On the switch to indirect taxation

<p>At the end of the 1970s there appeared to be wide agreement as to the desirability of switching the burden of taxation away from direct taxes towards indirect taxes. In concrete terms, there was strong pressure for cuts in income taxation to be financed, where necessary, by a rise in the rate of value added tax; and this process was set in motion in the Budget of June 1979, with the reduction of the basic rate of income tax to 30 per cent and the rise in VAT to 15 per cent. </p><p> </p><p>Third Paragraph - The aim of this paper is to explore some of the arguements which can be advanced to support a switch from direct to indirect taxation, concentrating on income tax on one side and the value added tax on the other. What is the reasoning which lies behind the case for such a switch? It is an arguement in terms of incentives? Can we switch be justified in terms of its consequences for underlying economic welfare? Or was Gladstone right when he referred to direct and indirect taxes as 'two attractive sisters' to whom he should pay his addresses equally?</p>