Corporation tax, tax avoidance and the Laffe curve....

tomstickland

The Guardian are running a major campaign about tax avoidance at the moment.
They don't seem to keen on running comments on the articles for some reason, I can only guess that they are receiving too many annoying questions or statements about their own activities.

Anyway, I found this from the Tax Payers' Alliance:

http://www.taxpayersalliance.com/campaign/2009/02/a-response-to-derek-draper.html

Derek Draper is the former spin doctor who does stuff for the Labour party, most recently setting up LabourList.org.

Corporate tax avoidance is a rational response to an overly complex and burdensome tax code. With Britain having fallen behind other OECD countries, and now imposing a higher than average corporate tax rate, companies face a significant incentive to avoid that burden if they can within the law. We now also have the most complicated tax code in the world, having recently overtaken India, which encourages and enables firms to find loopholes.

I think that those who dream up the taxes fail to realise that their net income will fall if they go too far ie: Laffe curve.

tomstickland

LOL, Draper is now calling them the Taxavoiders Alliance.

7.00 pm Mark Wallace of the Taxavoiders' Alliance has posted a slightly hysterical response that avoids answering our questions by attacking Derek Draper personally instead. Unfortunately for him, we'll be pressing for an answer. Good to know they're rattled though.

http://www.labourlist.org/home

(If you want to register to post tick the box saying "yes I am a party member").

I wouldn't expect them to be fans of the Tax Payer's Alliance, what with all the delving they do into where our money is !!!!ed away.

kennyboy66_2

tomstickland wrote: »

The Guardian are running a major campaign about tax avoidance at the moment.
They don't seem to keen on running comments on the articles for some reason, I can only guess that they are receiving too many annoying questions or statements about their own activities.

Anyway, I found this from the Tax Payers' Alliance:

http://www.taxpayersalliance.com/campaign/2009/02/a-response-to-derek-draper.html

Derek Draper is the former spin doctor who does stuff for the Labour party, most recently setting up LabourList.org.



I think that those who dream up the taxes fail to realise that their net income will fall if they go too far ie: Laffe curve.

I think there is a conflation of several separate issues.

Corporation tax rates may be to high but it is impossible really to compare one country against another because of the mass of different allowances.

Taxation has certainly become to complex in the UK. The taxation guide Tolleys, used to be about 5000 pages 7 years ago (only 5000!), it is now double that and they have had to reduce the print size to keep it under 10,000 pages.

Finally, as companies have become bigger and more multi-national (Generali descibed it as Corporatism rather than Capitalism) the incentive to evade (or avoid) tax has grown. Many huge multi-nationals pay a overall lower tax charge than any of the mainstream rates in the countrys they operate, which should make you wonder.

You will also find that many large companies, will happily pay a tax consultant £1 if it saves them £1.20.

There is a whole tax avoidance industry that needs feeding, to think that if marginal rates are cut that companies will put less effort into tax aoidance is naive to say the least.

JonnyBravo

tomstickland wrote: »

(If you want to register to post tick the box saying "yes I am a party member").

I haven't checked (cos I cant be bothered) but are you saying you have to say you're a party member to post an opinion?
That would sound about right.... I'm sure they get lots of balanced views

:rolleyes:

Generali

kennyboy66 wrote: »

I think there is a conflation of several separate issues.

Corporation tax rates may be to high but it is impossible really to compare one country against another because of the mass of different allowances.

Taxation has certainly become to complex in the UK. The taxation guide Tolleys, used to be about 5000 pages 7 years ago (only 5000!), it is now double that and they have had to reduce the print size to keep it under 10,000 pages.

Finally, as companies have become bigger and more multi-national (Generali descibed it as Corporatism rather than Capitalism) the incentive to evade (or avoid) tax has grown. Many huge multi-nationals pay a overall lower tax charge than any of the mainstream rates in the countrys they operate, which should make you wonder.

You will also find that many large companies, will happily pay a tax consultant £1 if it saves them £1.20.

There is a whole tax avoidance industry that needs feeding, to think that if marginal rates are cut that companies will put less effort into tax aoidance is naive to say the least.

Spot on, IMO.

Tax avoidance is perfectly reasonable and rational and almost everyone does it - you save for retirement using a pension scheme because that's the tax efficient way to do it or you bring fags back when you go to Spain on holiday because they're cheaper over there.

The simpler the tax code, the harder it is to avoid tax. The lower the tax rate, the less worthwhile it is. We have an ever more complex tax code and increasing tax rates so I guess the incentives and ability to cheat have become greater.

I guess it depends on your view of the tax system. Should it raise revenue to allow the Government to provide essential functions (in whatever way you chose to describe essential functions) or should it be 'fair' in some manner (depending on your view of what constitutes fairness of course)?

kennyboy66_2

Generali wrote: »

Spot on, IMO.

Tax avoidance is perfectly reasonable and rational and almost everyone does it - you save for retirement using a pension scheme because that's the tax efficient way to do it or you bring fags back when you go to Spain on holiday because they're cheaper over there.

The simpler the tax code, the harder it is to avoid tax. The lower the tax rate, the less worthwhile it is. We have an ever more complex tax code and increasing tax rates so I guess the incentives and ability to cheat have become greater.

I guess it depends on your view of the tax system. Should it raise revenue to allow the Government to provide essential functions (in whatever way you chose to describe essential functions) or should it be 'fair' in some manner (depending on your view of what constitutes fairness of course)?

It pains me to say it but we could do with a genetic synthesis of Geoffry Howe (for fiscal prudence) and Nigel Lawson (tax simplification) as chancellor.

The concept of fairness is interesting. I think a sense of fairness is hard wired into human behaviour.
I think the majority of people stay in line if they think society is generally fair - ie everyone has a reasonable chance of making a decent living if they work hard enough, that the state provides a safety net rather than a feather bed.

Fairness certainly trumps rationality in human behaviour (loss-aversion being a good example of peoples irrational behaviour).

I think, in the UK, once the Government takes much more than 40% of the pot, people start getting a bit peeved. Once the take tips too far towards 35% then services start to deteriorate to unacceptable levels.

The only thing that will change these %s is structural reform of one of Health, Education, Pensions, and Welfare - or possibly all 4.

purch

and Nigel Lawson (tax simplification) as chancellor

Yep,

Still waiting with 'bated' breath for the wonderful 'simple' Tax System that Fatty Lawson promised in his last Budget speech.

tomstickland

Oh, I can fully appreciate that companies will always seek to minimise their tax burden. It's entirely sensible behaviour, no worse than trying to maximise benefits whilst still meeting all of the rulse.

My point was that, sadly, the current government seem to think that you can just keep increasing tax and people and organisations will just keep paying it regardless. Clearly, as tax rates increase along with complexity then companies will regard money spent on tax specialists as money well spent.

I think that their thinking is a bit naieve - keep on increasing tax and then start huffing and puffing when people work harder at avoiding it.