Osborne discovers that the rich avoid paying tax

[John Skelton]

not for nothing has a remark been made elsewhere (in connection with the Murdoch empire, I seem to recall) that some people and organisations seems to think that they're larger than nations. Whilst the poor can indeed try to organise revolutionary activity, so can the rich; I think that we would all do well to bear that most unpleasant and unwelcome fact in mind.

They are entirely dependent on State and cross-State police and military power - they don't have their own police forces and they don't have their own armies (gated security only works up to a minimal point). So when neo-liberals and right wing so-called libertarians say they believe in the smallest State possible, take it with a large pinch of salt.

If it comes to it I'm sure the police and military will be used in the interests of the few against those of the many (that's the general rule).

As for legalised theft: as a definition of Reaganite / Thatcherite economics I'd say that's accurate.

[ahinton]

They are entirely dependent on State and cross-State police and military power - they don't have their own police forces and they don't have their own armies (gated security only works up to a minimal point). So when neo-liberals and right wing so-called libertarians say they believe in the smallest State possible, take it with a large pinch of salt.

I do! - at least up to a point; there has to be a state of reasonable size or it wouldn't even work AS a state (not least for the reasons that you imply), but that's no excuse for the development of overly large ad overbearing state structures that can and sometimes do risk becoming at least as self-serving as they are of benefit to those whom they are supposed insead to serve. My concern with the legalised theft implicit in what you write about in terms of appropriation and redistribution of (legally owned) assets is as above - a state condones theft by committing it and thereby gives everyone else the incentive to do as the state does.

If it comes to it I'm sure the police and military will be used in the interests of the few against those of the many (that's the general rule).

Is that the way round that you meant it?

One problem in this kind of thing is that the non-rich would feel at risk of similar victimisation on the basis of "if the state can nick the assets of the rich, who's to stop it from nicking mine?"; this is why the likelihood that anyone would ever vote such powers to the state is as small as it is and is likely to remain, another reason for such unlikelihood being that the majority of those in my categories (a) - (c) above do not tend - and would not easily be persuaded - to attribute their financially lowly states to the fact of the wealth of the richest less-than-0.01%

As for legalised theft: as a definition of Reaganite / Thatcherite economics I'd say that's accurate.

Well, there would be an indictment, would it not! If that's an adequate and credible definition not only of such economics in practice but also of the kind of asset appropriation and redistribution that you appear to advocate, then it would appear that you take my statement that all transactions, no matter how large or small, involve beneficiaries and losers one stage farther to the point at which all transactions - for which in the present context read all asset appropriations and redistributions - may be regarded as legalised theft! There's a brand of logic implicit in that which hardly bears contemplation!...

[aeolium]

Whilst I do not disagree in principle with your last statement, it sems to me to be putting the cart before the horse; as I have already observed, huge salaries are only received because people and firms are prepared to pay them and, in any case, the "super-rich" do not necessarily receive such salaries, their true claim to "riches" (or rather others' claims of their "riches") resting largely upon the possession of valuable assets (including the high proced housing that you mention) which cannot be taxed like income and whose value fluctuates in any case in accordance with prevailing market conditions (one of which could be wealth taxes).

I think if firms are prepared to pay such high salaries - and we know how hopelessly lop-sided remuneration committees of big companies are when determining salaries - then there should be a powerful disincentive to doing so, including through super-tax levels. And most people (apart from big landowners) acquire valuable assets through high salaries. As you have suggested, wealth and inheritance taxes are another way in which income could be obtained from the well-off and a progressive form of indirect taxation, for instance taxing luxury goods at a much higher rate, could reverse the negatively redistributive impact of indirect taxes over the last 20 or so years. I agree that a lot of taxpayers are in the average or slightly below-average income bracket, though even these have benefited from the reduction in basic rate income tax over the last 30 years, but there is no getting round the fact that there is a great deal of personal wealth in the UK and that income inequalities have rarely been higher since the 2nd world war.

[ahinton]

I think if firms are prepared to pay such high salaries - and we know how hopelessly lop-sided remuneration committees of big companies are when determining salaries - then there should be a powerful disincentive to doing so, including through super-tax levels.

But from what precise source would such a disincentive arise? It's not those who pay but those who receive those salaries who would have to pay that extra tax! In fact, such taxation increases might even make matters yet worse for employers wishing to continue to pay large salaries if they felt pressureised by a government's "super-tax" régime to increase them by far greater amounts in order to circumvent any net loss to their recipients; in reality, however, such employers would simply employ those very highly paid staff elsewhere in order that they do not get stung with such high taxes; they's almost certainly have to, otherwise those highly paid employees might just feel a "disincentive" to continue in their employs and leave to go and work for someone else.

And most people (apart from big landowners) acquire valuable assets through high salaries. As you have suggested, wealth and inheritance taxes are another way in which income could be obtained from the well-off and a progressive form of indirect taxation

It's not my suggestion! - although all manner of things could have the potential of raising more taxes (or not). I would not agree that most people acquire valuable assets though high salaries; they do to a point, of course, but many also do so by way of receiving gifts and legacies. This leads us to your reference to inheritance tax which we already have in UK and the liability to it applies not only upon death but upon gift; however, there are all manner of perfectly reasonably ways in which legally to mitigate and/or avoid it; any government wishing to rid itself of all such mitigation/avoidance insruments would find itself obliged to implement a fundamental overhaul the life assurance industry alone, so it's something of a non-starter. Wealth taxes are, in my view (although I do not seek to impose that view on anyone else), broadly speaking, a bad idea, especially for those who might become liable to them but whose wealth does not include sufficient readily realisable assets (i.e. instantly accessible cash) with which to meet such liability.

for instance taxing luxury goods at a much higher rate, could reverse the negatively redistributive impact of indirect taxes over the last 20 or so years.

How would it do that? What it would instead do is raise the rate of inflation, with all the unwelcome consequences for most of us to which we know this to give rise. It would also have the likely effect that such luxury goods, if imported, would get to be sold in greater quantities elsewhere and lesser ones in UK; it would also damage the market for such goods that are manufactured in UK, which could have grave consequences for those businesses who manufacture them and do yet more damage to UK's export market and, as a consequence, to the UK economy.

I agree that a lot of taxpayers are in the average or slightly below-average income bracket, though even these have benefited from the reduction in basic rate income tax over the last 30 years, but there is no getting round the fact that there is a great deal of personal wealth in the UK and that income inequalities have rarely been higher since the 2nd world war.

There has long been a great deal of personal and corporate wealth in UK and the fact that this has continued so long to pertain regardless of the colour of the incumbent government suggests in itself that this is unlikely to change. There will likewise always be income inequalities, just as there have been since time immemorial (I nearly typed "immoral"!). Whilst some people get worked up principally about those inequalities, I am far more exercised by the poverty. If I were reasonably comfortably off (I do not at all say "rich", I wouldn't feel much incentive to try to persuade a government to screw the rich so that I might just get another £100 or so annually, even if such income improvement couldbe a possible outcome of such measures against them. Taking people on taxable incomes of, say £15K or less out of tax permanently would not only have the effect of reducing the poverty of many but would also reduce the cost of tax collection, just as would the kind of reforms to and simplifications of the tax régime that I continue to advocate; of course there would still likely be a net cost to the implementaion of such a measure, but I see no reason that even this would have to be pinned exclusively on those with million-pound-plus incomes, especially as there are so few of them!

In response to John Skelton's references to appropriation and redistribution of assets, not only would such measures provide massive disincentives to the non-rich to try to become more wealthy, they would also be impossible to implement unless the electorate were prepared to vote in a majority government that was prepared to carry them out. As matters now stand, not only is there no political party in UK prepared to include such measures in its manifestos, there is not even a political party in UK with a single seat in Parliament that is prepared to do this; that fact demonstrates beyond all reasonable argument that candidates for parties that would seek to include such measures in their General Election manifestos would have no prospect of achieveing anything more than the loss of their deposits and the ignominy of such loss. If such a situation has pertained, more or less, for decades (in some of which Trade Union power has been considerably greater than it has before or since), what possible chance of success could there be for any political party that might consider advocating such measures?

[Serial_Apologist]

One problem in this kind of thing is that the non-rich would feel at risk of similar victimisation on the basis of "if the state can nick the assets of the rich, who's to stop it from nicking mine?"; this is why the likelihood that anyone would ever vote such powers to the state is as small as it is and is likely to remain, another reason for such unlikelihood being that the majority of those in my categories (a) - (c) above do not tend - and would not easily be persuaded - to attribute their financially lowly states to the fact of the wealth of the richest less-than-0.01%

I strongly disagree. I believe William Morris's quip about not knowing much about the labour theory of value, but knowling well that the rich live off the backs of the poor, is very much back in the currency of everyday talk nowadays.

Well, there would be an indictment, would it not! If that's an adequate and credible definition not only of such economics in practice but also of the kind of asset appropriation and redistribution that you appear to advocate, then it would appear that you take my statement that all transactions, no matter how large or small, involve beneficiaries and losers one stage farther to the point at which all transactions - for which in the present context read all asset appropriations and redistributions - may be regarded as legalised theft! There's a brand of logic implicit in that which hardly bears contemplation!...

But what is this logic of which you speak? The logic that, as John Skelton has pointed out, decrees that it is OK for wealth to trickle forever inexorably upwards into the pockets of the wealthiest, without redress to those who either create the wealth by hand or brain, or are excluded by dint of the unplanned nature of capitalism's need to have reserves of the unemployed? I do not see how it is possible to conceive of redistributative measures in the opposite direction as legitimising intra-communal crime - only in the sense that if the wealthy are presented, as they are by politicians and the media, emblematically as aspirational goals achievable by anyone fit for the purpose, then taking what you haven't earned becomes part of the mindset.

[John Skelton]

If it comes to it I'm sure the police and military will be used in the interests of the few against those of the many (that's the general rule).

Is that the way round that you meant it?

Yes. Of course.

http://libcom.org/history/new-orleans-after-storms-2005

[amateur51]

Yes. Of course.

http://libcom.org/history/new-orleans-after-storms-2005

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

[aeolium]

In fact, such taxation increases might even make matters yet worse for employers wishing to continue to pay large salaries if they felt pressureised by a government's "super-tax" régime to increase them by far greater amounts in order to circumvent any net loss to their recipients;

I think that would be pretty unlikely, as there is already a lot of discontent among shareholders of many big companies at the unjustifiably high level of pay of senior executives. If non-residency rules were also tightened up then it could be made very difficult for companies to employ executives of UK corporations who were based or mainly resident off-shore. Again, with wealth and inheritance taxes it's perfectly possible to create sufficiently precise and tight rules to limit the extent of mitigation and tax avoidance, especially with a general anti-avoidance law (i.e. if something looked like a deliberately tax-avoiding scheme it could be struck down).

What [taxing luxury goods highly] would instead do is raise the rate of inflation, with all the unwelcome consequences for most of us to which we know this to give rise. It would also have the likely effect that such luxury goods, if imported, would get to be sold in greater quantities elsewhere and lesser ones in UK; it would also damage the market for such goods that are manufactured in UK, which could have grave consequences for those businesses who manufacture them and do yet more damage to UK's export market and, as a consequence, to the UK economy.

Not necessarily - the rate of inflation i.e. RPI/CPI is not AFAIK calculated taking into account the cost of Aston Martins or expensive jewellery. And since the domestic rate of VAT is not taken into account for the purposes of export (i.e. duty would be payable in the importing country) a high rate of VAT would have no effect on the export market for luxury goods, in fact it could increase the balance between export and import.

Whilst some people get worked up principally about those inequalities, I am far more exercised by the poverty

I don't see why you do not consider that the two are intrinsically related, that poverty tends to be reduced in countries which don't have these severe levels of income inequalities (see the statistics in the link I posted above). And where you claim that no major political party is seeking to propose increased taxing of the rich (one or two minor ones in the UK do, and Hollande in France has suggested a 75% rate for high-income earners) I think the potential acceptability of such measures has increased hugely since the catastrophic financial crash of 2008 - look at the widespread fury at executive pay, even in unexpected quarters. The politicians here have not caught up with public feeling.

[ahinton]

Yes. Of course.

http://libcom.org/history/new-orleans-after-storms-2005

OK. I didn't intend to appear rude - I just wasn't quite sure because, if you do indeed perceive this to be the case, I do not understand how the kinds of appropriation and redistribution of very wealthy people's assets could effectively be implemented if the state's police, military and security personnel would be deployed in the interests of those few wealthy people who would seek protection of their ownership of those assets rather than in the perceived interests of those non-rich who possess no such assets.

[ahinton]

I think that would be pretty unlikely, as there is already a lot of discontent among shareholders of many big companies at the unjustifiably high level of pay of senior executives.

There is indeed - and not without good reason - but the principal thrust behind most of that is that high levels of salaries (and bonuses, for that matter) paid to such senior executives are perceived by some shareholders as disproportionate to the turnover and profits of the company which, whilst perfectly understandable and indeed welcome, is hardly the same thing.

If non-residency rules were also tightened up then it could be made very difficult for companies to employ executives of UK corporations who were based or mainly resident off-shore.

In theory, it might do this in certain cases, but it would usually require at least some level of co-operation from those countries in which the employees would choose (or be encouraged by their employers) to base themselves; it would also be particularly difficult to implement in the case of companies which themselves have offshore offices from which such salaries can be paid to those employees. In the end, as I also wrote, employees who encounter undue difficulty in this regard ultimately have the right to cease their employment and go to work for employers in countries with less punitive tax régimes. All in all, then, I don't se that this would do much to address such an issue effectively.

Again, with wealth and inheritance taxes it's perfectly possible to create sufficiently precise and tight rules to limit the extent of mitigation and tax avoidance, especially with a general anti-avoidance law (i.e. if something looked like a deliberately tax-avoiding scheme it could be struck down).

It isn't, actually; the most fundamental and widely used IHT mitigation/avoidance instruments are the application of successive governments' 7-year rule and the life assurance route whereby, in some cases, although the IHT gets paid, the beneficiary loses nothing because the amount of the IHT liability is already covered by legitimate life assurance. As I mentioned, without a total overhaul of the life assurance industry (and the wholesale abolition of the 7-year rule), such limitations on IHT mitigation and avoidance would be well-nigh impossible. Yes, the striking down of certain individual schemes could indeed be effected in certain cases but, as these tend to be the least frequently used and most complex instruments for those purposes, dispensing with them would likely exert but a tiny effect on the total amounts of IHT mitigated/avoided.

Not necessarily - the rate of inflation i.e. RPI/CPI is not AFAIK calculated taking into account the cost of Aston Martins or expensive jewellery. And since the domestic rate of VAT is not taken into account for the purposes of export (i.e. duty would be payable in the importing country) a high rate of VAT would have no effect on the export market for luxury goods, in fact it could increase the balance between export and import.

On what specific basis do you assert that RPI/CPI statistics exclude luxury goods and how might such goods be specifically excluded from such statistics in practice? I take your point about the application of VAT rates (and assume that the luxury goods tax to which you refer would come in the form of a special higher rate of VAT), but not only would such a measure be taken as a VAT-fiddler's charter (in the sense that many such goods would be purchased for personal use by those outside UK and given as gifts to those in UK rather than purchased directly by the people in UK who want them (this sort of thing has already gone on for years, largely unchecked but not hidden from the view of tax authorities), it would be impossible to define "luxury goods" for this purpose in practice; you couldn't, for example, simply impose it on individual items whose net prices exceed a specific figure, otherwise a £3,000 designer handbag might be exempt from the additional VAT whereas a £5,000 car would not, so the definitions and classifications of goods for such a purpose would constitute a minefield, be the subject of years of wrangling and cost all taxpayers an absolute fortune to implement and maintain.

I don't see why you do not consider that the two are intrinsically related, that poverty tends to be reduced in countries which don't have these severe levels of income inequalities (see the statistics in the link I posted above). And where you claim that no major political party is seeking to propose increased taxing of the rich (one or two minor ones in the UK do, and Hollande in France has suggested a 75% rate for high-income earners) I think the potential acceptability of such measures has increased hugely since the catastrophic financial crash of 2008 - look at the widespread fury at executive pay, even in unexpected quarters. The politicians here have not caught up with public feeling.

The reason that I do not see these two factors as intrisically related (by which, for the record, I do not mean that I see them as necessarily being entirely unrelated) is that there is scant evidence to prove either that imposing unreasonably high rates of income tax (by which I mean, for example, 85%+) on those with the very highest incomes will reduce inequalities as a whole, even if it might make a tiny dent in income inequalities; as I keep pointing out, our perception of the wealthiest people is, quite rightly, predicated upon their asset ownership far more than on their incomes (taxable or otherwise) and, since the asset appropriation and redistribution to which John Skelton refers does indeed constitute legalised theft and is accordingly a non-starter, I don't see that charging massive rates of tax on the very large taxable incomes of those few wealthy people who actually have them will represent more that a drop in the ocean in terms of reducing overall financial inequalities.

I know that, as you say, one or two minor UK political parties might advocate asset appropriation and redistribution but what I wrote was that, as no such party has or is likely to secure as much as a single seat in the UK Parliament, such aims belong to the tiniest minority and stand no chance of being represented there.

I daresay that at least some politicians have yet to catch up with public feeling but, whereas that feeling has indeed - and rightly - resulted in an appropriately burgeoning focus of attention not so much on very high salaries and bonuses but on excessive (i.e. unjustified) ones, there is no obvious and incontrovertible evidence that even these feelings arise out of public concerns about income inequalities as much as they do out of chagrin that some people are being paid far more than the results of their labours demonstrate them to be worth; that said, such feelings can be (and no doubt are) as easily directed towards the occasional rogue worker on £30k p.a. who fails dismally to pull his/her weight while still contentedly pulling his/her salary.

Anyway, just as a small salvo to demonstrate that it's not only certain of the rich who try to avoid or minimise their liabilities to certain taxes...

http://www.bbc.co.uk/news/business-17931748

I think it not unreasonable to assume that most public servants do not fall into the "super-rich" category, although I would concede that this kind of thing is by no means confined to the civil service...