellor really wanted to get more people into the saving and investing habit he could , without difficulty , go further and give relief on the first slice of an individual &apos;s income from his investments . for the coming year the cost of these two concessions should be adjusted to about &amp;pound;50 m . this still leaves an important area of direct taxation uncovered company taxation . at present net company profits are taxed at the standard income tax rate plus a 12 1/2 per cent profits tax . the smoothing out of income tax rates , without any special concept of a standard rate or surtax levels , as I have suggested , would mean that companies would have to be taxed on a separate schedule . the obvious candidate to replace the present complicated two-part system ( which includes investment allowance reliefs ) would be the straight corporation tax . this could have the added advantage of flexibility ( it could be varied independently from personal taxes ) and speed , since it could be assessed on a current year basis . it does raise certain difficulties with regard to double taxation of dividends . but these have been successfully overcome abroad . in these ways the more painful , inefficient and discouraging aspects of our taxation system could be modified , at a cost of little more than the amount which , on the gloomiest view , the Chancellor may have to spare - just over &amp;pound;100 m . but little has yet been said about the way in which we might start shifting some of the burden of tax from income and earning ( what we put into the pool ) on to spending ( what we take out of it ) , and about the main existing indirect tax , purchase tax . it seems to me that discussion of changes in this field can be most usefully combined with a look at local government finance . getting ready for the budget - 2 . why not a local sales tax ? David Howell . when the idea of more taxes on spending is canvassed , it is sometimes overlooked that we already have a kind of sales tax on a wide range of goods in the form of purchase tax . the estimated yield from purchase tax in 1960-61 is &amp;pound;535 m . in addition , the estimated revenue from customs and excise duty on tobacco , beer and spirits is &amp;pound;1,229 m . the other taxes on spending are the oil tax and tariff charges , which together have an estimated yield of &amp;pound;580 m . thus any suggestions for a further impost on spending in the form of a sales tax have to be made with these important taxes firmly in mind . purchase tax , at four rates varying from five to 50 per cent , spreads its net so wide that it is almost simpler to list some of the items not affected . food and sweets , fuel and light are not taxed ; nor are books , magazines , children &apos;s clothes , some kitchen equipment , sheets and towels . no services bear any kind of tax . on the other hand , a wide range of consumer durables is affected ; so are most household goods and appliances ; and so , too , are cosmetics , radios , records , jewellery , toys , cameras , carpets , wallpaper , most clothes , hats , gloves and furniture . thus if goods alone are considered , few items are free of a spending tax of some kind , and those that are include a number of goods which it is rightly considered undesirable to tax . for these reasons it is usually argued that the first move towards a sales tax should be to modify the purchase-tax system into a uniform percentage rate tax and that this should be extended , if administratively possible and right in principle to tax . high and wide . some calculations were done for Lord Amory when he was Chancellor on this basis and the conclusion was reached that a uniform sales tax over the widest possible range of goods would have to be levied at 20 per cent to yield the same revenue as purchase tax . the widest possible range chosen could , in fact , have been wider . some consumer services , and clothing , furniture and luxury food items , taxed in other countries , were excluded . had they not been a figure of about 17 per cent might have been reached . but this is still impracticably high . moreover , this would replace purchase tax alone . if we wished to reduce income tax as well , the level of a sales tax would have to be well above 20 per cent . the real trouble with this kind of approach , which inevitably points to a very high rate of tax , is its assumption from the start that the proposed sales tax has to be a major revenue-raiser for the central government . yet in those countries where a sales tax has worked most successfully , it has been employed as an additional source of revenue for the local or provincial government . 