Tax and morality? The two should never meet…

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The language, or rather political language de jour, is for the canvassing potential members of the next parliament (Parliamentary candidates in the UK) to merge two very different concepts into one, in the public’s mind. Those words are tax evasion and tax avoidance. We (at the theMarketSoul) believe we potentially know why, but the consequences might not yet be clearly understood.

Economic principle of creative destruction - joseph schumpeter
My PRECIOUS…!

At a recent televised debate attended by potential next Business Secretary representatives (politicians who would be in charge of the Business, Innovation and Skills [BIS] department) from the three major political parties, one of the candidates challenged the audience thus:

“You (tax advisers) know the difference between aggressive tax avoidance on the the one hand and tax planning on the other.”  No the question was actually this: “Please raise your hand in the audience if you do not know what aggressive tax avoidance is.” From the podium the verdict came that about half the audience raised their hands. And therein lies the problem: Are you making this a moral question now? Because until someone is able to clearly define and explain how morality and tax planning are linked; we at theMarketSoul cannot help but think:  Where next in this one sided ‘supposed’ quasi debate?

It really depends on how you ask the question:

Is taxation moral? Is paying tax moral? What level of taxation is moral? Is being moral, paying your taxes?  If you don’t pay taxes, are you immoral?

Hopefully, you get our drift…?

© theMarketSoul 2015 skelet

Wake up Britain. You are a #TAX Haven too!!!

Let’s just pause for a moment: #Tax avoidance talk is all the rage at the moment…

In order to redress the balance of negative sentiment, combined with a political(ly) charged environment with electioneering by all major political UK parties posturing new populist policies (say that fast a few times); we thought it a good idea to put a little perspective on the matter of #Tax avoidance (tax planning we prefer to call it).  Remember this is #Election2015 coming up on 7 May 2015.

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So HSBC bank (more specifically the Swiss subsidiary of their Private Banking arm) got themselves into difficulty over the past couple of weeks with the BBC Panorama programme revelations as reported by Richard Bilton.
Accused of large scale collusion on tax avoidance or even evasion practices, the liberal and politically left leaning media in the UK have quite rightly got themselves embroiled in a multi-layered debate from both tax avoidance and the morals thereof to standards of editorial judgement, when corporate advertisers are the subject of negative headlines (the Daily Telegraph).
However, to grab a headline back for ourselves (and balance the debate):
Britain, wake-up, you are a corporate TAX Haven” and to cap it off, you are not that popular with other higher taxing G8 jurisdictions.
The overall corporation tax environment in the UK has significantly improved if you are considering a Foreign Direct Investment (FDI) route into the UK over the life-time of this last Conservative-Liberal Democrat led parliament.
 world-tax-haven
With corporate tax rates for both small and large enterprises almost aligned at 20% and 21% respectively from April 2014 onwards, for net profits assessable to corporation tax, the UK is one of the lowest corporate tax regimes in the G20 club.
What are the implications of this?
More FDI is attracted to the UK and therefore the potential to create more jobs and reduce the dependency on government handouts reduced.
What has not yet happened though, is that the tax receipts from corporations subjected to corporation tax in the UK increased significantly.  This is partly due to timing issues; Capital and Investment allowances reducing the overall tax take and further aggressive tax avoidance activities by these Multi-National Corporations (MNC).
English: Tax rates around the world: VAT rate/...
Tax rates around the world: VAT rate/G&S Tax rate (the highest rate) by countries (Photo credit: Wikipedia)
On the whole the average effective corporation tax rate actually paid in the UK is therefore less than the 21% head line rate for large businesses with profits over £300,000.  This is due to the cash tax rate paid by corporations being reduced by capital allowances and research and development credits bringing down the effective rate paid as a percentage of the net profit assessable to corporation tax to well below 21%.  These legitimate reductions are known as reliefs.
For a fuller and official explanation of the UK corporate tax system and reliefs available, we suggest a quick glimpse at HMRC site at this address:  https://www.gov.uk/corporation-tax-rates/rates
PwC put together a league table of effective (most attractive to least attractive jurisdictions on that is called “international tax competitiveness”.  In 2014 the UK ranked 16th, with only Ireland and Denmark, (two fellow EU member states) beating the UK from the EU member state block.
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We will continue to develop this theme over the next few weeks leading up to the general election in the UK.
theMarketSoul © 2015
Please take our anonymous poll below:
 
PS. To balance our views, please refer to some of these articles for your further reading:

QE – Our take on the Bell Curve effect

Making sense of the distribution and lag effects

Let us explain the problem or rather challenge of choosing between Quantitative Easing (QE) and an Interest Rate reduction to stimulate economic activity, with reference to the Bell Curve diagramme above:

There are two major factors at play here:

  1. Distribution
  2. Time

With a bout of QE, the effect feeds into the margins of theBellcurve and it takes time for the distribution network (money supply chain) to filter the new enhanced supply into the economy at large.  So there is both a distribution and time lag effect with QE.

On the other hand, with an immediate Interest Rate reduction, the effect is to cover the larger middle ground of the Bellc urve more instantly.  Yes, it does depend on your wealth and debt holder structure too, but both borrowers and savers feel the effect more immediately.

But, with Interest Rates currently so low, this option is not really that feasible. With inflation running at between 2 – 5% depending on which side of the pond you are, effectively savers are paying an additional ‘tax contribution’ to the Treasury by this stealth means.

So we are back to the scenario of a tax on the stock (or wealth) of the economy, as most flows have dried up.

Therefore, join the happy queue over here.

 Image from: http://agilepartnership.com/blogit/wp-content/uploads/2010/06/sadHappy.jpg

 theMarketSoul ©2011

Crafting the Cynical Generation?

…continuing our conversation in the Economics of Taxation series (part 2)

 

A European Generation ‘E’ enquiry – (‘E’ for employment)

Referring to our previous article entitled ‘The Economics of Taxation’, today we elaborate and flesh out the basic ideas around taxation.

The basic idea is that any form of taxation becomes a drain on productive resources and at some point counter productive in attempts at balancing the government budget.  For a fuller explanation of the effects of tax rate rises see the Laffer Curve analysis and the Cato Institute’s Dan Mitchell explain the Centre for Freedom and Prosperity’s view on Fiscal policy.


 Source: Wikipedia – Laffer Curve

Two specific points are made by Dan Mitchell in his explanation, which bears thinking about:

  • We don’t necessarily want to be at the point on the curve where government revenue is maximised, due to other factors such as the disincentives of maximising tax declaration by tax payers or the cost of collecting that revenue in the first place (sub-optimisation effects)
  • Growth (in the economy) incentives fall well short on the upward side of the Laffer curve.  In plain English this means that economic growth is maximised somewhere where people have the incentive to retain as much of their hard earned income and that point is somewhere well before we reach the Government Revenue maximising point.  (The second Laffer Curve graph above captures this point in a more visual and understandable format).  At point D on the curve economic growth will be maximised and note how it still falls well short of the Government Revenue maximising point B.

The behavioural question that fascinates us at theMarketSoul ©1999 – 2011 is how come citizens in Europe are able to tolerate so much more of an overall higher tax rate burden than our cousins across the pond in the United States?

theMarketSoul ©2011

A cynical swipe at the ‘Consumer end’ of the money (value) chain

Today’s short opinion piece revolves around the recent rail fare increases announced in the UK.

It strikes us as a very cynical way of rewarding behaviour and policies implemented by previous governments and parliaments to now go and increase the ‘tax’ on rail commuters when the switching policy from road to rail has meant that more rail passenger miles are being racked up versus road miles and supposedly turning off the tax flows into the Treasury from fuel duties, because more rail journeys are being undertaken.

Yet again the pendulum has swung the other way and at the consumer end of the bargain, we are being sent a confusing message us to which behaviours the government wants to encourage us to take.

No wonder the general malaise of cynicism and anti democratic behaviours we have recently experienced has and will manifest itself again.

Less government, less interference, less confusion.  Let the (a well governed) market help efficiently incentivise people to do the right thing at the right time for the right price.

theMarketSoul  ©2011

For more information about the Economics of Taxation just click the link in this sentence

 

 

 

Economics of Taxation

There are in essence only two ways of taxing citizens:

  1. A Tax on Stock (Wealth)
  2. A Tax on Flows (Income or consumption)
taxes
taxes (Photo credit: 401K)

Within these two tax methodologies are hidden the minutiae of  the tax regime system, but at a fundamental level, any tax raising authority has to look at these two options / methodologies available to them.

Now step back second and consider the tax take flows from  these two options:

With Incomes and consumption generally on the wane, where  else can the taxing authority turn for sustaining or growing their net tax take?  Only on the stock of capital  assets held by its citizens, so expect a sustained, possibly nuanced, yet blatant attack on your net wealth over the coming few years.

Vince Cable United Kingdom Business Secretary ...
Image via Wikipedia

Another salvo  was  launched again from the Business Secretary, Vince Cable, yesterday and we expect a sustained rhetoric and action in the next budget cycle.  Today, the main stream press are reporting rumour of lower the 50% rate to 45%, to encourage an inflow of entrepreneurial  and highly skilled management talent, reversing the recent drain or threat of ‘brain  drain’ from taxpayers in this tax rate band.

Tax
Tax (Photo credit: 401K)

theMarketSoul ©2011