UKuncut winning the ‘propaganda war’


10:29 am - December 19th 2010

by Sunny Hundal    


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The biggest day of protest against Tax Avoidance yet, yesterday’s “Payday” is once again all over the press.

Though there were some TV cameras around, broadcasters generally gave the protests a miss yesterday, instead focusing on ensuring their correspondents were caught somewhere in heavy snow to report on the weather.

Press coverage
The Observer today:

Protesters against corporate tax avoidance carried out their biggest day of action to date by targeting businesses in 55 towns and cities across the UK.

In Brighton, activists dressed as Santa Claus glued themselves to structures inside department store BHS to prevent themselves from being ejected. Protesters in London mounting a “disruptive tax dodger tour” claimed to have shut fashion chains Dorothy Perkins and Burton, both owned by Sir Philip Green’s Arcadia Group.

The Observer has another piece titled:
Big business goes on the defensive as tax protesters win the propaganda war

Mail on Sunday:

Sir Philip was yesterday on holiday in Barbados, where he was pictured enjoying the Caribbean sea with his daughter Chloe, 19, apparently unconcerned about the protests in Britain.

The family are spending Christmas and New Year at a £16,000-a-night villa at the exclusive Sandy Lane Hotel.

Arcadia is owned by Sir Philip’s wife Tina, who is resident in the tax haven of Monaco rather than the UK. In 2005 she was paid a £1.2 billion bonus, equivalent to £3.3 million a day.

It’s obvious where their sympathies lie too.

The Financial Times

The group, which organises using social networking tools such as Facebook and Twitter, is protesting against the government’s public sector cuts and what it says are widespread tax avoidance schemes by corporations and the wealthy that cost the exchequer up to £25bn per year.

Plus, the Daily Telegraph, Metro.co.uk and The BBC yesterday. A feature in Al-Jazeera too

A nice intro in The Independent yesterday too:

Its methods are unorthodox, ranging from targeted use of superglue to hijacking Twitter-based PR campaigns, and its rapidly growing support base spanning schoolchildren and pensioners has no official leadership.

But one thing about UK Uncut is certain: it is fast becoming one of Britain’s most effective and unpredictable protest movements.

As the chant went yesterday: “We are everywhere.”

A video from how the Topshop action in London unfolded

More videos: from Brighton (really well made) from Manchester and from Newcastle.

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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


Perhaps this is a sweeping statement, but judging from the age and accents of the protesters, there’s an awful of Daddy Girls and Mummy Boys in these groups. The kind of youth who thinks money grows on trees and have never had to want for anything (I know, I used to be one). Maybe once they cut the umbilical cord, get a job and have to pay some tax of their own they’ll realise why many people use every legal method they can to minimise their tax liabilities.

Until then though, I guess they can sleep soundly in their comfy parent-paid-for beds, knowing that all they succeeded in doing was annoying a lot of people who just wanted to do their Christmas shopping.

“Perhaps this is a sweeping statement”

It was more than that. It was a content free ad-hominem based upon nothing more than your own prejudices to hide the fact you can’t come up with an actual defence of tax avoidance beyond saying “everyone does it”.

Which is what they used to say about Drink Driving.

I’m not disputing the success of these protests under their own terms and I quite understand the importance of putting politicians under pressure on issues even if you don’t have a specific policy reform in mind.

All that said, I would be interested to know something about exactly what changes to the law protestors would like to see. I have not seen any legislative proposal that would, for example, stop things like Arcadia paying dividends to foreign resident shareholders or Vodafone establishing subsidiaries in low tax territories or Boots borrowing lots of money and seeing its tax bill cut as interest payments erase reported profits.

These protestor want something to change: I’d like to know what that change would be.

4. Laughing Gravy

This is another campaign that will go nowhere. Why? – because tax avoidance is legal. And as soon as the big companies get their PR act together and show how many jobs depend upon them, as going concerns, and the tax they do pay, the tide will turn. Incidentally, I am a tax avoider – I have an ISA.

Exactly #4

EVERY one/firm avoids tax one way or another. Most via clever accountants.

So who are the crooks? The companies that employ them, or the accountants who actively encourage these practices?

Protesters would then be better blockading these big accountancy firms.

#5

The point is that they are not crooks – tax avoidance is legal and everyone is entitled to minimise their tax within the law.
Protesters need to lobby parliament to change the law – although making Philip Green responsible for hi wife’s tax in another country might take some doing!

7. Daniel Factor

The protestors say that they have support from the public. One report claims that several people joined in with the protests on high streets.
I am not sure though how many people running the gauntlet of the Xmas shopping rush will appreciate the stores they want to get into being closed down and blockaded by middle class activists.

Also it seems that the protestors are only targetting stores that are used by the masses. I wonder how many of the swanky posh stores beloved by the middle/upper classes pay their taxes.

Yes tax avoidance is legal and so was slavery in the 18th century and apartheid in South Africa. Doing something which is legal but immoral is wrong and as long as there are greedy self serving politicians supporting it the disenfranchised will resort to the only action they can – take to the streets and protest.

Protesters would then be better blockading these big accountancy firms.

How about people with faux concern for the same issue organise a protest against the HMRC or accountacy firms themselves, instead of giving us advice?

3 Luis Enrique

I think the first step (hopefully a welcome one for most people on the progressive left I hope?) is to have brought the issue of corporate tax avoidance, and their lack of social responsibility, to the attention of the public. If this is done, the arguments trotted out from the right that this is all quite legal, part of the capitalist system, the only way to do it etc. etc….. will be seen for what they are; special pleading by those with a vested interest in continuing the current system.

The replacement for the current system could be a number of things…but it can hardly be outwith the ken of man (or indeed economists) to come up with a system which replaces corporation tax based on a % of profits with something different.

More and more people are, I think, coming round to the point of view that it cannot be morally right for companies making huge profits in the UK to pay trivial amounts of tax. If we ARE all supposed to be in this together, that should include the companies whose profits we provide.

It simply isn’t good enough to spout the usual free marketeering mantra that companies don’t pay taxes, the people do via higher prices, lower wages etc. The fact is that companies which legally avoid corporate taxes don’t suddenly increase the wages of their workers, or reduce their prices… they may increase their dividends, but 5 will get you 10 that the rest goes on bigger bonuses for fat cats, marble fountains for their corporate HQ’s, and huge payouts for the bosses.

#9

Exactly Sunny. Where are the hmrc & accountancy firm protests? If these aren’t protested against, then are we saying their practices are clean but those they allow/teach to avoid tax are bad?

Vodafone at al wouldn’t know about such hmrc loopholes without their accountancy firms, who get rewarded well for lessening their tax liabilities?

You can’t only focus on half the issue. What about individuals avoiding tax on things.like company cars.& benefits who owe the taxman much more than the 25bn these firms do! Tax man has been diddled out of some 200bn!

I don’t see it as part of the protester’s remit to form a workable policy, especially in an area as hideously complicated as corporate tax. High-street chains are selected because they’re high profile, immediate impact and infinitely easier to embarrass than accountancy firms (who’d probably regard protests against their successful tax avoidance work as the best possible form of advertising).

If the gains of tax avoidance for well-known firms now comes with the price of inconvenience and bad publicity, then more power to the UKuncut elbow.

13. Arthur Thistlewood

3: With regard to Vodafone, the HMRC system appears to have been working quite well until an *individual* decided to reach a low settlement. Had the negotiations been allowed to continue as normal the outcome may well have been better.

Otherwise, large states could do much more to stop tax havens – sorry, “tax efficient regimes” or whatever – from even existing. The appearance of action is noticeable in the last few years, but harder actions might make more of an impact. Why does the UK maintain a customs union with the Isle of Man? Or for that matter provide defense?

14. Luis Enrique

Sy

maybe you’re right. Still, it seems reasonable for somebody somewhere to be asking “right, exactly what can be done about this” and I’d like to learn about what that could be. We could leave it to the government to come up with something, and the protest movement could then decide whether it’s satisfied, and declare victory, or if not keep fighting. But it might be nice to hear from people who know what they’re on about (i.e. not the NEF) outside of the Conversative government about what could be done. Then, should actually workable ideas emerge, the protest movement would have something to point to and use to put the government under pressure.

15. Chaise Guevara

@1 Mark M

Have you ever stopped to think that the fact people disagree with you may not necessarily make them naive idiots?

Blah blah blah students don’t know anything blah blah blah anyone posher than me is automatically wrong blah blah blah the protesters would be arseholes too if they could afford it blah blah blah I’m better than everybody

Considering that these people are actually going out to fight for what they believe in while all you can do is make pointless ad-hom attacks, perhaps you should show them a little more respect.

#8
Morality is, by definition, subjective. i.e. slavery is, has and always was (in our view) immoral. In the view of the majority of people (non- slaves obviously) it was OK. You have decided that legal tax avoidance is immoral – it’s up to you and the protester to provide an alternative legal system that that which currently allows such avoidance.

Good luck with that! Especially trying to tax someone’s wife/husband/partner for their income in a foreign tax jurisdiction.

17. Chaise Guevara

@ 16

“Good luck with that! Especially trying to tax someone’s wife/husband/partner for their income in a foreign tax jurisdiction.”

But the income is FROM this jurisdiction. That’s what gives us both the moral right to complain and potentially the power to change things.

@17

Of course you can complain – you don’t need ‘moral right’ to complain. And you have always had the power to change tax legislation through Parliament. Oh and you need to consider EU rules on capital transfer etc.

Stopping my 80 year old relative getting their emergency prescription in Boots won’t actually help. (No – it didn’t happen – but it could have & then what would you say?)

Protest to your MP to get the law changed rather than accuse someone of a ‘moral crime’ when they are acting within the law as you will always loose that argument.

19. Luis Enrique

Chaise @17 you do realise that if we tax dividends paid to foreigners then foreigners will tax dividends paid to us. If your objective is to increase the revenues gathered by HMRC from dividends, that’s not obviously a clever move.

I am sure ghat anyone who had a vested interest in the slave trade would have thought it the right thing to do but those who didn’t would have felt it immoral and I’m pretty sure that the majority of people feel exploitation in any form is fundamentally wrong.
I have yet to find anyone who I have discussed tax avoidance with who supports the use of tax havens to avoid paying uk tax.
As far as protesting at HMRC, you may have trouble tracking them down. The whole property portfolio was sold off by the government to Mapeley in 1999 and then leased back by the UK government. These were buildings owned by the UK taxpayer and Mapeley is a company based in an offshore tax haven formed, initially for the purpose of the acquisition. You can apply your subjective morality to that and make up your own mind.

http://www.mapeley.com/aboutus/default.aspx

21. Chaise Guevara

@ 18 Max

“Of course you can complain – you don’t need ‘moral right’ to complain. And you have always had the power to change tax legislation through Parliament. Oh and you need to consider EU rules on capital transfer etc.”

By ‘right’ I meant more like ‘justification’ or maybe even ‘motive’. Bad wording I guess. I’m not saying you need to be able to prove that you have the right to protest before you do. Also, as our political system is rather more complex than “what the people want is what happens”, protesting is a valid corellary to voting.

I’m aware of possible complications due to EU rules, international treaties and general world politics. I’m floating the idea, not saying it would be a definite win.

“Stopping my 80 year old relative getting their emergency prescription in Boots won’t actually help. (No – it didn’t happen – but it could have & then what would you say?)”

As far as I’m aware, emergencies are dealt with by hospitals: that’s why they’re open 24/7 and Boots isn’t. However, if a sit-down protest looks like endangering people it should absolutely be relocated or otherwise changed.

“Protest to your MP to get the law changed rather than accuse someone of a ‘moral crime’ when they are acting within the law as you will always loose that argument.”

How so? It’s a point of opinion. You can’t lose the argument in absolute terms, and you can sway public opinion in real terms.

22. Chaise Guevara

@ Luis

“Chaise @17 you do realise that if we tax dividends paid to foreigners then foreigners will tax dividends paid to us. If your objective is to increase the revenues gathered by HMRC from dividends, that’s not obviously a clever move.”

Yes, absolutely. It would have to be carefully thought through (maybe it has been already and we’ve reached the right conclusions, but if so the government ought to explain that to the people at large). It may be a bad idea, I don’t know.

I am, by the way, talking about large personal payments rather than gathering a tithe from every single international payment. It’s about fairness, really: we shouldn’t be a tax haven for people from other countries any more than Jersey etc. should help people to dodge tax here.

To say someone should maximise their tax liability because it is the moral thing to do is pretty dumb. For one thing there are only customs and no moral absolutes. If I buy goods in Tesco because they are cheaper than Asda. Is it immoral for me to minimise the cost burden of the goods? It makes no sense to talk about firms and individuals minimising their tax liability in moral terms.

It’s not clear to me if protesters want a general change in the law or is it just specific to Mrs Green? Moreover, it is worth pointing out that making payments to foreigners is the inevitable result of having a current account deficit. The great British public are responsible for the current account deficit. Furthermore, the net asset position of the UK means foreigners own more UK assets than the UK owns foreign assets. However, pertinent to this issue is even though foreigners own more British assets the UK net income position is favourably positive to the UK. In other words, we with less assets earn more from foreigners than they earn from us. So, unless firms are breaking the law I do not see the point of protest. The protest should be directed against the government if you want them to change the law. Considering the real return to capital in the long-run will be constant no matter what the government does. Some other variable must change if they increased the tax on capital.

http://www.nuffield.ox.ac.uk/users/nickell/papers/TheUKCurrentAccountDeficitandAllThat.pdf

Luis has hit the nail on the head as usual.

What exactly do the protesters want to happen?

There is no way to make “tax avoidance” illegal since it is, by definition, based upon taking advantage of particular aspects of the rules as they currently stand .

I “avoid tax” by paying into a pension scheme.

Am I to be picketed?

25. Luis Enrique

I think it’s quite legitimate for people to let politicians know they’d like corporations to pay more tax* and it make sense to try to put politicians under pressure on an issue even if you don’t have a well thought out policy proposal, or even if your rhetoric isn’t really consistent or coherent.

But it would be useful to see some ideas about what could actually be done to bring about this desired state of affairs in which corporations pay more tax.

* even if corporations do not actually pay tax, because that’s not how people think.

24

Can I suggest that you are both missing the point?

The issue people have is not that what they are doing is illegal, it IS that what they are doing is immoral, or more exactly that it is reprehensible because it exhibits a lack of social responsibility. Of course companies, just like individuals, will try to minimise the taxes they pay in any legal way they can.

However, it is right that people should be asking companies like e.g. Boots searching questions. They recently reduced their corporate tax payment to the UK government by some £100 per year, by the perfectly legal expedient of moving their registered HQ to Switzerland.

In effect, this means that one company has produced a £500 million hole in public finances. Anyone who thinks Boots will be reducing their prices, or paying their staff more by a similar amount is deluded. It isn’t enough to say that there is some hazy general economic benefit to the UK as a whole for Boots to do better, pay more in dividends etc. How much of this “tax avoidance” money will actually make it’s way into the pockets of corporate fat cats, or be spent on prestige projects, senior staff bonuses etc., and how much will be ploughed back into the business?

If taxing corporate profits is “too difficult”, then let’s figure out something else. If we are all indeed “in this together” it simply isn’t good enough for companies making large profits, turning over billions of pounds, to expect to contribute nothing in place of corporation tax.

Even if we followed the Irish and Swiss example and slashed corporation tax, or even abolished it altogether, what would it actually gain us? Do you honestly believe companies would rush to reduce their prices, increase staff salaries, shareholders dividends and their research and development budgets…? Or would they blow it on speculation, ridiculous salaries for senior staff, and financing buyouts?

With regard to Vodafone, the HMRC system appears to have been working quite well until an *individual* decided to reach a low settlement.

Yeah, they’d only lost in the tribunal, in the high court at first instance and in the ECJ. Given a little more time they could have lost in the Appeal Court and then maybe the Supreme Court too. Private Eye is good at many things, but don’t use it as a specialist legal journal.

@24 is your pension fund in the form of a company created and registered in a low tax country with the sole purpose of receiving profits from a business conducted in a less favourable tax environment? Does it require artifical subsidiary companies to channel the money to its final destination? Does it operate on a loophole in legislation that was not foreseen by the legislators or was deliberately hidden from the public when creating the legislation? Does it require a team of massively paid accountants to identify the loophole? Do you pay or threaten politicians to keep the loophole open? Do you go to the minister or department and demand more favourable terms than those which apply to others?

Maybe once they cut the umbilical cord, get a job and have to pay some tax of their own they’ll realise why many people use every legal method they can to minimise their tax liabilities.

I’ve always found this view bizarre, tending towards pathologically insane.

When I’ve had the kind of jobs that involve paying lots of tax, I’ve been mostly delighted that someone wants to pay me enough money for me to have to pay lots of tax.

The very fact that you’re paying lots of tax *means that you have more than enough money to be comfortable*.

Tim J,

Private Eye is good at many things, but don’t use it as a specialist legal journal.

“Yebbut it agrees with me so it must be true and accurate.”

27 & 30

Many people would agree surely that Vodafone got of lightly in their “negotiated” settlement with HMRC? Even Vodafone itself had allocated a huge amount more in its accounts than it actually ended up paying.

Many people would agree surely that Vodafone got of lightly in their “negotiated” settlement with HMRC? Even Vodafone itself had allocated a huge amount more in its accounts than it actually ended up paying.

I’m sure people would say that – but then almost nobody has a clue what they’re talking about on this case. From a legal perspective it’s pretty clear that HMRC was technically in the ‘wrong’ in that the ECJ Cadbury-Schweppes ruling on CFC taxation is really pretty straightforward. HMRC *might* have won on public policy grounds in the Supreme Court, which is why it was prudent for Vodafone to set aside a reserve.

The £6bn figure is junk though.

“But it would be useful to see some ideas about what could actually be done to bring about this desired state of affairs in which corporations pay more tax.”

If companies know that tax avoidance will lead to them being targeted by protesters, having to close their stores on busy shopping days and getting reported unfavourably in the media (especially with the risk of top executives becoming national hate figures), then there comes a point when the benefits of tax avoidance are outweighed by the disadvantages.

If a company saves £20 million via tax avoidance, with no downside, then they would be daft not to. If the company loses £10 million in sales, has to spend £5 million extra in security and PR consultants, and their chief executive and family gets covered on their holidays in national newspapers as tax dodging scroungers, then some will take the decision to pay a bit more tax.

The best thing about these campaigns is that people are beginning to wake up to who really runs the world. Namely the corporate elites. The political class are nothing more than butlers to carry out their corporate masters orders. The corporate media devote pages and pages to watching the political class, but it is the corporations that need scrutiny.

It is the corporations who are the real enemies of the people. The corporate elites are the new court of Versailles.

Interesting point aboutt he legality of various tax avoidance activities, and we se the usual right-wing tatctic of deploring the “illegality” of the protests. History teaches us that every benefit any civilised society enjoys has been brought forward by “illegal” protest.

Cameron&Clegg say we are all in this together. What a pity they fail to understand that living in a bubble with their ultra rich friends blinds them to understanding the meaning of “together”.

Nice one. very young posse very inspiring. If this is kept up pressure will mount. Very well done

18. Max

Stopping my 80 year old relative getting their emergency prescription in Boots won’t actually help. (No – it didn’t happen – but it could have & then what would you say?)

Er, go to Lloyds Pharmacy, Superdrug or any other independent pharmacist on the high street instead?

BenM,

It is possible to have only one pharmacy in a town open on a Saturday – although I doubt the protesters would consider targetting shops in such small places.

Incidentally, anyone drawing a comparison between the level of immorality of slavery and that of tax avoidance may need their head examining. Not all moral wrongs are equal: slavery is clearly a crime against humanity, at the worst tax avoidance is a crime against the state, which is (sorry to say) not as bad as a crime against humanity; I have to question whether it is even that. A bit of perspective would be useful here – and don’t come out with the arguments about the good that the money could do for people in the hands of government, because unless you are planning on following that argument to its logical conclusion and having government control all money, your position is logically incoherent.

very young posse?

what does that mean??

40. Luis Enrique

don @33

yes, it may be that firms will try to avoid doing things that will attract negative attention from protesters. Doesn’t strike me as a long run solution and still leaves me interested in getting a bits of meat on the bone of what might be changed.

40

To start the ball rolling then:

1. There should be a General Anti-Avoidance Rule;

2. Tax arbitrage should be tackled by increasing multi-lateral steps to harmonise taxes and avoid companies trying to play one state off against another;

3. simplify the tax system to make avoidance less attractive;

4. crack down on off shore tax havens

All of the above floated by one Vince Cable in the Grauniad in Feb. 2009 I believe!

http://www.guardian.co.uk/commentisfree/2009/feb/03/vince-cable-tax-revenue

An anti-avoidance rule – genius!

Bearing in mind that all avoidance is in line with the letter of the rules, who will decide what is “legitimate” avoidance and what isn’t, and on what grounds?

43. Luis Enrique

Galen

yes, if I had to propose some changes, top of my list would I think be tax harmonization across countries combined with sanctions and other impediments against non-cooperating territories and firms based for tax purposes therein. The basic idea is to remove the incentive to piss about relocating for tax reasons. But this would require a lot of international cooperation. Hard to achieve.

It’s nice to imagine all EU countries charging anybody who wants to enter from or exit to Monaco £100k, or similar.

An other option is to drop UK corporation tax to close to zero and compensate with taxes that hit the rich but in a way that doesn’t just see the rich buggering off. See Chris Dillow today.

Always said the Mail could be a very powerful force for good.

BenM @ #37

To continue the fictional story as you clearly don’t get the point.

She’d dropped the prescription off the day before as it is for a relatively rare drug which Boots can supply within 24 hrs – only to find her access to the Pharmacy blocked by people protesting about something.

She’d seen the same protesters talking on TV about ‘freedom of movement’ or some such thing which they said was a ‘human right’. Didn’t apply to her, obviously as the protesters had decided she wasn’t going anywhere ‘ for the greater good’

See the last Private Eye for more on the queue of mega rich companies demanding (and being given) their own Vodafone style handouts. Todays’ Eye has details on HSBC using Holland to dodge UK tax

42

I’m not saying that a GAAR is the only answer, or even that it is the best. It may however be one tool in a toolbox of measures to deal with the growing problem of corporate tax avoidance, and how to make up for the loss of potential revenue it represents.

Absent some revolution in the current system, which hardly seems likely, it is hardly outwith the ken of man to use such a measure. It may not be perfect, but it IS used in other jurisdictions.

As to who will decide what is legitimate, and on what grounds, it would be down to the authorities of course; if those affected felt the decisions were wrong, then they would be able to challenge them and potentially have them overturned.

@43 indeed

Here are two relevant Dillow posts.

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2010/12/what-should-be-the-tax-base.html

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2010/04/corporate-tax-incidence-some-evidence.html

From the latter (where you can also find the relevant links):

“A study of European countries finds that, in the long-run, 92% of any rise in corporation tax falls upon wages.”

“It‘s well-established that higher (pdf) profits lead to higher wages.”

But let’s not allow the evidence to get in the way.

(I know Dillow is only quoted when it suits – bit like the CBI !!)

48

Look, we ALWAYS get the same response when it comes to questions about corporation tax: companies don’t pay taxes, people do via higher prices, lower wages etc. That’s fair enough, I accept that may indeed be the case, and that having a rate which is too high could actually lead to a lower amount being “taken” in total, as companies go elsewhere etc.

My big issue, is that what we are talking about is the here and now, not abstruse economic theory in idealised conditions. The issue we have NOW is that we are dependent for a large chunk of money coming in from corporation tax on profits. Whilst we can look at ways of changing the balance, it isn’t going to happen overnight, and in the meantime there is a “gap”.

Nobody has yet been able to show me that all these companies using legal tax avoidance measures to avoid their social responsibilities, are using their savings to reduce prices or increase staff wages foe example.

Might that be do you think because it just isn’t happening?

It’s nothing to do with “theory”, abstruse or otherwise.
Though on that point surely It’s blindingly obvious that “companies” cannot pay tax – only people (in the end) can pay tax.
It’s to do with the *evidence* as to where – over time, and on average – the burden falls.
Which has nothing to do with companies moving, just who ends up paying the tax.
Owners, workers or customers.

I have no idea why you would want to ignore the evidence that, over time, it’s the workers not the owners.

And given the jaundiced view you guys have about companies, surely that shouldn’t surprise you?!

51. Luis Enrique

Galen

tax incidence is not abstruse economic theory under idealised conditions, it is about the here and now. You say “nobody is able to show me …” but there are often links supplied to empirical research that finds evidence for tax incidence from wage and price data. It does happen in the real world.

But there is a difference between long-run and short-run effects. A lot of this evidence comes from looking across countries with different corporate tax rates, over time. A lot of the theory and evidence on tax incidence is about open economies and mobile capital, and results from firm investment decisions responding to tax rates in different countries.

This is all quite consistent with the idea that if a company finds away of avoiding a chunk of its tax liabilities, it simply enjoys higher post-tax earnings to the tune of that sum, and may perhaps reward its directors with buckets of cash. Nobody expects Vodafone to simply decide to raise its wages the moment it saves £Xbn on tax. It is also consistent with the idea that if tax rates were equalized across countries then tax incidence effects would look different (because then investment differentials wouldn’t emerge between countries because of tax).

50

I’m not denying evidence… I’ve already said that I accept that over time, companies will build in the costs of paying taxes into their prices, or offset them by not paying their workers more and/or reducing dividends which negatively impacts growth, etc. etc.

The telling aspect of your response is “over time”, no?

You, and the many others who constantly use this line always baulk at answering the obvious question. In the here and now, not “over time” where is the evidence that Boots (just as one example), has used the roughly £100 million a year it has saved in corporation taxes to reduce it’s prices, increase the wages of staff, or increase dividends?

53. Luis Enrique

But Galen,

why ask people who think something happens slowly for evidence it is happening instantly? why should left-wingers only be concerned about effects on wages and prices that happen instantly and not worry about things that take a few years to emerge?

also, you cannot really find evidence by looking a single firm because wages and prices change all the time – what’s the counterfactual? You need data with variation in taxes across comparable units, or something similar (roughly speaking), to identify the effects of taxation.

So because these effects occur over time and not immediately they should be ignored?

53 Luis

I’m NOT saying that… I was merely using Boots as an example, as their case caught my attention in a recent Radio 4 programme, lol.

I take your point about things taking time, and even cjcj’s about the general point. I guess what I’m trying to say (none too clearly it seems, as for me and many others I expect these areas are pretty abstruse!).

What I find hard to accept is that corporate tax avoidance is not new. We aren’t likely to see the system change in a hurry. In the meantime, therefore there is a “gap” caused by this type of avoidance, and that is a problem since we all know who is going to pay the difference don’t we? That’s right, the poor bloody PAYE, VAT paying, squeezed in the middle taxpayers.

In the meantime, we keep getting told by you, and cjcj etc to understand that we pay it anyway via higher prices, lower wages, reduced dividends.

OK, fine. What I am questioning is whether all this money companies are saving by avoiding taxes on their profits will result in these things happening…. and I just don’t buy it sorry.

54 cjcj

“So because these effects occur over time and not immediately they should be ignored?”

No, again that isn’t what I’m saying. If (and I think it is likely to prove a big if) these wondrous benefits of not paying corporate taxes “trickle down” to the poor benighted taxpayers, that’s all well and good. BUT, in the meantime those same taxpayers will be paying for the “gap” left in the tax take now won’t they?

Boots is only one example, but their avoidance of £100 million a year quickly adds up to the kind of amounts that would mean many of the proposed cuts would not be necessary.

What you are effectively saying is that we should be willing to accept this tax avoidance in return for the promise that it will be offset at some future date by companies reducing prices, increasing wages and paying higher dividends.

Jam tomorrow anyone?

Jam tomorrow – indeed. The long run impact of a policy is rather an important consideration, is it not?

From the second of the Dillow papers:

“The paper suggests a new test for rent-sharing in the U.S. labor market. Using an unbalanced panel from the manufacturing sector, it shows that a rise in a sector’s profitability leads after some years to an increase in the long-run level of wages in that sector. The paper controls for workers’ characteristics, for industry fixed-effects, and for unionism. Lester’s range of wages is estimated, for rent-sharing reasons alone, at approximately 24 per cent of the mean wage.”

From the first:

“Moreover, there is now a considerable body of empirical literature that presents
evidence of strong positive correlations between different measures of profitability
and wages, using different econometrics methods. This is a finding that strengthens
the view that rent sharing is an important component of the functioning of labour markets.
By “rent sharing” one is therefore referring to a situation in which rents (profits
above the level that results from paying all factors their market rates) are shared by
the firm, at least in some part, with the employees of that firm.”

What you are effectively saying is that we should be willing to accept this tax avoidance in return for the promise that it will be offset at some future date by companies reducing prices, increasing wages and paying higher dividends.

It’s actually a conflation of two arguments isn’t it? The first is on avoidance generally – since tax avoidance is essentially legally paying less tax than the notional maximum, there is no real way to prevent it. The problem with the UKUncut campaign is that none (none) of the cases they have highlighted are possible to prevent. The CFC rules are almost certainly contrary to EU law (and are being changed as a result). You can’t levy British income tax on a non-UK resident non-British citizen who holds shares in a non-British company.

You can, of course, mitigate tax avoidance by reducing the advantages in doing it. The easiest way to do this is to reduce rates and simplify codes – a process which ought to be more or less revenue neutral. Always bear in mind that individuals and corporations both have the ultimate act of avoidance in the locker – leaving.

The second point is that when people say it’s not fair that companies don’t pay more tax, the answer is that companies don’t pay tax at all. This is one of those things that is counter-intuitive, but no longer really open to debate. And if taxes levied on companies are lower, then companies will have more money, either to spend on wages or investment or to disburse as dividends. It won’t go to large Scrooge McDuck vaults where the directors dive in after a hard week.

59. Luis Enrique

Galen,

this discussions can get a bit muddled, sorry. For my part, I’m not saying we should accept tax avoidance in expectation of higher wages or lower prices. I would merely argue that any left-winger, when thinking about tax policy, needs to think about tax incidence and I think, as that recent Dillow post argues, focus their minds on the ultimate end of who is better or worse off because of the tax and don’t stop the analysis at the point of which legal entities notionally pay it. But as I’ve said elsewhere, this isn’t just a point about taxing corporations – all taxes have incidence of some sort. The argument is not “don’t tax corporations because of the incidence” because you could say that about any tax. And I agree with you that our current tax rates and government budget are set based on expecting to get £X tax from corporations, and we don’t want to see them finding ways to evade those taxes. Separately, we may want to redesign the tax system (see Mirrlees Report) but that’s a different argument.

60. Luis Enrique

The second point is that when people say it’s not fair that companies don’t pay more tax, the answer is that companies don’t pay tax at all

much as I agree with that, you can (generously) translate the complaint “it’s not fair that companies don’t pay more tax” into something more accurate (if not like anything any ordinary person would ever think) such as “it’s not fair that the nexus of economic activity represented by a profitable company isn’t taxed more” which doesn’t include that claim that “companies pay tax”. After all, if you think imports ought to be taxed, it’s not because you think the import itself pays the tax. You can regard statements about companies paying tax in the same way, even if you think that people who say them are guilty of anthropomorphizing. And let’s not forget that company directors also often think about corporations as if they do things like paying tax themselves – they talk of what’s in the company’s best interest, not what’s in it’s workers, customers and owners best interests. So it’s quite natural to think of organizations as things with their own life.

I’m now going to speculate on the interior life of millions of people I don’t know. Here’s how I think people think about tax. They think that taxes on profits are paid after wage and prices have been determined and paid for (that’s how you calculate profits – after revenues and costs) and then taxes paid on profits simply reduce post-tax profits, holding all else unchanged. The counterfactual they implicitly have in mind is same wages, prices and profits, different tax rates.

And this is the right way to think about things in the short-run, and the right way to think about things when you encounter a firm which has just come up with some wheeze to reduce its taxes. It just goes straight into higher post-tax profits, higher payouts for shareholders and directors.

The fact that in the long-run taxes changes everything (investment, employment, wages, prices etc.) just doesn’t figure in people’s thinking. There’s no reason not to try and point these things out to bloggers who write about tax without apparently thinking this stuff through, but you have to recognize that the short-run matters too, and having companies make lots of little short-run gains by continually working out how to dodge taxes is in a sense a long-run problem too. They keep doing it.


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