Taxation magazine has done little to cover itself in glory during recent tax debates, most notably when its editor, Mike Truman, wrote an article branding Margaret Hodge 'Tax Prat of the Year'.
Now Truman has published an article by a 'partner in tax practice' using the pseudonym 'Samuel Johnson' under the title 'A modest proposal' and subtitled 'A radical new approach to address high-profile tax avoidance'. Unfortunately the whole article, which could be by Truman for all we know, is not available in full on line but I have read it all. The summary of key points reads like this:
- Google says it pays taxes legally due.
- Radical alternatives to test this commitment.
- Abolish corporation tax for some or all companies.
- Recover the lost tax by increasing VAT or NIC, possibly selectively.
So let's look at this Truman endorsed view. What it says is that it will be impossible to create a tax system in the UK that will ensure large companies pay at the same rate as their smaller, nationally based competitors. This, of course is untrue. We could have a differential in the tax rate for large business so it pays at a nominal rate at least 10% more than small business, as we did for decades. That might work. So too would unitary taxation work. But the author ignores these obvious points, making assertion instead.
He then offers his own solutions. The first is to abolish corporation tax altogether, but realises that this may be hard to stomach. So he then offers an alternative, which is just to abolish it for large companies. Oddly, he suggests a unitary formula basis for deciding which companies are large for this purpose. His claim is that the resulting gap would be derisory (which is not true: the most basic of research would prove that). But he has a solution, which is to increase VAT by a few percentage points or add to employer's national insurance.
Now this could all be tongue in cheek, but I really do not think so: the slightly flippant style of the article really does cover serious intent - and given that it is anonymised one that we can only presume Taxation endorses so it cannot attribute the views to anyone else. All of which means that Truman is now publishing the view that tax avoidance by big business is solved by abolishing their tax obligations which are then shifted onto ordinary people through regressive consumption taxes and by increasing taxes that will reduce real wage rates.
I think we learn rather a lot about Truman, his organisation and the tax profession as a result, including its happiness with opacity given the anonymity it affords to the author of this piece. No wonder Truman doesn't like the Fair Tax Mark with its focus on paying tax, tax justice, opposing tax havens and their low tax regimes and transparency. It would appear he's happy to promote the polar opposite
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Give in to all our demands and we won’t bully you any more.
It’s completely tongue in cheek! The very title gives it away, never mind the content.
Respectfully, I do not agree
That will be the claim – and I suggested I saw that in what I wrote
But actually – behind the ‘humour’ I believe the suggestions are real as another Richard also suggests here, with reasons given
Let’s think about this for one minute.
Country by country reporting = huge ongoing fees. (I would estimate the work involved will at least double their current compliance fees to clients.)
Abolition of corporate taxes = no ongoing fees.
With that equation your assessment of the situation seems counter intuitive.
E & Y said CBC = 25% fee increase for audit
Investors will think that worth every penny
So will society
He will claim it is all tongue in cheek. Taxation did so via Twitter when I challenged the options in their latest poll as being lacking in a few obvious alternatives to vote for. Interestingly the poll appeared on the website two days before the article they claimed would explain the choices. Here’s the poll:
Which radical measure would best tackle avoidance by big business?
Choices
Abolition of corporation tax
0% rate of corporation tax
Increased rate and scope for VAT
Rise in employers’ NICs
Taxation also said that the choices related to a tongue-in-cheek article.
My view is that many a true opinion is shown in jest. Especially when you put up a poll without explaining that the choices given are just a bit of fun really…
I agree
It is clearly written in a way that allows this possibility – as I acknowledge in what I have said
But like you I do not trust that
Surely increasing tax on dividends and having a withholding tax on foreign dividends would be better than increasing VAT? I think the abolition of corporation tax is an interesting idea and one which could work if you adjusted the law in other places. But as we already have a framework for it and other countries have corporation taxes, the best way must be international reform. Incidentally Richard, I think it’s a bit unfair to say the entire tax profession wants to abolish corporation tax and doesn’t care about tax fairness because of one article in Taxation (which looks to me like it is attempting to provoke debate more than anything).
In fact, having re-read the article it is clearly tongue in cheek and seems to be me to be poking fun at the idea that corporation tax avoidance can be “offset” with the fact that large companies pay lots of tax over in the form of NICs, VAT and PAYE (a view Mike Truman agrees with).
Maybe – I acknowledge that
But I also doubt it
To give colour, I saw a comment on Ben Saunder’s blog by Mike that the argument that big business contributes a lot in PAYE, VAT etc (when accused of corporate tax avoidance) “sets his teeth on edge”, which also led me to thinking that this article was aimed at being a tongue in cheek way of showing that such an argument is nonsense.
I confess a man who called Margaret Hodge a peat is unlikely to have that much commn ground with her
But he’s free to comment
I’m not sure that what Mike published about Margaret Hodge is particularly relevant. That title was mostly awarded, from memory, due to her criticism of the people who go over from private firms to assist with technical aspects of tax legislation. Again, I can’t really see why you are using one article in Taxation, which may or may not be serious, to tar the entire tax profession with one brush. Doesn’t seem to follow or to be particularly fair.
It proved what his antagonistic line of thinking is on such issues
And that is highly relevant
I don’t agree for one minute on the stance taken by Taxation magazine, but it does show how very shallow is their thinking when the only alternatives they suggest are NICs and VAT. I shall send this to my tax adviser friend who I am sure subscribes to Taxation to introduce them to a tax which cannot be evaded or avoided and is often promoted as a substitute for all taxes: land value tax.
Of course, so-called taxes on consumption (i.e. VAT) are largely borne by the supplier – they do not really result in higher prices. I know that everybody else – first and foremost the politicians say otherwise – but it is simply not true, if you actually look at figures.
But of course, all taxes on output are bad – be they on gross turnover (VAT) or turnover minus expenses (corp tax) or on the expenses themselves (PAYE). It’s just that some are worse than others.
The least bad tax is always going to be tax on rental value of land – nobody can evade that!
I wish you were right
I do not think you are
Richard, I have heard this riposte from many people, but they are not accountants or tax specialists. I do wish that someone from the profession would explain how a land value tax can be avoided/evaded.
You cannot hide land. Owners can be obliged to register ownership or lose title, since they cannot prove it. In any case a tenant could be presented with the bill and given the right to deduct it from the rent.
Valuation is no problem – it’s undertaken on a frequent and regular basis in many parts of the world. Valuations and ownership should be in the public domain.
If you don’t pay the bill you lose the title. Simple.
Fine
But it’s a long way from being the only economic activity giving rise to a tax charge
And I do not think foreclosing property will be easy in practice
I would still like to know how LVT can be avoided in any meaningful way. Payment can be evaded but with full registration at least one knows who is liable. If the land is idle, i.e. there is no user/tenant, and has a value to the community, sequestration should be perfectly acceptable.
@Anthony, why do you reject a land value tax (LVT) just because someone has suggested that it be the single tax? This is sheer prejudice.
I campaign for LVT but recognise that it should be part of a good tax system – as does Richard.
You say “if Richard Branson rented a one bedroom apartment he would thus pay zero tax…?” Do you seriously believe that billionaires would choose to live like a pauper to avoid the tax?
Residential property represents about 75% of the total value of UK plc and a substantial proportion of that is land value. Land value is created by the whole community by its activities and the taxes we all pay for public goods and services. Do you think that anyone would want to live in Chelsea if there were no transport facilities, nearby restaurants, theatres, galleries? Do you think it OK that the most Council Tax anyone pays there is £2,143.30 (with a 25% discount for single occupancy) – even the owner of a £135m apartment?
Land values are a huge untapped source of revenue, responsible for most of the wealth inequality which exists in the world and also at the heart of the financial crisis (most credit is secured on land value). What’s more it is impossible to hide land and hence evade the tax.
I’ve just spoken to Mike Truman to offer him an article on LVT. Guess what – they don’t do property taxes. Is this because property taxes generally are not conducive to dodging schemes?
i might be missing the point here, but I think someone is suggesting that we abolish taxes and just levy tax on land?!? if Richard Branson rented a one bedroom apartment he would thus pay zero tax, is that seriously what is being suggested?
Yes
I do not agree with it
wow ok – I thought I had misunderstood the suggestion ! as you point out elsewhere I think, there is plenty of economic activity (which should be taxed) which has nothing to do with land (online trading is an obvious one for a start). Anyone seriously suggesting this as a basis for a tax system has respectfully “lost the plot”
“if Richard Branson rented a one bedroom apartment he would thus pay zero tax, is that seriously what is being suggested?”
If he rented a small flat in a cheap area, then yes, he would pay next to no LVT (or tax in general). But it is highly unlikely that very wealthy people who need to show off would do so – they can already save themselves a fortune in rent or mortgage interest (or free up cash for more profitable invesments) by trading down into a one-bed flat in Newcastle, but they don’t.
That’s like saying “If we have VAT on new cars, then Richard Branson would start using the bus or walking to work” or “If private schools started charging £10,000 or £20,000 a year, then people like Richard Branson would send their children to private school” or “If we have tax on tobacco, then people like Branson would stop smoking and not pay any”.
As it happens, Mr Branson derives a lot of his income from rents in the first place, and so he would end up paying tax on all this at source. What he does with his net income is entirely up to him. And as it happens, I assume that he doesn’t smoke and hence pays no tobacco duty, and good luck to him.
It may be tongue in cheek, but if you look back at some of the best satire, you will see that real life has a habit of imitating it!
But it’s a long way from being the only economic activity giving rise to a tax charge.
That presupposes that what constitutes an “economic activity giving rise to a tax charge” is a given. It’s not. We tax to raise revenue. If anything, moral reasoning would lead one to the conclusion that if we are to tax, we should do it in a way that reduces the negative effects on economic activity to a minimum, maybe even based on what benefits the taxee receives from the community as measured by market valuations. As it happens, such a tax exists. But hey, if the goal is to have opportunities to give moral judgments on who should and should not pay tax on more or less shifting reasoning, high taxes on income and economic activity is probably better.
For the record, A Modest Proposal was Jonathan Swift, not Samuel Johnson.
Asking the accounting/legal profession, the HMRC, the HMRC unions and various pressure groups (e.g. TJN and yes, Tax Research) to get rid of taxes on companies is like asking turkeys to vote for Christmas.
They posture as if they are adversaries, but they all benefit from keeping the system obscure, complex and (in the case of the HMRC unions, accountants and lawyers) labour intensive.
They keep the circus going by creating the ridiculous assumption in the minds of the public that taxes on companies is somehow a tax on the ‘rich’.
Meanwhile, the ordinary taxpayer suffers, caught in a system frankly few understand.
It’s a stitch up. Time for some new thinking from people not already benefiting from the system.
Corporation tax is a tax on capital
I will blog why later
To argue otherwise is to argue for all taxes to be on labour
Thanks for the reply.
If it is supposed to be a tax on capital (I look forward to your blog on the issue), with so much avoidance going on, isn’t it really a non-tax (or if you like, a failed tax) on capital?
Whilst company managers may not be under a strict legal obligation to avoid tax, all the incentives within the organisation are there for them to try very hard. It is hardly surprising when they do it.
Anything that tries to tax companies needs to be able to defeat that massive incentive, and the brainpower and resources that support it.
My point is there are too many people on the gravy train with a personal incentive to keep taxes on corporations going, in the same old complex, obscure and labour intensive way. Unfortunately, those same people keep the rest of us hoodwinked that all of this is necessary.
I too [re Carol Wilcox above]would like to know the technical case against LVT as an alternative to corporation/income tax. Mark Wadsworth makes a compelling case for it on his own blog and it appears the only stumbling block is political. The idea that people are paying a tax on wealth [as ‘they’ view land as an asset even though the Tax is levied on that portion of value which accrues to land which has nothing to do with the owner] rather than just on income or profit would make middle England and pensioners living in expensive properties rise up in revolt [presumably].
I am all in favour of LVT
But it is no alternative to income tax and CT
First it assumes all income is source based – i.e. arises in the UK. That is not true
Second it does ignore capacity to pay
Third, it is almost impossible to fit into existing treaty structures – giving massive scope for abuse
Fourth relying on one base is like playing a round of golf with a sand wedge – possible, but crazy
Fifth, I see it as a replacement for council tax – certainly. But raising £200 billion? I don’t think so….not for a very long time
I’ve taken the liberty of mining Wadsworth’s own responses to the points you made[since they are points made by many others]where possible.
“First it assumes all income is source based — i.e. arises in the UK. That is not true”RM
I didn’t see this dealt with by MW but surely; to the extent that individuals make money abroad they would not normally be expected to pay tax on it at UK rates, just the difference between the UK rate and that jurisdiction where they are deriving income? To the extent that they have property here though, they will be levied taxes and hence would presumably pay rather more in tax on substantial property they own [or effectively pay it in rent if they don’t own]than under the current regime.
“Second it does ignore capacity to pay” RM
The short answer to the issue of the ‘asset rich/cash poor’ is that people over retirement age who really want to stay put and realistically cannot afford the LVT will be given the option to defer and roll up the LVT until they die and the house is sold. MW
“Third, it is almost impossible to fit into existing treaty structures — giving massive scope for abuse”RM
Nothing specifically dealing with this point on MW’s site but I suppose it’s ‘political’ barriers that are evident here. Might be another reason why we might want out of Europe though.
“Fourth relying on one base is like playing a round of golf with a sand wedge — possible, but crazy”RM
If we collected that [£200 billion] in LVT, that would be enough to replace the most damaging taxes, those specifically on output and employment i.e. VAT and National Insurance…Getting rid of nuisance taxes such as Council Tax, SDLT, IHT, CGT, the TV licence and Insurance Premium Tax (total receipts approx. £50 billion) would be part of this initial shift, of course, because income/corporation tax receipts would increase by that much anyway once the economy is released from the burden of VAT and NIC. MW.
[in other words it would be a gradual change from current to new system]
“Fifth, I see it as a replacement for council tax — certainly. But raising £200 billion? I don’t think so….not for a very long time”RM
The simple fact is that the total site-only rental value or site premiums of UK residential land is currently about £200 billion a year. RM
So do we have a 100% tax.
When you say a 100% its does only mean 100% of that part of the value that is due to location only. Hence identical 5 bed detached house in Highgate Village rental value of £4k per month whereas one in South Wales is £600.00 per mth.So it owuld be a tax only on that portion which has nothing to do with the size and quality of the building per se. ie;nothing to do with that owner’s improvement of the property and entirely due to its location.
Also that £200 billion figure is for residential property only so it wouldn’t in fact imply anything like a 100% tax.
I still fear this would be regressive
“there is plenty of economic activity (which should be taxed) which has nothing to do with land”
All super-profits of all activities, include online trading always trickle down into land rents in the end (high frequency trading companies need to have a server right next to the Stock Exchange central computer, i.e. a few yards away rather than a few miles away). And how is online selling (like Amazon) vastly different to mail order?
As it happens, I covered these objection on the KAALVTN blog here:
http://kaalvtn.blogspot.co.uk/2013/01/i-lvt-would-not-raise-enough-revenue.html#2b
http://kaalvtn.blogspot.co.uk/2013/01/x-semi-literate-faux-libertarian.html#5
That last comment [£200 billion a year] should have been initialled with MW…not RM, of course.
We have a 100% tax if it ensures social justice, simple.
Richard, you have built a towering, tottering edifice on foundations of sand.
If I write an article in Taxation I put my name to it, this wasn’t mine. It follows that it is not “endorsed” by me or by the magazine – you should know that, we’ve published a couple by you… In order to get into the magazine you need to write something that I, as editor, think worthy of publishing, not something I agree with.
The description of the author is accurate, the name is obviously pseudonymous. I wish now that I had made the correction my subeditor suggested, which would have shown that we knew Swift, not Johnson, wrote “A Modest Proposal”; but using the name of one of Swift’s biggest contemporary critics was a rather clever joke of the author’s that I didn’t want to spoil with a stonking great signpost.
The point about “A Modest Proposal” was that it was hyperbolic, as was this article. Whether it concealed any serious belief that some of this would work is known only to the author. I read it more as a “be careful what you wish for”; for example, would Google really react with equanimity if the VAT zero rate on books was abolished?
And I rather like land value tax as well, but not as the solution to all our problems.
Mike
I note you have almost never published articles you disagree with – I say almost with care
So I assume what is published genrally reflects your view. Oddly that’s true of most publications
I note I am not alone with my concerns: for example your related poll gave no hint of the supposed irony you think implicit in the piece and you have not explained that
Richard
RM: “I still fear [Land Value Tax] would be regressive”
But regressive to what?
A flat tax on the rental value of land is clearly not regressive as to land wealth, and if we have a personal allowance or flat rate welfare system, then it is inherently progressive to the amount of land which people own (assuming a full-on system, by definition, the median household in the median value home would pay +/- nothing in tax).
Or do you mean “regressive relative to income”? Well sure, there are a few “Poor Widows In Mansions” but if you plot people’s total income (earned or unearned) by percentile on the x axis and the amount of land they own on the y axis, you will see that the bottom third of people by income probably own no land at all (or a negative amount – i.e. they have to pay rent) and the people in the top 10% own 50% of the land (directly or indirectly).
Regressive to income
Fair enough, that’s a straight answer.
I have looked at this possibility, but all the available data on distribution of incomes and land ownership, and data on who pays how much in tax etc and all my calculations based thereon comparing people’s current tax bills with their tax bills under a 50/50 system with half of revenues from LVT and fuel duty etc and the other half from a flat income tax suggest very strongly to me that lower and median earners who are tenants or live in median value houses will pay a lot less tax every year, between £5,000 and £10,000 a year for most such households.
I embedded the spreadsheets here
http://kaalvtn.blogspot.co.uk/p/the-transition.html
Clearly, some people will be paying a lot more tax, and that’s going to be the heirs of Poor Widows In Mansions (deferred like LVT is like Inheritance Tax but better) and oligarchs who own central London and currently pay no tax and of course landlords, large landowners who get planning gains and the bankers and the financial services industry.
I doubt that my LVT allies like Carol Wilcox, who is far to the left of me on the spectrum would propose LVT if there was good reason to assume it is very regressive, but it’s always possible we are wrong (and if we are, I’d like to see some hard evidence and anyway, it’s nothing that can’t be fixed by having a higher “personal allowance” for LVT).
I admit, I am working from instinct at present
But I can see no way this tax can replace income tax fairly and not be seriously regressive at the top end where consumption is low
Richard, given where we are starting from, I’ve always said that LVT should firstly replace regressive taxes – starting with Council Tax, SDLT and TV licence, and ideally NICs and VAT (these taxes hit employment and output, but interest and land income or rental income are largely VAT-exempt and they pay a lot less in NIC).
For the sake of my calculations I have assumed we keep a flat income tax 20% (the second least bad tax after LVT), which would raise half of revenues (and LVT and fuel duty and sin taxes the other half). Sure, you would prefer higher rates of income tax at the top end and a higher personal allowance at the bottom end, but that makes the calculations heinously complex.
Also, it is probably true that “consumption” is lower among higher income people (i.e. they spend less than they earn, unlike lower income people who have to spend every penny they earn – with a disproportionate amount on rent) but that is an argument for getting rid of VAT (mildly regressive and very damaging).
And where do higher earners park their money, if not in “consumption”? By and large, it’s in land and housing, so e.g. replacing VAT with LVT would, as far as I can see, be reasonably “progressive” (in the marrow sense that “poor people would pay less than they do nowadays”).
You may be right….but I need data
And i still would never agree it could replace many taxes