Mail attacks Cadburys for tax avoidance too


12:53 pm - December 5th 2010

by Sunny Hundal    


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Is Middle England also waking up to the evils of tax avoidance?

Today the Mail on Sunday attacks Cadburys and its own Kraft for avoiding £60 million in UK tax.

An article states:

The plan has been hatched by food giant Kraft, which took over the iconic British chocolate manufacturer earlier this year after a bitter £11 billion bid battle. It will see ownership of much-loved Cadbury brands including Dairy Milk, Crunchie and Twirl handed to a holding company in Zurich, where Kraft already has a major base.

Cadbury’s average annual tax contribution in Britain during the past five years has been £125 million a year.
But if Kraft moves control to its European headquarters in Zurich, the tax bill could be cut in half. Cadbury would still have to pay some corporation tax in Britain because the bulk of its operations are here.

But Unite, the union representing Cadbury workers, said: ‘It is disgusting that companies that make billions of pounds of profits from sales in Britain are able to avoid paying corporation tax in this way.
Kraft is not the only company that has been able to take advantage of our taxation system. ‘Unite will continue to argue for changes in the law to prevent these global tax dodgers.’

Rather bizarrely, it then echoes the chant of yesterday’s protesters against tax avoidance by stating: “IF YOU WON’T PAY OUR TAXES, WE WON’T EAT YOUR CHEESE, KRAFT!”

Wow.
[hat-tip @arusbridger]

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


This comes as no surprise. The Daily Mail may be right-wing but it is frequently poujadist and anti-elitist.

This story actually demonstrates the danger of high taxes and excessive red tape.

It is very easy for companies to move to countries that offer a benign environment, and if the UK wants to put up taxes, then more companies will leave.

It might please the placard waving classes to demand higher tax percentages, but when that results in less cash, why is it a good thing?

Unless we are all being paid in percentage signs instead of with cash all of a sudden?

@2 I’m pretty sure that corporations pay less tax as a proportion of their income than individuals. Not sure how that’s fair…

So the response to widespread tax avoidance, according to Ian, is not to highlight the companies doing it or boycott them, but to lower taxes until we’re competing with tinpot tax havens and to cut redtape so it’s even easier for companies to avoid tax. Well done.

I suppose you were also one of those people screaming hysterically that a tax on bankers bonuses would lead to a massive exodus of ‘talent’ from the city.
http://liberalconspiracy.org/2010/10/18/predicted-banker-exodus-fails-to-materialise/

It would help if everyone understood *why* this can happen.

Because it’s EU law that it can.

We have the freedom of movement of people in the EU. Corporations are entirely fictional of course, but they count as legal persons (as opposed to natural persons like you or me). Thus corporations have the freedom of movement.

And it’s not just through the EU either: through the EEA which include Iceland, Liechtenstein and Switzerland as well.

A coproation can up stick and bugger off precisely and exactly because the EU says it can.

Want to stop this happening? Then we’ve got to leave the EU.

“So the response to widespread tax avoidance, according to Ian, is not to highlight the companies doing it or boycott them, but to lower taxes until we’re competing with tinpot tax havens and to cut redtape so it’s even easier for companies to avoid tax. Well done.”

I wouldn’t call the likes of Hong Kong, Singapore and Switzerland tinpot!

5
Of course no private companies and/or corporations up sticked before the EU, – yea right.

5 Tim

The EU thing is a distraction. As has been discussed in various other threads, the way to deal with this is either multi-laterally by the countries involved renegotiating existing agreements such that this kind of behaviour is no longer possible, or by changing the basis of taxation on corporations such that it is no longer on their profits, but on something else.

As one of the posts above points out, people are gradually realising that it cannot be right for corporations to pay piffling amounts in tax, whilst individuals are expected to cough up the full whack, with little chance of using the clever tax avoidance measures used by major corporations.

The likes of Cadbury, Boots and many others turn over billions of pounds, and now apparently expect to pay virtually nothing; they have a social responsibility to contribute in monetary terms toward the greater good.

If they find clever ways to avoid doing so via taxes on their profits, we just have to find other ways of making them pay. Trying to match Switzerland, Ireland and others as low tax destinations in some race to the bottom will simply leave taxpayers poorer, and shareholders and corporate fat cats richer; hence the attraction of the current situation to those on the political right.

@7: well, no, they didn’t. Not easily at least. For to change the domicile of a company you had to essentially liquidate it. Which, of course, means paying all the tax currently due, all the deferred tax the company has, selling everything (even if to your new offshore company) at market prices and paying tax on all of that as well.

Just wasn’t worth doing.

“If they find clever ways to avoid doing so via taxes on their profits, we just have to find other ways of making them pay.”

As we’ve had here before: companies don’t pay tax anyway. It’s (mostly) the workers in the form of lower wages.

Easy way is no corporation tax at all: make people, for it is always people who pay taxes in the end however disguised, pay the taxes openly and honestly.

I’d swap you no corporation tax for taking CGT up to income tax levels, no problem.

10 Tim

You honestly think that if corporation tax was suddenly to be abolished, those wonderful chaps in charge would respond by increasing the wages of their workers?

Yeah….right.

@11.

That’s not how it happens, no.

Some simple facts.

Average wages in an economy are determined by average productivity in an economy.

Adding capital to labour increases the productivity of labour.

We agree on these two, yes? Simple and entirely uncontroversial statements of fact?

Good, so we now tax the returns to capital. This will mean less capital invested, thus lower average productivity and thus lower average wages.

So we can now say that the incidence (that is, who carries the economic burden, not simply who writes the check) of our tax on capital is carried by the workers in the form of lower wages.

It isn’t that because of a tax on profits that the evil cackling capitalists reduce the workers wages. It’s because taxes on capital lead to less being invested in the first place.

This effect is much greater in a small open economy than it is in a large closed one. Because if profits taxes (or other capital taxes) are higher in, say, Denmark, then new investment will bugger off to Sweden instead. Thus Sweden has all the new companies, all the new factories and the lovely high wages that go with having lovely high labour productivity.

But it works, over a longer time scale, even in a closed economy. Imagine a 100% tax on profits. Thus no investment of capital in anything: people who would have invested decide to spend it all on wine and women instead. An economy of nothing but grog and tarts would be fun, certainly, but wages for everyone except publicans and pimps would be pretty low.

Reasonable current empirical estimates are that US coproate profits tax is 70% paid by the worker in the form of lower wages. A slightly more extreme (believable but at the high end of estimates) is that over 100% is in the UK (a smaller, more open economy).

We get exactly the same result if we look at this the other way around. All taxes have deadweight costs: the economic activity that doesn’t happen because of the existence of the tax.

(Yes, we all agree that there does have to be tax, that good things do come from the way that some of it is spent, but we’re trying to find the best way, or least bad way, to tax here.)

But different taxes have different deadweight costs. In order, from least to highest: property (and LVT for example), consumption (VAT), income (erm, income tax) and finally, giving us the most costs in lost general living standards for the cash raised, corporate and capital taxation.

That’s the flip side of the same coin: corporate and capital taxes have the highest deadweight costs. They have the highest costs per amount raised. In other words, high capital taxation makes us all poorer than we would be if we had high (but raising the same amount) property taxes instead. This is entirely independent of whether we want a large state or a small one, the level of public services or anything else.

High capital and corporate taxes reduce the amount of investment, reducing average productivity and while productivity isn’t everything, in hte long run it’s pretty much everything, the foundation of general living standards.

As we’ve had here before: companies don’t pay tax anyway. It’s (mostly) the workers in the form of lower wages.

Hilarious – if there was so much correlation between profits and employee wages then the cleaners who worked at Merrill Lynch et al before the crash would have been paid handsomely.

Of course, in actual fact the correlation is mostly just been executive bonuses (not even pay) and profits. Sometimes not even that.

My , my the tory butler trolls are out in force defending their corporate masters as usual.

Note to butler trolls, Corporations and their leaders hate your guts as much as they hate everybody else. But as long as you want to act as whores for them then they are quite happy to use you.

@13: Sunny, please, get a grip.

If you want to run around shouting about taxation then you’d better try and understand the basics of taxation.

Here’s an extract from a textbook on the point:

http://gregmankiw.blogspot.com/2006/05/corporate-tax-rates.html

Here is some empirical research on it.

http://www.voxeu.org/index.php?q=node/4363

Read those then think again about this comment:

“Hilarious – if there was so much correlation between profits and employee wages then the cleaners who worked at Merrill Lynch et al before the crash would have been paid handsomely. ”

And do note that secretaries in banks do indeed get paid vastly more than secretaries in manufacturing companies.

Oh, and Sunny, consider this from the vox.eu paper:

“As a theoretical matter, it has long been understood that it is nonsensical to say that businesses bear tax burdens (see, for example, Seligman 1899). The burdens created by business taxes must be borne by individuals, including shareholders and other owners in the form of reduced after-tax returns, workers in the form of lower wages, and customers in the form of higher prices.

Atkinson and Stiglitz (1980) drew attention to the possibility that using Harberger’s (1962) celebrated tax incidence model, corporate income tax burdens might be borne more than 100% by workers, whose wages could fall so much in response to the reallocation of resources triggered by the corporate tax (reduced corporate output and greater non-corporate output) that owners of corporations actually could come out ahead. So the identities of those who bear the burdens of business taxes depend very much on economic circumstances. These circumstances are potentially discoverable with empirical analysis.”

Note “Stiglitz” there. Yes, that’s Joe Stiglitz, the Nobel Laureate. You know, the lefty Nobel Laureate?

“A coproation can up stick and bugger off precisely and exactly because the EU says it can.

Want to stop this happening? Then we’ve got to leave the EU.”

Ha ha. A little heavy on the shoe-horn there, methinks. An end to corporate freedom of movement *would* solve this tax law problem, it’s true, in much the same way as never leaving the house again would stop you ever getting sunburnt. But it’s not a proportionate or appropriate solution.

The Mail’s campaign is a very workable, sensible one as far as it goes – but that in itself should probably give us pause for thought. They are still basically the paper that identifies with the sort of vested interests that do not want to see wholesale tax reform (think of how apoplectic they get about inheritance tax). For as long as this is a campaign about consumer pressure on corporations, and the moral behaviour of individuals, the people who actually have the power to make changes to tax law (viz, the government) will be able to carry on as usual. So, much though I’m sure the Mail’s intent is good, they could be tackling the root of the problem and they’re not. And won’t. The Guardian won’t either, of course, for obvious reasons.

(For me, the foci of the protests were completely the wrong way round. It’s pointless to scream at the government for needing to fund a thirty-year rising trend in tertiary education provision, but they absolutely deserve to be screamed at on tax avoidance – every government does. Philip Green is just being permitted by them to derive a tax advantage.)

Incidentally, Tim’s “offer” at @10 should be an absolute no brainer for any leftie or liberal. Wealth tax instead of productivity tax? The Mail and the Telegraph would oppose it viciously.

No surprise to see Timmy defending his corporate masters. His entire political writings are on supporting the Randian race to the bottom. That is why he sells his ramblings to various right wing news papers in the US. We don’t need to read some snake oil salesman lecture on taxation, we understand all too well. It is not about economics, it is about political power. And we the people all over the western world have given way too much power to corporations over the last 100 years. That is what happens when you support the rand model of deregulation and free movement of capital.

The coming century is going to be between the individual and the power of the corporation, and I have to tell you Timmy, that you are on the wrong side. Your Ivory tower naivety that some how a free market can create a utopia is just hooey.

The Rich elite want to keep a divided world of nation states that can be played off against each other for their own greedy aims. Socialism for the rich and free markets for the poor. Privatisation of profits and socialisation of costs has now been outsourced all over the globe for the benefit of the rich elite.

If Cadbury does not want to pay tax here then it can take it’s shit products out of the UK and try and sell them in it’s new tax haven.. Not much competition their from choc companies.

The whole of world tax law has to be re written to deal with this nonsense that some how you can move your head office out of a country but continue trading in that country is just laughable. All Cadbury executives must be made to sell up their houses and move with their wives and children to Switzerland. They must take their sprogs out of our private schools, and they must hand back their tickets to Wimbledon and their box at The Royal opera House , and so on. Instead the can go and live in one of the most boring countries on earth and their they can rot listening to the idiotic Cuckoo clocks.

“All Cadbury executives must be made to sell up their houses and move with their wives and children to Switzerland. They must take their sprogs out of our private schools, and they must hand back their tickets to Wimbledon and their box at The Royal opera House , and so on.”

Gosh, that’s just wonderful. So all BMW executives have to come and live in England if they want to sell cars here, do they? All Gazprom execs move out of Moscow if we want their gas? And, of course, if Rolls Royce wants to sell jet engines in the US everyone has to go and live there?

Timmy just can’t stop wanking for his masters.

@ Sally

Not much competition their from choc companies.

http://en.wikipedia.org/wiki/Swiss_chocolate

No doubt you’d rather have a fruit and nut…………..

Yes I am well aware of Swiss choc. I was being sarcastic.

They move their head office to Switzerland,, but not much of their product, no point.

It is not a Randian starve the beast race to the bottom. Apart from some nihilists on the fringes no one is disputing that the state has to raise revenue. What is the most efficient and least distorting form of revenue raising is the issue. Every time this issue comes up on here the same arguments are presented and pointed out that firms do not pay tax is not even a controversial view in economics. The only argument is who does bear the burden, but it ain’t corporations. Yet, some folks still want to imagine dodgy looking Mr Big characters stroking a white cat behind corporations.

We live in the internet era and billions of capital can be moved across continents with the click of a mouse. The best of luck if you want to fight it but you will lose. One can only hope that the penny eventually drops with lefties and they accept that the best way for the state to extract revenue in such a world is through a tax on economic rent. Efficient and unavoidable just like Adam Smith and Ricardo told us centuries ago.

“It is not a Randian starve the beast race to the bottom”

Oh yes it is.

“We live in the internet era and billions of capital can be moved across continents with the click of a mouse. The best of luck if you want to fight it but you will lose.”

Maybe, but the system has been designed by the global elite for their interests, not the people. If you don’t fight it you will get the Rand solution.

“Trying to match Switzerland, Ireland and others as low tax destinations in some race to the bottom will simply leave taxpayers poorer, and shareholders and corporate fat cats richer; hence the attraction of the current situation to those on the political right.”

The people of Switzerland are hardly poor despite low corporation taxes.

Once again when it comes to money the old progressives get all emotional and fail to understand the economics. They still want to tax the rich till the pips squeak… in spite of this being an economic own goal (i.e. it makes everybody poorer).

Tim Worstall makes perfectly valid points and then otherwise well meaning people who cant be bothered understanding the economics attempt to play the man rather than the ball. Pretty shabby show really.

It really illustrates the difficulty of reconciling economic policy with social policy. When an optimum economic policy is compromised for the sake of one groups special pleading then it gets compromised for the sake of every groups special pleading and soon you end up with a tax code that is so complex that avoidance is easy and evasion can even happen accidentally ( does this sound like the U.K. today?)

For this reason I consider a Flat Tax would be the most EFFECTIVE (not fairest) of all. This would mean that everyone would get a substantial chunk of money at zero base rate then everyone would pay say 20% on everything they earnt and 20% VAT on everything they spent….NO LOOPHOLES
All the N.I you pay would go into personal insurance accounts…anything you didn’t use would become part of your pension plan.
Corporation tax 20% Capital Gains 20% Dividends 20% etc etc
Any unfairness that resulted would be sorted out in the benefit system but I would say that the rate of benefit withdrawal should also be 20%.

The result would be ‘no need to run but nowhere to hide’ and would bring in a damn site more cash than the current system and would need fewer admin staff to run.

The only downside I can see is there would be mass unemployment amongst tax accountants!

“For this reason I consider a Flat Tax would be the most EFFECTIVE (not fairest) of all. ”

The level tax rates are set at are a complete red herring. I know they are the feature of the tax system that people are most familiar with, so it’s believed that they’re somehow terribly complicated and important. They’re not. They occupy, ooh, a page of legislation in a stack that weighs in at several kilos. You can set rates and make people and companies stick to them very easily. It’s just calculations. We could double the number of income tax bands and payroll agents would barely break their stride.

The way you arrive at a “no need to run but nowhere to hide” situation is by removing tax reliefs and allowances – the qualitative, not quantitative, rules which allow people to, say, offset a profit against a loss. Ultimately, if you wanted to be extreme about it, you could remove all of them – including the personal tax-free allowance, and tax-free ISA contributions. That clearly would be a bit extreme, so it’s a question of finding a level of tax avoidance that works for everybody.

Flat rates would have little impact other than to make payroll tasks even more boring than they are. People would still be avoiding tax through reliefs and allowances, just like they do now.

Offset a *loss* against a *profit*.

Tim W: And do note that secretaries in banks do indeed get paid vastly more than secretaries in manufacturing companies.

This amounts to the extent of your evidence? Sheesh.

The level tax rates are set at are a complete red herring. I know they are the feature of

I don’t consider that the level tax rates are set at as a ‘red herrings’. Levels and bands effect the incentive to work and invest. The higher the tax rate the greater the motivation for avoidance and the greater the profit from employing the specialists you need to engage in these schemes. The numbers are important and simplicity saves everyone effort, especially for those of us who are being taxed. (A tax scheme could even be so simple that companies could be freed from running PAYE schemes altogether)

Furthermore a key feature of flat tax systems is the absence of reliefs, loopholes and the like (pointed out above) the only allowance being the personal tax free allowance. This creates a wider tax base so the rate can be lower. Once again the numbers are important because the lower the numbers the less incentive there is to avoid tax. Hence no need to run but nowhere to hide. When that becomes the status quo then deviations from paying that simple low rate can be assumed to be evasion so it becomes self policing.

While I agree with the logic of what you say about ‘finding the level of tax avoidance that works for everybody’ being a reasonable objective for tweaking the present system, I disagree with your underlying assumption that the system is in fact fit for purpose. In practice it simply hasn’t worked. Billions are being lost at both ends of the scale (but particularly the top end where the motivation and opportunity for evasion or avoidance is the greatest). Even the Inland Revenue make massive mistakes! By your own admission the legislation enabling the qualitative system that you refer to is now so complex that it runs to several kilos, so the argument that adding to it will improve the situation doesn’t hold water. In fact it reminds me of that cliche about people who do the same thing again and again and expect a different result.

The system hasn’t worked, it doesn’t work and it wont work. That means it’s time to try something new. That’s not extreme that’s logical. A simple broad based, low rate, flat tax system will be more effective and generate more cash than the system we have at the moment.

Professor Michael Hudson wrote a great article recently about taxes, and mentioned flat taxes as well, here’s a small extract from it.

—————————————————————————————————————-

Everyone would like to be free of taxes. But only the rich have sufficient wealth to “buy up Congress” to give themselves enough tax breaks to shift the cost of running government off their shoulders onto the rest of society – and while they’re at it, to make sure that the government uses its resources to make the rich even wealthier, again at the cost of stifling the economy below them.

This is the situation into which American society is now falling. And at the end of this road is a flat-tax dystopia. It not only ends progressive taxation, it frees from taxes altogether the kinds of income that the wealthy take – returns to financial wealth and property.

The danger the United States faces today is that the government debt crisis scheduled to hit Congress next spring (when Republicans are threatening to vote against raising the federal debt limit as the government deficit soars) will provide an opportunity for the wealthy to give a coup de grace on what is left of progressive taxation in this country. A flat tax on wage income and consumer sales would “free” the rentiers from taxes on their property – just the opposite of Keynes’s hoped-for “euthanasia of the rentier.”

Obviously, all governments have to levy taxes – that is, they have to tax somebody. But the super-rich would like this tax to be shifted off their shoulders onto those who have to work for a living. In diametric opposition to Adam Smith and other putative “founding fathers” of “free market” neoliberalism, the super-rich want to shift taxes off “free lunch” economic rent – off interest, dividends, rents and capital gains – onto wage-earners.

The 2000 Republican presidential primaries saw Steve Forbes run on a plank that would be the capstone of this tax shift off wealth: a “flat tax,” one that would do away with taxing the wealthy more than blue-collar labor. Mr. Forbes was laughed out of the presidential primaries for proposing this flat tax. It was promoted as being “tax simplification.” The problem was that it is so “simple” that it falls only on employees and their employers as a wage tax.

The details are much more regressive than seem at first glance. The flat tax actually would tax wage earners much more steeply than the wealthy, whose income it would largely exempt! The flat tax is supposed to fall on employment, not returns to wealth. Employees and their employers would pay the tax, as they pay today’s 12.4% FICA paycheck withholding, but the flat tax would not be levied on financial and property income.

The flat tax is supposed to be accompanied by a European-style regressive value-added tax (VAT). By taxing “value,” it essentially falls on labor – as in “the labor theory of value.” The tax does not fall on “empty” pricing in excess of value – what the classical economists termed “economic rent,” that element of price (and income) that has no counterpart in actual cost of production (ultimately reducible to labor) but is a pure free lunch: land rent, monopoly rent, interest and other financial fees, and insurance premiums. This economic rent is the major return to wealth. It is grounded in the finance, insurance and real estate (FIRE) sector.

http://michael-hudson.com/2010/11/schemes-of-the-rich-and-greedy/

——————————————————————————————————————-

“Furthermore a key feature of flat tax systems is the absence of reliefs, loopholes and the like (pointed out above) the only allowance being the personal tax free allowance”

But that’s a bit like saying “a feature of these scissors is that they’re pink, hence they will cut through things”. No, they’ll cut through things because they’re scissors. Their colour is neither here nor there. You wouldn’t need to have a flat tax rate to remove tax reliefs and allowances. You’d just remove the tax reliefs and allowances. (I say *just* – obviously it would be quite a long process, but in principle a full scale review is perfectly possible).

Given that, I don’t really understand this:

“By your own admission the legislation enabling the qualitative system that you refer to is now so complex that it runs to several kilos, so the argument that adding to it will improve the situation doesn’t hold water. ”

But I’m talking about reducing it. A few sections of any tax act typically set out the rates and the basic conditions under which tax is due – then reams follow in which all the exceptions and allowances are detailed. The real saving is in removing the legislation dealing with those, not the rates.

Along the same lines, I think your point about tax rates reducing incentives for avoidance *could* be a good one, if we were envisaging a situation where there would still be significant opportunities for avoidance. But clearly I’m envisaging something different.

(If it helps, I’m all in favour of aligning tax bands – ie bringing CGT bands back into line with income tax bands, which would indeed reduce redesignation of one type as the other. But again, the rate doesn’t have to be a single rate for that to happen.)

Some of the exchanges above amply demonstrate the problem many “ordinary” people (i.e. those who don’t know the minitiae of tax policy and macro-economics, but end up being the milch cows paying the bulk of taxes) have with this whole issue. There is no consensus about what the right answer is, or how we should tackle corporate tax avoidance.

What there IS however is real anger that, whilst the experts continue to argue how many angels can dance on the head of a pin, the current system (however imperfect) allows large corporations to avoid their social responsibilities. In the end of course, we are never likely to have either the flat tax extreme proposed by people like Tim Worstall, or some progressive utopia; as Alix said @29 the best we can probably come up with pro tem is “finding a level of tax avoidance that works for everybody.”

Such a working level DOES NOT consist of large companies like Cadbury’s and Boots who used to pay hundreds of millions of tax to the UK exchequer, reducing this to piffling amounts by the simple expedient of moving their HQ to Ruritania. Absent some total overhaul of the tax system (which whilst possible, isn’t going to happen anytime soon) companies need to understand that they have to pay their share. If they aren’t going to do it via corporate tax on their profits, it needs to come from somewhere else.

It just isn’t good enough to trot out the tired old “oh, companies don’t pay taxes, people pay them in lower wages and increased costs for goods” mantra. In the here and now, the “real” world, Boots, Cadbury et al don’t suddenly start reducing their prices to consumers, paying their staff more and increasing dividends when they avoid hundreds of millions of corporate tax. We all know they spend it on bonuses for fat cats, marble fountains for the atrium of their HQ, possibly some increase in dividends.

As Prof. Hudson notes in Jacob’s post @33, this is really about one thing…..and it’s NOT the progressives trying to soak the rich, it IS about “the super-rich want to shift taxes off “free lunch” economic rent – off interest, dividends, rents and capital gains – onto wage-earners.”

Professor Michael Hudson wrote a great article recently about taxes, and mentioned flat taxes as well, here’s a small extract from it.

I think it is clear that a key feature of the system I am recommending (and flat tax as it has always been known) is the absence of loopholes and reliefs and its extension across all classes of income. This makes it significantly different from the Forbes proposal that Hudson critiques ( Forbes perversion of it clearly being a straw man for Hudson). The fact that it extends across all income classes particularly into the territories that the rich and super rich favour for avoidance makes it more progressive than the system at present which leaves wide areas for avoidance.

The argument that Hudson makes against VAT is also conveniently one sided. Value is not strictly related to the labour that has gone into a product. In fact for most products (and many services) in the modern economy the value added by labour is contingent on many other factors such as premises, equipment, capital, entrepreneurship. The labour theory of value belongs to another era.

On balance I don’t think the excerpt you have presented is representative of a ‘great’ article.

But that’s a bit like saying “a feature of these scissors is that they’re pink, hence they will cut through things”

I think your analogy is incorrect. Correctly paraphrased it might read ‘a feature of these scissors is that they are long so they will cut through many things’. As with products, features of a tax system may/should work in synergy with each other, such as long sharp scissors made of toughened steel for arguments sake (would you care to create a similar analogy for our current tax system?). So broad based, low rate, flat tax and simplicity all work together and mutually reinforce each other.

It would certainly be possible to create a similar system with progressive bands but it wouldn’t last for long. I reiterate the argument I set out above…

‘It really illustrates the difficulty of reconciling economic policy with social policy. When an optimum economic policy is compromised for the sake of one groups special pleading then it gets compromised for the sake of every groups special pleading and soon you end up with a tax code that is so complex that avoidance is easy and evasion can even happen accidentally ( does this sound like the U.K. today?)’

So yes, it really helps for the system to be flat, broad and simple. That way if you are voting for a tax increase / decrease you are voting for it for everyone, not just for yourself or the special interest group that you have in mind. This means that it is in your enlightened self interest to think nationally rather than parochially.

As an aside I think it would be very interesting to see how such a tax system would effect the politics of the country and even the mentality of the country as a whole. One of the most dispiriting aspects of this country is how politicians divide us in terms of class and so many people seem to vote on the basis of ingrained antipathy’s based largely on class. It seems to be getting us precisely nowhere.

I can only repeat, tax rates and reliefs/allowances have got nothing to do with each other. You’re associating them in your flat tax system – fine, you do that. But they are not interdependent. The argument about “simplicity” doesn’t work because there’s just nothing complicated about tax rates in the first place. Gordon Brown tried this get-out clause when he pretended getting rid of the 10% band was “simplifying” – it’s utter nonsense. Almost nothing could have been simpler about the tax system than the 10% band.

Your argument:

“When an optimum economic policy is compromised for the sake of one groups special pleading then it gets compromised for the sake of every groups special pleading”

is an argument against having different rates across taxes (ie CGT having different bands to income tax) not against having different rates within one tax.

For all the talk of closing loopholes and flattening taxes, it’s worth pointing out that none of the three companies complained of here (Vodafone, Arcadia and Cadburys) are really using loopholes.

Cadbury’s are re-basing their headquarters altogether, Vodafone have a European subsidiary and Arcadia are owned by a foreigner (damned dirty trick that). There is literally nothing that the UK can do to its tax laws that can prevent any of these things from being done.

The first two are impossible to stop because they exploit the freedom of movement of capital that is the foundation stone of the European Union. It’s not an arcane Directive no. 1357/2007 – it’s the basis of the entire project. Freedom of movement for goods, people and capital.

Arcadia’s the silliest of all. Its owner isn’t British, and doesn’t live in Britain. What do you want to do? It pays corporation tax, because the company itself is based in Britain, but the money paid to its owners is subject to normal taxation. Seriously, what’s your solution to this? Decide that, even though legally it is owned by Christina Green morally it ought to be owned by her husband because, you know, she’s a girl?

“It’s not fair” really isn’t a policy.

39. Chaise Guevara

@ 2 “This story actually demonstrates the danger of high taxes and excessive red tape.”

Nah. It’s about the Daily Mail complaining about tax avoidance. Read it again and you’ll see I’m right.

40. Luis Enrique

Sunny

This amounts to the extent of your evidence

.

no, this does.

please please do not get into a fruitless argument trying to deny the reality of tax incidence, because even if you never concede the point you will lose in the eyes of anybody paying attention. As Tim says, he has people like Joe Stiglitz on his side. Do you imagine you’d win an argument with him on this point?

rather accept the fact – because it’s true – that ultimately corporations don’t pay taxes, because those taxes translate into some combination of lower dividends, lower wages or higher prices. Note that higher prices equal lower real wages. You can argue the toss over the extent to which its shareholders (capitalists) or workers that bear the costs of corporate taxes, but don’t try to argue it’s just shareholders.

However, you can look at corporate taxes as a means of extracting taxes from the nexus of economic activity that is a profitable corporation (and hence a means of imposing taxation on the shareholders/workers/customers of profitable corporations) and then you can say that for various reasons our democratic political system has elected to raise some tax revenues in this fashion, and that we damn well want to prevent corporations from using the law to evade such taxes.

You don’t have to be hostile towards ‘tax incidence’ arguments because – and Tim doesn’t emphasize this enough – the level of taxation we wish to extract from the economy is (more or less) independent of the means via which we do it, and every tax has some ‘incidence’ hence pointing this out is not an argument against any particular form of tax. i.e. it’s not as if anybody could argue “against” corporate taxes on the basis that they just impose costs on workers, because if we were using corporate taxes, we’d have to use some other tax that also imposes costs on workers to raise the desired revenue. In fact because corporate taxes probably impose some costs on shareholders, they might be a reasonably desirable means of raising taxes.

of course anybody wanting to learn more about taxation should read this:

http://www.ifs.org.uk/mirrleesReview

and in the meantime, don’t waste time arguing with Tim on this point. It’s a red herring.

41. Luis Enrique

damn – there’s a were where there should be a weren’t in sentence starting i.e.

Tim J @ 38

.. even though legally it is owned by Christina Green morally it ought to be owned by her husband because, you know, she’s a girl?

OK, whilst I’m generally not in favour of trying to make South African women who live in Monaco pay UK tax, I would like to know how Mrs Green came to be the owner of the company. Was she the original investor? Or did her hubby transfer the ownership of a company/brands that he had developed by the sweat of his own brow to her because he could see some tax advantages in doing so.

If the latter, is it really beyond the wit of chancellors to devise rules that make such moves somewhat less tempting?

“This amounts to the extent of your evidence? Sheesh.”

Do look up Sunny. I’ve pointed you towards textbook entries and a solid research papers on the subject.

It’s a piece of evidence though isn’t it?

I have to admit that this is one of the things that so bugs me about you Sunny. I know you’re not dumb but you sure manage to play it sometimes.

Yes, I know you want to change the world, are having great fun as a political activist and are carving a name for yourself.

Great, good luck to you.

I also know that this companies paying tax (or not) is a great political tool for you at present, the Vodafone and Topshop occupations etc. Super.

But before you change the world it would be useful for you to understand it as it is now. It simply is true that corporation tax, in an open economy, is largely carried as an economic burden by the workers in the form of lower wages. It simply is true that, whatever we might say about progressiveness or fairness, that capital and corporate taxes are the least efficient taxes.

This is why, just as an example, those famously social democratic Nordic countries have low corporate and capital taxes and high consumption taxes: that’s how you get the revenue to run a large State and yet also leave room for economic growth.

For political activism should be about more than just getting the yoof out demonstrating on the streets. There also needs to be a plan, a goal, for what the new system will or should be. Something which requires understanding how the nuts and bolts of the alternative systems work.

So what is it that you actually want? You want the corporations to stop breaking the tax law? Given that none of them are going to jail that seems to have been achieved already. You want them to be paying more tax? OK…but you do need to understand that in the long term this lowers the workers wages (because it lowers future growth). It ain’t free money I’m afraid.

This is the bit I don’t understand about you. You’re pretty good at the activism thing: but where is your consideration of what it is that you’re activating for? And how can you make such consideration without understanding how the current system and it’s alternatives work or don’t work?

44. Luis Enrique

You want them to be paying more tax? OK…but you do need to understand that in the long term this lowers the workers wages (because it lowers future growth). It ain’t free money I’m afraid.

Tim Worstall tut tut you don’t have the evidence to back that up – please refer to say data on percentage of US tax revenues from corporate sources and data on growth of US median real wages etc.

I’d agree everyone – especially left-wing activists – ought to think about how different ways of raising taxation, and the level of taxation we choose, affects growth. But the world is too complicated for a simple claim of “higher corporate taxes equals lower growth” to be stated as fact.

“and Tim doesn’t emphasize this enough – the level of taxation we wish to extract from the economy is (more or less) independent of the means via which we do it, and every tax has some ‘incidence’ hence pointing this out is not an argument against any particular form of tax.”

That’s in the second part of the argument: that while all taxes have deadweight costs certain types have more than others. We thus have lower deadweight costs by aiming our tax system at certain forms of incomes rather than others. A land valuetax, as an example, has the lowest deadweight costs and should thus be the cornerstone of any such system (that it usefully taxes economic rents is also a very good thing. The Duke of Westminster would be by far the largest taxpayer undersuch a system).

“i.e. it’s not as if anybody could argue “against” corporate taxes on the basis that they just impose costs on workers, because if we were using corporate taxes, we’d have to use some other tax that also imposes costs on workers to raise the desired revenue. In fact because corporate taxes probably impose some costs on shareholders, they might be a reasonably desirable means of raising taxes.”

And this is implicit. Part of the argument from R. Murphy et al is that corporation tax is a tax upon capital and thus progressive: but if it is largely a tax upon the wages of the workers then it isn’t progressive and so not desirable for that particular reason.

Indeed, the implication of Stiglitz’ work is that the incidence is greater than 100% on workers: that the workers would be better off is there was no corporation tax at all and all the money was raised through the income tax system.

So we get a “but we can’t get rid of corporation tax because the workers will have to pay more” faced with a “but the workers already pay it anyway”…..

“Tim Worstall tut tut you don’t have the evidence to back that up”

We do have that evidence: OECD on deadweight cost of different forms of taxation:

http://freethinkingeconomist.com/2010/03/25/while-i-do-hate-the-argument-from-authority/

47. Luis Enrique

Tim

we could play cross country regression tennis, but let’s not. I’m sticking to my claim the case is not proven.

I’ve just returned to this thread to look at the state of current debate. One thing that is crystal clear is the likes of Tim W who really believe that the left think that it is corporations/companies who pay tax and not the workers through lower wages.
Now whose being naive?

43 Tim

“You want them [corporations] to be paying more tax? OK…but you do need to understand that in the long term this lowers the workers wages (because it lowers future growth). It ain’t free money I’m afraid.”

The issue “now” is how we move from the current situation, to a “better” situation then?

Leaving aside the ideological “which end do you open your egg” issues, and the various schools of thought (yes, I know the dismal science excites some of you… but bear in mind it leaves most people cold), there is something of a credibility gap here.

Tax avoidance is a real problem. The “gap” in revenues caused by legal tax avoidance is, at least in the short to medium term only going to be made up one way: the workers will bear the cost. The bright sunny uplands you keep referrring to aren’t going to be reached in a hurry by corporations selflessly lowering their prices, paying their staff more, and creating more wealth for the good of all. I’m not saying it won’t ever happen… just that it isn’t going to happen in the necessary timescales.

None of the posters above who are in favour or reducing corporate taxation have addressed this issue as far as I can see; the current system depends on a sizeable “take” from companies. How do we structure a system which ensures the same, or even more, tax revenue without the burden falling disproprtionately on the less well off?

“Tax avoidance is a real problem. The “gap” in revenues caused by legal tax avoidance is, at least in the short to medium term only going to be made up one way: the workers will bear the cost. ”

Well, no it isn’t really a problem at all. Because, much though we might like to say it, while politicians can be pretty dumb at times the economists in the Treasury aren’t quite so.

Absolutely everyone knows when setting a tax rate that there will be both avoidance and evasion of that tax rate. Some people will legally structure their activities so that the tax isn’t legally payable: others will head off into the grey/black economies and just hope they don’t get caught. Yet others will just stop doing whatever it is that is being taxed.

So when tax rates are set, when revenues are projected, they already take into account that it’s not going to be a straight line gain.

Imagine, some spurious numbers. There’s £100 of corporate profits in the economy, 30% tax rate: we get £30 in taxes (assuming already that everyone is coughing up). So, we put the rate to 40%. Do we therefore pencil in that we’re going to get £40?

No, we absolutely don’t. We might pencil in £39.60, might be £38, but we absolutely do not assume that a change in the tax rate is going to give us a straight line rise (or if we’re cutting taxes, a fall in) revenues.

So, all these calculations of what the tax gap is (especially R. Murphy’s, for reasons to tiresome to go into at present) are conceptually wrong. Because we’ve already acknowledged, in our calculations of what revenue will be raised by a certain tax structure, that there will always, inevitably, be a tax gap.

Even Murphy himself agrees with this: he doesn’t say that £120 billion of his £120 billion gap is collectable. His latest estimate was perhaps £20 billion I think.

The true tax gap would be subtract what we always thought would be collectable from what we think is the total tax gap: that’s the amount that might be collectable. A much smaller number than the headline one, as even Murphy agrees.

51. Luis Enrique

things are getting a bit mixed up.

1. tax incidence arguments don’t apply if we’re talking about a subset of companies avoiding a tax that other companies pay. These arguments apply when we are talking about taxes imposed on all companies. For simplicity’s sake, assume all manufacturers pay the same wage and charge same price. Now if a sub-set of manufacturers evades tax, they won’t raise their wage, they’ll raise their profits. Short run. Long-run we’d expect every manufacturer to evade the tax, or maybe evading firms to lower prices to gain market share, and then incidence arguments would start to bear.

2. on Tim & Galen’s latest exchange. a fixed level of tax avoidance may already have been taken into account by those setting tax rates, but a worsening level of tax avoidance, not fully anticipated by the revenue, does leave us with a tax gap (shortfall). At the margin, every corporation that switches from paying to not paying taxes leaves us short of tax revenue until offsetting tax rise is imposed elsewhere. Contrary-wise, every currently tax-evading corporation that is brought back into the fold and made to pay tax helps our fiscal position, until offsetting tax cuts are made. I like that direction better.

I did not think it would be long before the old chestnut ‘flat tax’ would be rolled out.

The idea that you just magically say “flat tax” and everything is solved is a joke. The people who push this, assume that the flat tax will be low. So people paying 40% tax now fancy a flat tax rate of 25%. But why not have a flat tax rate of 50% or 60%.?

As for corporations I propose a Tax to trade system. If you want to do business here you pay a tax to trade. You can relocate your head office to the moon for all I care but if you want to sell your wares here you have to pay the tax to trade fee. And that will be a % of your turnover.

51 Luis

Yes, you have put it more eruditely than I could! 😉

My (perhaps emotional and not very economically savvy) response to recent discussions on here, and in the blogosphere more generally, is that the real losers in the current scenario will (suprise, surprise!) be the perennial milch cow the poor bloody taxpayer, and of course those non-taxpayers whose services suddenly get cut.

Whilst Time and others may feel more sanguine about the “trickle down” effects of lowering corporate taxation, or flat rate taxes etc, etc, I’m more concerned about how we “plug the hole in the dyke”. Each one of these corporations heading off to Switzerland or Ireland represents tens or hundreds of millions of “lost” revenue, which has to be repalced from somewhere.

It simply isn’t good enough to say that in the general scheme of things it’s a self correcting system: the issue is too important to leave to the tender mercies of academic economists. Don’t forget, the only consistently accurate prediction made by an economist is that, in the long run, we are all dead.

I think one thing is clear from the above long-winded ‘sermons-on-the-tax-amounts’ – and that is that Economists – like politicians and priests – will never get us to the Big Society – or any other Utopian ideal. NO – we must accept that God intended us to be slaves of the Markets and the will of Corporate Global interests – challenge these omnipotent laws of the universe and we will lose. I reckon millions of us have lost already – not least the will to live after reading the tedious, demoralising and pedantic clap-trap above. You are welcome to your Dystopias-of-plenty but don’t inflict them on the unwilling majority just because it makes a very few – obscenely rich indeed. Whatever happened to the’still, sad music of humanity? – Did we tax it out of existence? Oh! – and while you are going round in ever increasingly self-satisfied circles, – how many angels can dance on the head of a pin? Now that’s really important.

Each one of these corporations heading off to Switzerland or Ireland represents tens or hundreds of millions of “lost” revenue, which has to be repalced from somewhere.

Well, quite. So the rational response is, how do we stop them? Can we do it legally – ie: make it impossible for them to leave? Answer – no, almost certainly not (at least in the cases specifically highlighted above, with tax evasion the answer is yes, so lets do it).

If we can’t do it legally, how do we stop them leaving? Persuade them that they should show social responsibility? Create a more congenial commercial atmosphere?

55 Tim

I know we’ve kinda gone round this buoy before, but I suppose the whole thrust of my argument is that yes, corporations do have a social responsibility to pay adequate amounts of tax. The fact that it is quite legal for them to use avoidance measures is no excuse; it doesn’t make it right.

Since we can’t make it impossible for them to leave, alternative measures must be found to ensure they fulfill their social responsibilites. I have little faith that they can be shamed into it, altho’ it is certainly worth a try.

The trouble with “creating a more genial atmosphere” as you call it, is that it is often free-marketeer code for beggaring your neighbour in a rush to the bottom a la Ireland and Switzerland. I’m not immune to the argument that you CAN actually reduce taxes and increase the total amount you take, nor even to the “high level” argument that corporate taxes are paid for by lower wages or higher prices.

My immediate concern is that the “gap” identified above is plugged in a way which is not socially corrosive. The danger of the current situation is that corporations get the benefit of tax avoidance, they don’t pass this on in a “public good” sense, and the burden of plugging the gap falls on those who can afford it least.

If they can be PERSUADED to show social responsibility, they have to be forced to do it: the means are open for debate, but I don’t see why they should simply be allowed to tell us to eat cake!

56 – We have been here before, you’re right – blame Sunny for writing so many versions of the same article!

But the problem is, if the state can’t legally stop someone from doing something, then you simply can’t force them not to do it without using illegal methods. And I’m generally opposed to that, because using illegal methods for moral ends is an incredibly dangerous trend.

57 – um. There are of course exceptions to the whole ‘illegal methods for moral ends’ point, but I think they really apply only when the state is itself fundamentally unjust. And I don’t think the UK qualifies.

57 & 58

Who said anything about illegality? You can “make” companies pay corporate taxes, so if there is really nothing to be done about the “gap” discussed above in terms of the current structure, then it is hardly outwith the ken of man to come up with another structure to ensure corporations behave as good “citizens”.

We expect them to behave as such in terms of protecting the environment, in health & safety etc., etc: all of these areas are covered by legislations to “force” them to do things they would otherwise try to avoid.

The same applies to the current situation WRT to the “collection gap” caused by legal (if immoral) tax avoidance. If we cannot use corporate taxation as a means to collect revenue, that contribution towards the general tax “take” has to come from elsewhere no? In the short to medium term, corporations cannot expect to simply be given a “get out of jail free” card, on the (questionable) grounds that they and the market will magically reduce the pices of the goods they produce, and increase workers wages, by more than the amount of corporate taxes being lost.

60. Luis Enrique

obviously because it’s directed at people like I’m likely to be a bit defensive, but I am baffled by comments like 54. What’s ‘smug’ in the forgoing? Why do people think that really trying to understand what’s going on in reality equates to discussing how many angels can fit on a pin head?

Luis,

Simply because having to try and understand the arguments and the evidence far too often leads to challenging dearly-held beliefs. Why else does Sunny just normally pick on one sentence from long posts and try to refute them by responding to that out of context? Why else does Sally insist on not engaging with what Tim W writes but rather assuming he is doing the business of the corporations (who she may be surprised to know generally favour the EU because of the opportunities that it gives them – exactly what Tim W was pointing out)? Thinking is difficult, and thinking about economics particularly so – there are too many ‘common-sense’ ideas that have to be overcome – and many people do not want to think, but to merely state their pre-decided ideas. And as with any form of ignorance, this is best supported by attacking the economic discussion as smugly intellectual (basically implying that, despite the debaters plain language, it is designed to cut out the uninitated) and irrelevant to everyday concerns. Maoism reincarnated effectively…

Don’t worry about it – some of us try to engage with what you say, and learn a lot from it.

62. Luis Enrique

thanks watchman

sorry for html fail

here’s a very interesting graph of US taxes over time

http://blogs.reuters.com/felix-salmon/2010/12/06/chart-of-the-day-u-s-taxes/

60 Luis

It’s always great if we can learn something, I think the general issue (without getting personal about individuals) is that in discussions about the dismal science some “afficionados” give the impression that they are more interested in the “angles dancing on the head of a pin” aspects of the argument than in “real life”.

Some others just enjoy looking intellectually superior and are absolutely convinced that their chosen “school” of though is ex cathdra, and therefore “correct”, rather than just one of many competing and often mutually exclusive interpretations…. and of course some of them have an ideological axe to grind.

Of COURSE many ordinary people who don’t understand the minutiae will impute the worst motives. Sometimes they will even be right. In its way however, that’s no worse than Watchman characterising such criticism as re-incarnated Maoism is it?

Galen 10,

To be fair I was merely comparing such criticisms to Maoism, because the same logic of excluding knowledge because it is not directly relevant (without study) underlies both.

Nasty rhetorical trick, but unfortunately accurate – if we choose to ignore those who study a field (we do not have to believe them…) then are we not imposing a form of cultural amnesia.

But I will admit I am shamelessly elitist – I tend to believe that it is a good idea to listen to expertise and to learn when you do not know. But my position is also based in a strong conviction that there should be no relevant knowledge ordinary people cannot understand if presented properly – and therefore the minuitae are not an issue. It is merely an issue (when reading an exchange between Tim W and Luis for example) of trying to understand, for the words are straightforward English and the links are illuminating. If you like, I see no reason the ordinary person you speak about should not be elitist as well…

64

I wasn’t having a go at you..I got the intent of the Maoist reference: I just reckon people tend to end up talking past each other on these kind of issues.

I actually agree with you that most things like this CAN be explained to yer average layman (still generally a dismal subject tho!).

I suppose what I tend to object to is people with an agenda insisting their snake oil is the only one which produces results, when we all know it ain’t necessarily so, and/or them conveniently forgetting the real issue (such as the “gap” discussed above) in their soi distant discussions of abstruse economic theory, in an ideologically driven attempt to show that none of us understand.

66. Luis Enrique

I’m sure there is an off-putting amount of argument over (seemingly) small points. It’s hard to resist that in a discussion about one’s specialist subject, but perhaps best left on other blogs than this. As for people’s motives (trying to look intellectually superior) well I do wonder what motivates me to comment. I hope it isn’t that.

Galen10,

It’s always great if we can learn something, I think the general issue (without getting personal about individuals) is that in discussions about the dismal science some “afficionados” give the impression that they are more interested in the “angles dancing on the head of a pin” aspects of the argument than in “real life”.

Some others just enjoy looking intellectually superior and are absolutely convinced that their chosen “school” of though is ex cathdra, and therefore “correct”, rather than just one of many competing and often mutually exclusive interpretations…. and of course some of them have an ideological axe to grind.

If tax incidence, for example, is “real life”, what on earth is wrong in talking about it? If tax incidence means that what some people want (companies to pay more tax) may not work in the way that they want, what on earth is wrong in pointing that out?

I read these threads because I feel I might learn something from the likes of Luis and Tim W. There are other people I’ve mentally killfiled because they’ve proved they are full of sound and fury signifying nothing. And I rarely participate because I know next to nothing about such topics.

Galen 10,

There is a duty on the average person to understand something about economics if they want effective government surely? Otherwise we’ll swing continually between low tax and occaisonal tax and spend governments with no particular logic.

I agree about people with an agenda, but that said, if the agenda is backed up by a willingness to debate and educate, then it is better than no discussion at all. And if there are others who are prepared to challenge the agenda, then that is where you get the interesting reading…

68

Agreed… but they don’t all have to have a detailed understanding of post endogenous growth theory either do they? 😉

Let’s not lose sight of the wood for the trees huh?

Tim

While I understand the logic of the argument for corporation profits being taxed at zero isn’t there a clear risk that businesses will be disinclined to make timely distributions of optimal levels of dividend to shareholders and would eventually just become giant reserves of untaxed cash (possibly even using that cash to buy up there own shares to keep their value up) if that were the case?.
Isn’t there a strong probability that the cash resource would then be used less optimally than if it were taxed at the same level as dividends. The argument being that the company’s untaxed profits don’t have to work as hard as the shareholders taxed dividends to make the same return. The optimal distribution policy for maximising the share price and the net present value of dividends for the shareholder under this scenario would then be to defer as much of the dividend pay out as possible for as long as possible.
Wouldn’t the result of this then be that a government would lose not just their corporation tax stream but also reduce the NPV of their dividend tax stream?

Sally

Sorry I don’t understand, what’s the point of having a high flat tax?. Because flat taxes are broad based and are levied evenly on all forms of income you don’t need taxes to be high to meet the overall tax requirements.

High taxes make evasion / avoidance of those taxes very profitable and will reduce your total tax take. For those who choose not to evade or avoid, high taxes become a serious disincentive to work, so your tax take still reduces even amongst honest citizens. Some people may think high taxes are ‘fair’ but they are very ineffective because they can actually reduce the cash paid into the system.

I suppose the flat tax level could be set at a rate that optimises the tax take but I guess that would be under the assumption that it is economically efficient to maximise the tax take, the premise underlying this being that the government will make better spending decisions on the last pound that they take away from you than you will yourself. At present I don’t believe that is correct.

Incidentally I do think that there are strong economic arguments for high tax and high social provision economies, and for significant increases in investment spending, but not if the spending follows either labour’s or the coalition’s preferred spending patterns. Both are too keen on dispensing cash on the emotive options that grab the headlines or keep their faithful happy rather than on investments that genuinely expand the economy or provide reasonable value for money to the broad range of taxpayers who support the provision of our insufferably poor services and infrastructure.

As a mixed economy the U.K. should be able to blend the best policies from the free market and socialist economic models to create an ideal economy. It seems that the reverse is true and we simply bounce from one extreme to another. When we actually get a government and civil service that are able to reconcile these two models then I would agree that then and only then is it time to optimise the tax take, until then I would be very sceptical about the government’s ability to spend my income better than I can.

There are massive long term investment opportunities (where government can be the only appropriate investor) to enhance innovation, effectiveness, efficiency and sustainability which would generate real increases in this country’s wealth which are going begging now and for the foreseeable future. I can only hope that one day we will get a government that is sufficiently strong and economically literate to make tough but intelligent long term choices.

Luis Enrique – The man in the irony-proof mask eh?

71 Leon

I have a lot of sympathy for the points in your posts. I’m not convinced that we are going to have “a government that is sufficiently strong and economically literate to make tough but intelligent long term choices” any time soon however 🙁

One only has to look at the appalling state of much of our infrastructure to see how effectively governments (both right and left) have dodged hard choices, failed to invest, and gone for the easy option. What is true of general infrastructure is true in so many other areas: defence, health services, education, social services…. it’s a long and shameful list.

I think this is spot on:

“Both are too keen on dispensing cash on the emotive options that grab the headlines or keep their faithful happy rather than on investments that genuinely expand the economy or provide reasonable value for money to the broad range of taxpayers who support the provision of our insufferably poor services and infrastructure.”

For too long now, decades in fact, the people have been misled by self-serving, spineless careerists whose chief aim is the attaining and maintaining power for its own sake. They know nothing, and learn nothing. We must of course shoulder the responsibility for the situation, as we continue to elect these incompetent second raters with monotonous regularity. They say that a people gets the representation it deserves, but I believe we deserve a whole lot better than what we have now, and have been subjected to over the past decades.

74. Luis Enrique

here’s an uncomfortable claim, with respect to motivation commenting, or rather a corollary of it:

“Gibson and Poposki said their findings raise many interesting questions for future research. One of these concerns narcissists, who have an ongoing desire to come across as highly intelligent. This could cause them to chronically underestimate other people’s intelligence, which might well contribute to their social difficulties. ”

http://bps-research-digest.blogspot.com/2010/12/trying-to-create-impression-can-alter.html

[72. you were being ironic?]

These companies do a substantial amount of business here. Might be better to tax all businesses on the basis of how much they make out of the uk consumer, so better to tax them at the point of sale and not later in the cycle. Would simplify things, and lead to price rises but supplty and demand would kick in companies would have to price according to level at which they could sell. So ramp up VAT? Would avoid having to chase them from haven to haven with endless changes to laws etc.


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    RT @libcon: Mail joins tax avoidance campaign; attacks Cadburys for loophole http://bit.ly/eTHydh

  15. Sallysjourney

    Cadburys tax avoidance too | Liberal Conspiracy http://t.co/4yEnvnd via @libcon

  16. tax break

    Mail attacks Cadburys for tax avoidance too | Liberal Conspiracy: RT @libcon: Mail joins tax avoidance campaign;… http://bit.ly/fIIdyw

  17. Jane Ayres

    RT @libcon Mail joins tax avoidance campaign; attacks Cadburys for loophole http://bit.ly/eTHydh < time to move to fairtrade full-time??

  18. The Most Odious Vice, or The Coalition’s Dangerous Hypocrisy « Bad Conscience

    […] people have a formidably capacity to sniff-out intolerable hypocrisy. When even the Daily Mail starts slamming tax-dodgers, a Government should watch out. Politicians can get away with a lot, but outrageous hypocrisy is […]

  19. C.W.Thomas

    "Mail attacks Cadburys for tax avoidance too" – http://is.gd/ifYC0

  20. Leo Vidal Consulting

    Mail attacks Cadburys for tax avoidance too | Liberal Conspiracy: If you want to run around shouting about taxat… http://bit.ly/em4DA2

  21. tamarisk

    RT @libcon: Mail attacks Cadburys for tax avoidance too http://bit.ly/eTHydh > go on! Put your money where your mouth is!

  22. Nicholas Stewart

    Mail attacks Cadburys for tax avoidance too http://j.mp/hm8YW9

  23. Prejudice and the Daily Mail « Better Nation

    […] that he’s staying at a recession-ignoring £16,000 a night hotel. Two weeks ago, they gave Kraft/Cadburys both barrels over their tax exile […]





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