Tax dodging? It's harder to do - and rarer - than you think So you'd like to know how to avoid tax. After all, everyone else seems to be doing it, so why end up as the Muggins who has to pay while everyone else mugs the Treasury? The simplest and most obvious method of not paying taxes is simply to avoid doing anything. If you're not taking part in economic activity then no one will be …
"Yes, it's really true. The argument is about the shape of the curve, not its existence. "
I'm not sure what the author is getting at here. Do some people refuse to believe in the existence of graphs? Even if you got the same tax dollars at every tax rate, the curve would still exist, it would just be a straight line.
The certain points are that 0% and 100% tax rates both result in a tax take of zero. It's the shape of the curve in between that is the subject of debate. But as long as the curve is continuous, there must be a rate of tax that will deliver the maximum amount of money to the exchequer. Collecting a higher (or lower) rate of tax than this results in reduced revenues.
Some people, many in fact, will avoid paying tax no matter what the rate of taxation. That fact alone makes the "laffer" curve largely irrelevant. the curve is based upon the theory that as taxation increases many people arrange their affairs to avoid tax....in this world they set-up their business/life to avoid tax no matter what the rate. Except for the common Joe...who has no money to "buy" complex avoidance routines, so pays the tax demanded. And of course, many companies get fined large amounts each year because their avoidance was actually evasion. It looks like a particular search giant may actually have used UK staff to makes sales in the UK, then claimed they were made in the RoI.....hopefully true...with a whacking fine arriving on their UK/RoI doorstep.....not forgetting that if HMRC can prove deliberate evasion/fraud, they can then go back many years and claim for them as well.....
A good article and as the quote goes there are always simple answers to complex problems and they are always wrong.
At the end of the day my opinion is that it is not a question of how much tax we can squeeze out of corporations but whether the playing fields are even. So a book distribution company based in the UK is unfairly penalized compared to amazon because it does not have the resources to do the tax shenanigans which amazon with it's army of accountants can do. As a result amazon can undercut the local opposition and eventually competition suffers.
However I think a radically rethink of tax policy is required rather than what is proposed at present which is nothing more than politicians posturing. Maybe the problem is with the whole concept of capital gains tax. The more you think about it, it is a tax purely on profits, so penalizing success, which is a little strange. Also remember that big corps do pay tax in this country via income tax, NI etc. So maybe it is in those areas that we need to look and drop corporation tax to 0 or maybe VAT on sales as well as purchases? Non of these are in the least politically palatable whichever side of the divide you are on so I won't hold my breath.
Are you seriously suggesting that someone who buys a field, or a house, or a painting, or shares in a company and does nothing with it but leave it sitting there for 10 years until market conditions change, and then sells it for multiples of what he paid for it should not pay anything on that Capital Gain, while someone who makes the same amount of money over that same 10 year period by going to work and actually doing something productive should pay income tax?
Sorry, there is a simple answer. Voluntary taxation. Tax evasion etc abolished at a stroke. Tax avoidance/evasion occurs because people and companies do not want to pay the taxes the governments demand - simple as that. They worked for the money, they want to keep it to spend it as they think fit. Of course, voluntary taxation is likely to see a significant reduction in Government Revenues - but why is that a bad thing? Perhaps I am being a tad idealistic but Governments exist to fulfil the will of the electorate - if the electorate are not willing to pay for something - then it is a pretty good indication they do not want it. There were no schools/hospitals/armies etc until private groups created them. Only later did Governments muscle in. If the governments stopped providing services tomorrow they would still exist. If there were no hospitals I would bet money that most individuals would be buying some form of insurance pretty quick. So essential services, that people wanted, would still run in some form. If that form does not meet your moral code - nothing stopping you from starting one that does - as long as you and others were prepared to pay the costs.
We know these tax evasion schemes aren't illegal. But "not illegal" doesn't make it right.
The question is: why are the tax laws like they are today? Because they were voted 50 years ago? So were traffic laws, but these were updated when needed. Why weren't the tax laws updated when needed?
Because politicians prefer rich people and rich companies over their voters. Even most left wing politicians prefer rich people and rich companies over their voters. Votes can be bought by propaganda, but the sympathy from rich people and rich companies can only be bought by loopholes in the tax laws.
The question is: how long are "the people" going to take this?
Me. I rent out a buy to let flat. I've got the deposit together for another, but am rethinking as frankly the paperwork of the self-assessment plus the punitive taxes on the relatively small income make it a pain the the rear too far. Currently the deposit cash sits largely semi-dead in a stocks and shares ISA instead.
All this talk about paying "fair" tax is merely a sop to the sound-bite addicted millions of people in the country who can't do sums.
Even if all the companies involved in "scams" coughed at the same level that the average wage-earner does, it would still make bugger all difference to the government's expenditure plans. Raising a few billion, or a few tens of billions by grabbing these companies nuts and squeezing "until the pips squeak" is a drop in the pot compared to the half a TRILLION or more of revenue the government rakes in - and duly spends again - every year.
Sure, an extra bil or two would allow someone to employ another 50,000 nurses, or policemen or paperclip benders(!), but unless that can be shown to have a tangible effect on anything except the paperclips it would not benefit the country as a whole. Specifically: would it do more good than the damage caused by having a bunch of multinationals pulling out and causing probably the same number of redundancies, as they leave the UK and go elsewhere?
It does however, make an exceedingly good headline (provided the readers don't immediately go: Hmmm, and reach for their calculators - which, lets face it, the sorts of rabble who are so easily roused are hardly likely to do). And that's really all it was intended to do.
And yet you never hear anyone talking about all the jobs that these companies generate, and therefore, income taxes and payroll taxes. Add those to the equation, and Google, Microsoft etc. end up paying billions and billions of taxes.
For me, that's quite enough, and I'd rather have companies paying low taxes, and keep jobs in the country, than the politicians trying to squeeze out every last penny, and have the companies move to other jurisdictions.
So the tax I'm paying, that's really the company that employs (employed actually), paying taxes eh?
So when the government decided to raise taxes because of the crisis, that's really the company paying more taxes.
And now everybody is looking at me, because hey, what's my contribution in the "war on crisis"?
You sound like a father who announces to his offspring "no more pocket money for you kids, daddy is putting in his 2 pence against the crisis", then asks, "and what effort will you put in?"
Customers pay VAT, Employees pay income tax.
At that ignores the concept that these multinationals are essentially parasitic and force out local competition by using their tax advantage to undercut local tax paying businesses. If Starbucks wasn't here then their place would be filled by local mum & dad coffee shops that probably wouldn't be using transfer pricing agreements to remove profit from the UK.
I've been a corporate tax adviser for 20+ years and if I could I would put myself on the unemployment line by eliminating all taxes on business income. Why does a society want to handicap the engine of the economy with income taxes? Either tax consumption, transactions (VAT, sales/use tax, excise tax), or maybe personal non business income). Taxes drives business decisions as much as labor costs, intellectual property protections, or logistics. Businesses should live or die by the value of the products or services they provide and not by how their business is sliced and diced throughout the world to minimize income taxes. In the U.S. the combined federal and state corporate income tax rate is around 40%, which makes the U.K. and not just Ireland look like a tax haven.
The other change I would make is to make tax transparent. Corporate transparency is always touted by a variety of groups - often the government. The same should by had in how a government taxes its people. Taxes collected via withholdings on a paycheck, VAT built into the sales price, or taxes collected by a third party "hide" the true amount of tax we all pay. If each of us had to separately pay taxes or at least have it itemized as a separate item we purchase, there would be a much different discussion about the role of government and the value of the services it provides. That is why ad valorem taxes (property taxes) are so unpopular because people have to separately pay the tax independent of any other transaction.
"Why does a society want to handicap the engine of the economy with income taxes?"
Because businesses use infrastructure and resources, benefiting from investments the rest of society make. This includes water, roads, refuse disposal; but it also includes healthy, educated workers. Public health services and education are some of the most important investments a society can make for its future. Businesses can choose to participate in society and its future by paying their fair share of tax. If they don't, they are parasites and should be treated as such.
If you want an example of why not everything can be a consumption tax, consider the Police:
"Officer, I've just been robbed. They took EVERYTHING!"
"Yes, Sir, I'll need to take the details, and the £10000 Investigation Tax"
"But they took EVERYTHING!!"
...
Here is my insurance certificate officer, all bought and paid for. Now please explain why you did not prevent this burglury? Also find my goods and the perpetrators or I will move my business to another police company. Google the history of fire brigades - not perfect perhaps but I am sure you can do better.
Talking about the shape of the curve is pointless since all it does is plot a tax rate, the video mentions the top rate, vs. government revenue while ignoring the fact that the tax rate varies with income. Putting it into perspective, it's perfectly possible for the top tier to be 99% but the question becomes one of where it kicks in.
A lot of people like to talk about top historical rates being much higher like "Oh back in 1936 the top rate was 79% and folks got along just fine." What they don't say is that rate applied to folks who made $5,000,000 in 1936. Today that income would be equal to $82.5M or, for a 40 hour work week, a bit over $39,000/hr in the middle of the depression. I can't but wonder how many people were paying this rate.
Compare more common incomes today and adjust backward for inflation to 1936 tax rates and folks making $50k pay 4%, $75k is 8%, $100k is 9%, $200k is 12%, $500k pays 23% and working up to a modern $1M makes the 39% bracket. Does anyone know anyone earning $100k and being in the 9% bracket? That's 9% U.S. Federal income tax, not 9% California income tax.
And there's the rub, the tax brackets don't keep pace with inflation. Folks are paying a lot more in taxes for the same net pay. It kind of makes the Laffer Curve a bit laughable if you just plot the top tier tax rate if it doesn't effect anyone.
"At the margin, where we already take 40 per cent of GDP in tax, that deadweight might rise to one-third or so. Given that at least some of what the government does is worth more than 130 per cent of what the taxpayers themselves would do with the money, this is fine."
Really? You REALLY believe that the government gets 30 per cent better value for money than a taxpayer would if he kept it? Even allowing for the huge overhead costs of millions of government employees, buildings, equipment, and all the salaries and perks that government employees earn? Even allowing for the obvious gross inefficiency of most government projects?
Is it more efficient have "wasteful" government build a public road network, or to have a toll barrier and toll collector at the end of every street? Is it more efficient for you to employ private tutors to teach your kids in your home, or to have "wasteful" government build schools and tech them there? Is it more efficient for you to build your own water treatment system or to have a wasteful government provide a centralized system, with the capital costs spread over the populace.
Many of these services started as small private businesses (education, electricity, fire brigades. telephones), but most of them became government run because it was recognized that the country as a whole would be better off if everyone had reasonable access to these services, and private companies simply couldn't deliver at the scale that was needed.
Many of these services are returning to the private sector, but that's not always an improvement.
"it was recognized that the country" - recognised by whom? Not by the people who have to pick up the bill - you can bet that! They were given no say. You slightly misrepresent the situation. Hospitals were not taken over because Government would run them better. They were taken over to cater to the population groups that did not want to pay the price of providing for their own health care. There were friendly societies etc that provided funding for health care but there were groups, e.g. the mentally ill, who would not be covered. This was deemed unacceptable by various individuals in governement - but not as unacceptable as those individuals providing the money from their own pockets.
" Hospitals were not taken over because Government would run them better."
I don't know about hospitals, but I do know that the UK railways were nationalised because the private owners were making a mess of them (much like they are right now, having been sold off to fund tax cuts for the rich). And the electricity companies. And more.
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