Re Occupy the Stock Exchange

greg66_tri_v2.0

Rick Chasey wrote:

How do you explain the success of the Nordic Model?

The Nordics have some of the highest tax rates in the world.

The Nordics don't have the overhead of sitting at the world's top table (eg the running costs of a "proper" military, regularly deployed).

At the risk of gross generalisation, I am prepared to say that I doubt that the British character is suited to the Nordic model.

Iceland is one of the Nordics.

Didn't we do the whole "the Nordics have hte highest suicide rates inthe world"/"that's because it's dark"/"Well, yes, it's dark in the early mornings s when the postman delivers the tax bills. That's when the suicide rate spikes" debate not so long ago?

AidanR

Well, if you're going to bring things like Iraq into it... :P

Iceland is one of the Nordics, brought down by its banking system under a decade after large scale banking deregulation. If ever there was a case of the exception proving the rule, Iceland is it.

ooermissus

Most profit is made through distortions in markets (and businesses expend lots of energy trying to magnify and protect these distortions), and markets themselves only exist at scale due to government regulation.

MaxwellBygraves

Greg66 wrote:

Rick Chasey wrote:

You can base the economy on a free market model and still intervene when the market gets it wrong.

Every country in Europe and the US does it already. You just should do it a little smarter, and more widely.

That's not being Soviet.

Let's not kid outselves that the seed idea here is anything more than expropriation and redistribution of corporate and personal wealth to the masses.

.

Yup. Got it in one.

If the introduction of a Robin Hood tax or a Tobin tax could raise €57 billion (http://www.guardian.co.uk/business/2011 ... -tobin-tax)

instead of cutting public sector jobs or services then I'm all for that. Cutting down on tax evasion with regards to the super wealthy? All for that too.

greg66_tri_v2.0

MaxwellBygraves wrote:

Cutting down on tax evasion

I don't think anyone is against cutting down on tax evasion (except, I suppose, those engaged in it).

It's tax avoidance that's the tricky one.

AidanR

Tax avoidance is tricky. It depends exactly how you define it. The best definition I've come across is that it is avoiding paying tax through obeying the letter of the law but not the spirit.

There is a lot of rubbish spouted about alleged tax avoidance, particularly by recent movements like UK Uncut. They seem to freely redefine existing tax law as illegitimate to get some of their figures, especially when it comes to corporations. Ignoring the existence of double tax treaties (of which the UK has the largest network in the world) and saying that companies should pay UK tax on their worldwide income is a common one. That's not avoidance, and has no place in the anti-avoidance statistics they espouse.

But it is a tricky area. Tax is used to incentivise certain investments. Classic examples of this include enterprise investment schemes and venture capital trusts which have very generous tax breaks attached to them. These are effectively used to promote investment in high risk industries. Those on the left wing of politics could view them as Government intervention in the markets (state planning), but instead they tend to get viewed as tax avoidance vehicles for the rich. To be fair, I suspect those on the right view them in much the same way, but aren't ideologically opposed to this, though they may oppose state intervention.

The point is many see the tax code as being too kind to the rich and classing this as avoidance. I would agree that things in the tax code may be biased too far this way, but I strongly disagree with classing this as avoidance.

greg66_tri_v2.0

Having said it is tricky, perhaps I should make a little clearer what I mean by that.

It's a tricky subject because many people seem to associate automatically tax avoidance with wrongdoing, which (IMO) is simply wrong.

Calls for the reduction of tax avoidance, when directed with a pointed finger at those supposedly doing the tax avoidance completely miss their target (again, IMO). It is wholly within the gift of any Govt to define its own tax laws. As soon as it creates so-called loopholes, you have the opportunity to avoid tax. The loophole may be nothing worse that creating a choice between two ways of treating something for tax. If one generates a smaller tax bill, why not use it? It is no part of a taxpayer's remit (again, IMO) to interpret tax legislation according to some nebulous sense of its spirit, or to make up for the incompetence of legislative drafting. And at its simplest, taxmen are unforgiving, so why shouldn't taxpayers likewise be unforgiving?

But it always strikes me as tricky to get across the message that those who avoid tax are doing no wrong; the true villain of the piece is the draftsman of the statute (usually HMRC itself).

AidanR

I can't agree with that tax avoidance is always morally neutral. There are certainly some badly written pieces of legislation out there, but there are always going to be loopholes to exploit that weren't intended. Yes, some things come down to a choice between two options, and perhaps it wasn't intended that you had that choice, but it was unavoidable as you are making tax legislation for many people in may different situations. That's inevitable and kinda fair enough.

But that's a world away from some of the intricate tax schemes that are concocted by the fine minds at the Big Four and a host of smaller, more aggressive firms. I am actually a trainee tax adviser, so I've been along to a few seminars held by PwC and others. They are hardly charlatans, but some of the stuff they come up with to stay on the cutting edge and justify their fees is pretty dubious. And they know it, but they have morally submitted to the will of the market.

Stevo_666

It's also established in case law (can't remember the name of the case) that a taxpayer has the right to order their affairs in such a way that the taxman cannot stick the largest possible shovel into their hard earned income.

The moral argument is often used by Governments and tax authorities to try to paper over the cracks in their own tax code - i.e. they write the rules, they don't work so they call the people who are not caught by their rules 'immoral'. I can't see how they can claim there is some moral duty in paying more tax, when any for other business expense (and tax is a business expense) it is perfectly acceptable to fight as hard as you can for the best deal.

greg66_tri_v2.0

AidanR wrote:

I can't agree with that tax avoidance is always morally neutral. There are certainly some badly written pieces of legislation out there, but there are always going to be loopholes to exploit that weren't intended. Yes, some things come down to a choice between two options, and perhaps it wasn't intended that you had that choice, but it was unavoidable as you are making tax legislation for many people in may different situations. That's inevitable and kinda fair enough.

But that's a world away from some of the intricate tax schemes that are concocted by the fine minds at the Big Four and a host of smaller, more aggressive firms. I am actually a trainee tax adviser, so I've been along to a few seminars held by PwC and others. They are hardly charlatans, but some of the stuff they come up with to stay on the cutting edge and justify their fees is pretty dubious. And they know it, but they have morally submitted to the will of the market.

Have you yet encountered any tax scheme that couldn't be shut down with better legislative drafting?

AidanR

Stevo 666 wrote:

It's also established in case law (can't remember the name of the case) that a taxpayer has the right to order their affairs in such a way that the taxman cannot stick the largest possible shovel into their hard earned income.

The moral argument is often used by Governments and tax authorities to try to paper over the cracks in their own tax code - i.e. they write the rules, they don't work so they call the people who are not caught by their rules 'immoral'. I can't see how they can claim there is some moral duty in paying more tax, when any for other business expense (and tax is a business expense) it is perfectly acceptable to fight as hard as you can for the best deal.

Regarding your first point, yes, otherwise avoidance would be illegal.

I'd agree that the moral argument is often wielded. For example, there has (arguably) been a concerted attempt to equate avoidance and evasion in the public mind, making out that they're as illegitimate as each other. This is only approaching true if you take a very very tight definition of tax avoidance, which most people don't.

But it's also not fair to say that governments have to come up with the impossible ideal of watertight legislation, else it's open season for highly intelligent tax advisers and barristers. Unless you take a very libertarian view that government is unnecessary and evil, there is a moral element to aggressive forms of tax avoidance. You're effectively being arrogant and selfish enough to say "I know better than the government what money should be spent on, and I think it should be spent on me." And before you say "well, it's my money, I earned it", consider the following:

Without wishing to diminish your hard work or achievements, I have to point out that you owe an awful lot to the society in which you work. Taxes paid for the school in which you were educated, the police force and judicial system that keeps you safe, the road network that got you to work, the medical care you get when you are ill, the armed forces that ensure your security. We do not exist in vacuums; we are products of society.

AidanR

Greg66 wrote:

Have you yet encountered any tax scheme that couldn't be shut down with better legislative drafting?

If we could all live in some idealised, perfectly trusting society that cared for everyone, we wouldn't even need tax legislation, or any legislation come to that. That's obviously pie in the sky stuff, but why do we have to be in the exact opposite situation, where there is so little trust and social cohesiveness that only obeying the exact letter of the law is what counts? Where we should screw over the "system" (which is really just other people at the end of the day) at every opportunity? Where everything is amoral, and legality is all that matters?

Frankly, I don't want to live in a place like that. We didn't evolve to live in a place like that. We're not ruthless creatures living only for our rational self-interest. We evolved living in small, equitable communities built on trust and collective punishment for wrongdoings and selfish behaviour... OK, so my pie in the sky example at the beginning of this post has some basis after all.

So yes, I'm sure better legislative drafting could close many or all current loopholes, though it would inevitably open more. But the point is it shouldn't have to. We can't afford to have every piece of legislation written with painstaking accuracy by the most expensive lawyers in the land. Sometimes people just have to stop being the amoral, self-interested individuals of classical economics and be members of society, aka human.

greg66_tri_v2.0

AidanR wrote:

Greg66 wrote:

Have you yet encountered any tax scheme that couldn't be shut down with better legislative drafting?

If we could all live in some idealised, perfectly trusting society that cared for everyone, we wouldn't even need tax legislation, or any legislation come to that. That's obviously pie in the sky stuff, but why do we have to be in the exact opposite situation, where there is so little trust and social cohesiveness that only obeying the exact letter of the law is what counts? Where we should screw over the "system" (which is really just other people at the end of the day) at every opportunity? Where everything is amoral, and legality is all that matters?

Frankly, I don't want to live in a place like that. We didn't evolve to live in a place like that. We're not ruthless creatures living only for our rational self-interest. We evolved living in small, equitable communities built on trust and collective punishment for wrongdoings and selfish behaviour... OK, so my pie in the sky example at the beginning of this post has some basis after all.

So yes, I'm sure better legislative drafting could close many or all current loopholes, though it would inevitably open more. But the point is it shouldn't have to. We can't afford to have every piece of legislation written with painstaking accuracy by the most expensive lawyers in the land. Sometimes people just have to stop being the amoral, self-interested individuals of classical economics and be members of society, aka human.

"No" would have sufficed

I completely set my face against the notion that anyone is supposed to interpret tax legislation by reference to what they think HMRC intended it to mean, rather than what it says. That approach gives HMRC an unappealing ability to say that tax legislation means precisely what it wants it to mean from time to time. No. Just no.

On a different tack, I would be surprised if most loopholes couldn't be shut down with a simpler approach to tax legislation. Complexity breeds the cracks that get opened up and made into avoidance schemes.

AidanR

I'm not advocating giving HMRC carte blanche to interpret legislation as they see fit with no judicial control. That would be an extremely bad idea. But that's not the same as arguing that people should try and follow the spirit of laws rather than twist the letter of the law to give some unintended meaning that suits them.

But yes, I agree that the tax code is ridiculously long and overly complicated. The new disguised remuneration rules, for example, are a bloated mess. And I won't even go into Gordon Brown's delightfully complex initiatives.

Stevo_666

I think the latest initaitive to simplify the tax code has been kicked into the long grass - whether that's due to budget constraints of becuase somebody ha realised it's a ridiculously difficult task and the project will fail with their name on it, I'm not sure.

To answer Gregs' point - yes and no. HMRC is getting fairly good at identifying specific avoidance 'schemes' and shutting it down with targetted anti-avoidance legislation where the amounts are big enough. However, a lot of what I have dealt with (as this is my line of work when I am working) is not some concocted 'scheme' as such but a case of choosing which way of doing something to give the better tax outcome, so not easy to shut down without banning some very basic commercial freedoms like choosing whether to fund something with debt or equity.

The bit about society - well its a question of how much the state should take. I happen to think they already take too much. The ironic thing is that in clamouring for more and more tax, they seem to forget that there is a relationship between the % of people/company income taken as tax and the overall tax take: the shape is a bell curve:
http://en.wikipedia.org/wiki/The_Bell_Curve
with tax rate on the horizontal axis and total tax take on the vertical axis. Once you pass a certain point, the total tax take goes down as the % rate increases. There are various reasons - increased avoidance, reduced incentive to work, capital going elsewhere etc. I reckon we are already past the peak.

A more extreme example was in the 70's when the top rate of income tax was 83% with a 15% surcharge for unearned/investment income (so a total rate of 98% for some lucky people :shock: ). And they wondered why the tax collected went down...

So there is an easy way to raise more tax if they have the guts to do it

dhope

I have nothing useful to add

AidanR

The Office for Tax Simplification's work rumbles on, but it's been given a remit to think big whilst it's staff is very small... gonna be a while before much happens there. I blogged about it briefly on the company website: http://www.alvery.co.uk/inheritance-tax/changes-ahead/

I'd agree that many people think as tax advisers as the ones who come up with these audacious, complex and aggressive tax avoidance schemes, but that the reality is much more mundane. Depending on your specialism, it's mainly compliance work, and as you say what many could consider avoidance isn't that at all. It's not really against the spirit of the law, it's just a choice that has to be made so you might as well make it in a favourable way.

When I spoke about arrogance, what I was driving at was that if society, through democracy government etc., chooses that it wants to pay a certain amount of tax then why should any individual be able to say "screw the collective, I'll pay what I want to pay!"? Admittedly the law can be an ass and 98% was pretty nuts. As to where we are on the curve (which I imagine isn't actually a bell curve in reality), I guess we'll get an indication when the report comes back on the 50% rate. Mind you, given that the Conservatives obviously want only one answer I hope its impartiality isn't compromised.

Stevo_666

AidanR wrote:

I'd agree that many people think as tax advisers as the ones who come up with these audacious, complex and aggressive tax avoidance schemes, but that the reality is much more mundane. Depending on your specialism, it's mainly compliance work, and as you say what many could consider avoidance isn't that at all. It's not really against the spirit of the law, it's just a choice that has to be made so you might as well make it in a favourable way.

Agreed.

Most of my stuff was international planning and transaction based work and it was nearly always foreign taxes I was working on reducing, not UK tax. We were even trying to bring income into the UK to use up losses while getting a deduction overseas. So some people should be glad I did a decent job

rick_chasey

Greg66 wrote:

Rick Chasey wrote:

How do you explain the success of the Nordic Model?

The Nordics have some of the highest tax rates in the world.

The Nordics don't have the overhead of sitting at the world's top table (eg the running costs of a "proper" military, regularly deployed).

At the risk of gross generalisation, I am prepared to say that I doubt that the British character is suited to the Nordic model.

Iceland is one of the Nordics.

Didn't we do the whole "the Nordics have hte highest suicide rates inthe world"/"that's because it's dark"/"Well, yes, it's dark in the early mornings s when the postman delivers the tax bills. That's when the suicide rate spikes" debate not so long ago?

We did have that chat. I brought it up again since, in my mind anyway, it's the best argument for a more mixed economy, and one which, aside from the 'suitability' criteria you mention, is tough to argue against.

I think the UK has a lot to offer, and a move towards that kind of system, not in its entirety of course, and with some bespoke changes, would benefit everyone, bar a comfortable minority.

I feel a lot of potential is wasted with a very individualist emphasis - 'as long as I'm OK and can benefit, it's fine. I don't care about anyone else'. Even the politicians are yabbering on about that, post riot.

Back to the original point - I think it's good that some anger at the system, since clearly it's not working as well as it should. There needs to be a reminder that it isn't working properly. It also lets people who feel disenfranchised from the political discourse vent in a harmless way - and makes them part (in some way at least) part of the discourse. Mocking them for being protesters etc only further alienates them.

W1

Rick Chasey wrote:

Greg66 wrote:

Rick Chasey wrote:

How do you explain the success of the Nordic Model?

The Nordics have some of the highest tax rates in the world.

The Nordics don't have the overhead of sitting at the world's top table (eg the running costs of a "proper" military, regularly deployed).

At the risk of gross generalisation, I am prepared to say that I doubt that the British character is suited to the Nordic model.

Iceland is one of the Nordics.

Didn't we do the whole "the Nordics have hte highest suicide rates inthe world"/"that's because it's dark"/"Well, yes, it's dark in the early mornings s when the postman delivers the tax bills. That's when the suicide rate spikes" debate not so long ago?

We did have that chat. I brought it up again since, in my mind anyway, it's the best argument for a more mixed economy, and one which, aside from the 'suitability' criteria you mention, is tough to argue against.

I think the UK has a lot to offer, and a move towards that kind of system, not in its entirety of course, and with some bespoke changes, would benefit everyone, bar a comfortable minority.

I feel a lot of potential is wasted with a very individualist emphasis - 'as long as I'm OK and can benefit, it's fine. I don't care about anyone else'. Even the politicians are yabbering on about that, post riot.

Back to the original point - I think it's good that some anger at the system, since clearly it's not working as well as it should. There needs to be a reminder that it isn't working properly. It also lets people who feel disenfranchised from the political discourse vent in a harmless way - and makes them part (in some way at least) part of the discourse. Mocking them for being protesters etc only further alienates them.

Do the Nordics waste as much tax as our lot? Do Nordic societies include such a number of people that rely on the state for their lifestyle?

That's the problem with tax, from my perspective - I don't think it's even remotely good value for money. As as the "rich" (however you define it) pay a disproportioate amount in (whilst taking less out), it's hard to stomach calls from people who contribute less (or even nothing) that "others" should pay more. You rarely get someone saying that they should be taxed more themselves, it's always someone else.

We're all tax avoiders (at it's broadest definition) because we will all happily take advantage of tax savings where possible.

AidanR

Well, tax is always going to be unpopular! Is it poor value in this country? Is a lot of it wasted? It certainly seems that way, but scare stories and general whinging about tax/government/benefits sells papers in this country so it may be more perception than reality. I don't have the statistics (though it would be fiendishly difficult to untangle from a million other factors) so I don't know.

greg66_tri_v2.0

Rick Chasey wrote:

Back to the original point - I think it's good that some anger at the system,

According to the Today program this morning, outside St Pauls there is a "ragtag and bobtail" (their words, not mine) bunch of the usual suspects protesting: Pro-Palestine, Anti Climate Change, Anti-Cuts, Pro-Dale Farm, OWS...

In other words, the usual roster of semi professional protesters drawn like moths to a flame.


Separate point: I went to Paternoster Sq one evening this week to meet some mates for a drink. I've walked through there in the day in the last couple of months, and it is a really nice, buzzing place at lunchtime.

Now it is fenced off. We were escorted from the fencing to the door of the bar we were aiming for by some security bod, presumably to ensure we weren't going to swell the protesters' numbers. There are quite a few police vans parked up in the middle of the plaza.

This is St Paul's Catherdral, FFS. I'm not remotely religious, but even I find it an affront that this bunch has chosen to camp, indefinitely according to them, outside the steps to the major cathedral in London.

Water cannon. It's the only way to be sure.

jds_1981

W1 wrote:

We're all tax avoiders (at it's broadest definition) because we will all happily take advantage of tax savings where possible.

c2w, pensions, ISAs, etc?

sketchley

Haven't we done this before?

Here's an alternative take. A close friend used to own 4% of the company he is working for. The current government have increased CGT to 28% from 18% which would mean a big increase in tax when the company is sold. My friend did a deal with the MD to increase shareholding to 5% thereby qualifying for Entrepreneurs' Relief and will now only pay 10% tax when the company is sold. I guess this is tax avoidance.

However here's the rub, my friends company from a standing start and a £50,000 DTI loan in 1998 now employs over 100 people and has an annual revenue in excess of £7million. The tax that the company pays (PAYE, Corporation Tax, VAT etc) far outstrips the tax that has being avoided by doing this.

What's more my friend is very likely to start another company when the company is sold, and reinvest the money in the next business. He'll have more money to invest because of the tax break and a very good incentive (10% tax on gains of up to £5million in a lifetime) to do it again, this in turn should lead to more jobs and more tax revenue. At 28% chances are you don't have the money to invest and the next investment is more risky so you stick it in the bank which mean no jobs and lower tax revenues.

One thing that did occur to me though was this business about QE providing money into the market so they start lending to small businesses. Would it not make more sense to just print the money and lend the money to small businesses directly or via one of the government owned banks?

Gallywomack

Greg66 wrote:

Separate point: I went to Paternoster Sq one evening this week to meet some mates for a drink. I've walked through there in the day in the last couple of months, and it is a really nice, buzzing place at lunchtime.

Now it is fenced off. We were escorted from the fencing to the door of the bar we were aiming for by some security bod, presumably to ensure we weren't going to swell the protesters' numbers. There are quite a few police vans parked up in the middle of the plaza.

Do you mean to tell me that if I go there to get a salt beef sandwich from Birley's this lunchtime, I'll have to negotiate fences and security bods? Bring out the water canons indeed :x

rick_chasey

Gregg - what's wrong with a bit of free speech?

The right to protest?

I appreciate they don't share your politics, but demanding the watercannon, or generally that they don't protest and espouse politics that you agree with is a little much.

As for the fencing - presumably that's police-heavy handiness rather than peaceful protesters.

Have a go at the guys who stir up trouble, but the vast majority of people in the occupy' movement want to keep it peaceful.

AidanR

@Greg66

They're only camped outside of the Cathedral because they were barred from Paternoster Square, as you have witnessed. I am religious and have no problem with it at all, so long as people can still get in and out of the place (which, despite stories to the contrary yesterday, I believe they can).

Yes, the usual hardcore are camped out - no surprise there. But when I went there on Saturday there were between one and two thousand, including some (like me) who had never been to a protest before. It's a wider movement (953 cities worldwide on that day) than those who just want to smash the system. There are some good and moderate ideas floating around too.

@jds_1981

Quite. Defining tax avoidance in this way is pointless so nobody does it, except a ragged few at the fringe.

@Sketchley

Yup, ER is for precisely this kind of situation. I don't have a problem with it insofar as it encourages investment, but obviously these kind of things have to be carefully designed so that they actually encourage what they're supposed to encourage, rather than just being a tax break for the well off. As I mentioned before, too often tax breaks have been given, but the envisaged investment has failed to materialise.

sketchley

@AidanR

Agreed. But often the consequence is know and understood. i.e. some people will just use it for tax avoidance without the investment, but it is felt the overall benefit is worth it.

Deliberately simplified example but would you support a tax break that allowed a couple of rich people to avoid paying £1m worth of tax for doing nothing, but also stimulated investment in manufacturing with the net effect of generating £5m of new tax revenue.

I'm convinced these kind of discussions go on all the time when you look at the individual case in isolation that tax scheme looks wrong but viewed as whole it may well be the opposite.

rick_chasey

LinAllison wrote:

We've run out of money. As has the entire Western world. Printing more isn't going to solve the problem, more like creating a bigger problem further down the line. There has been living beyond means on a massive scale for far too long and now reality is kicking in. What this will mean for the average guy on the street is a sustained period of austerity, and the widening of social divides. I expect the "solution" that the protesters haven't clearly defined yet will be a new wave of socialism - so passe in this country, but ultimately the need to redistribute wealth and create a fairer society becomes greater the less wealth there is available.

What would be nice would be if there could be an organised, organic move towards this rather than a period of civil unrest and increased bickering amongst the politicians.

i think you underestimate how powerful the memory of 70 years of astonishing economic growth is.

sketchley

LinAllison wrote:

We've run out of money. As has the entire Western world. Printing more isn't going to solve the problem, more like creating a bigger problem further down the line. There has been living beyond means on a massive scale for far too long and now reality is kicking in. What this will mean for the average guy on the street is a sustained period of austerity, and the widening of social divides. I expect the "solution" that the protesters haven't clearly defined yet will be a new wave of socialism - so passe in this country, but ultimately the need to redistribute wealth and create a fairer society becomes greater the less wealth there is available.

What would be nice would be if there could be an organised, organic move towards this rather than a period of civil unrest and increased bickering amongst the politicians.

Ok I'm in sound great idea. What wealth should we redistribute? Who should we take it off first and why? Who should we give it to?