I have been asked several times by people from at least four countries this week, so far, what I see the agenda for tax to be now that the end of the BEPS discussion process is in sight and the Millennium Development Goals are to be replaced, all taking into consideration the revelations of Luxleaks and similar leaks relating to personal information.
The issues split between the practical and the visionary. The practical are about embedding the progress made to date; the visionary about continuing the process of change because I do not see that as complete as yet. Let me offer some insights into both, starting with the visionary.
First, wealth taxation is now on the agenda, whether that be literally wealth taxes, or inheritance taxes, capital gains taxes, land value taxes or transaction taxes levied on assets used for investment purposes. Piketty is part of the reason for this of course, but by no means the sole one. The reality is that these taxes have been largely inoperable to date because of the difficulty in tracing wealth if hidden offshore. If more than 90 states take part in information exchange soon then this tracing problem is going to reduce, if not disappear. Wealth taxation is now possible and in a world where the impact of inequality is beginning to be understood it is going to happen. This may be the biggest single shift in taxation to come.
Second, tax gaps are going to become much more important. They exist, of course, but countries are very largely in denial about them. It suits tax authorities to deny that scale of the problems they face because without a tax gap measure it is hard to assess the effectiveness of a tax authority. This is going to change. Tax revenues will remain in short supply and the need to collect what is due will grow. Tax gap measurement will become more common and I hope it will be encouraged by both the EU and OECD. More study on methodology will be required, but top down approaches have to be favoured. The impact of this on tax debate will be significant.
Third, the shift on tax will move from tax avoidance and the international arena to tax evasion and the domestic agenda. There is an obvious reason for this: this is where the big losses are. I am certain that in most economies seventy five percent of all tax losses are likely to be from domestic evasion. The issue cannot continue to be given low priority for ever, and yet has been to date.
Internationally, despite the progress BEPS will deliver (and the process will not be in vain, although all the hoped for promise will, inevitably, not be fulfilled) problems will remain for three reasons. The first is that the arm's length transfer pricing process remains flawed. The second is that inadequate and incompatible accounting data permitted and even encouraged by International Financial Reporting Standards and its relationship with a hotchpotch of local generally accepted accounting principles around the world will continue to allow accounting arbitrage of tax rules around the world even if tax rules begin to be harmonised. Third, the accountants will exploit this fact and there is far too little understanding of the implications of tax on accounting revenues at present. I think this is, then an issue requiring attention in a very big way. I predict significant interest in Tax Reporting Standards that seek to overcome these issues and ensure that the start point for all tax computations - which is the figure for profit before tax in the accounts - has some consistency in it.
Fifth, there will be a change in philosophy on international tax. Tax competition is going to begin like what it is, and that is tax war. States are going to realise that this is a route to madness - mutually assured destruction. Tax cooperation is going to replace tax competition over time, and public sentiment will demand it as it is appreciated that tax competition has been promoted by those who seek to exploit it to avoid tax due.
Sixth, and, for the moment and a little arbitrarily, last on this list, public pressure on this issue will begin to shift from corporations to the state. The scandal has been abuse by major companies, but there has been progress on that issue and there will be more. Tax avoidance will not stop, but it will be curtailed and the inevitable introduction of country-by-country reporting into the public domain (it is inevitable: I suspect within five years, at most) will help contain this issue still further. But, as that awareness grows and yet austerity remains an issue and awareness of the tax gap increases then the focus of pubic anger will become the lack of resources to collect tax owing. The demand for resources for tax authorities, who are now being denied them, will grow, significantly. People will realise that cuts in tax authority staff are causing real harm to society and will question why they are happening. With that will come three other things: the demand for automatic information exchange from domestic banks to domestic tax authorities on trading activity to curb tax cheating; a demand for greater domestic transparency such as proper regulation of companies with all accounts on public record, which we are denied now, as well as registers of beneficial ownership for companies and trusts that are properly policed, and lastly, proper political oversight of tax authorities, which is where my belief in the need for an Office for Tax Responsibility comes into play.
So that's the high level stuff. What about the more pragmatic responses that need working on? In the interests of keeping this to blog length that will be the subject of a separate post, soon.
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You identify increasing awareness that the next major advance in tax has to be wealth tax.
If promoted as being a shift away from taxing the acquisition of wealth and towards the taxing of wealth itself, this could have wide appeal, even amongst those who aspire to, and are working thir way towards, wealth.
An annual ‘cut and come again’ wealth tax raises revenues in a way least harmful to the living standards of those being taxed, and that should be the selling-point.
The practicalities of enforcement – I.e. tracking concealed wealth – cannot be denied or glossed over, but an important ingredient could be self-declaration.
The ‘quid pro quo’ should be that any wealth not declared would be wealth disowned and would belong to HMRC. Similarly any under-declaration would be a statement that the taxpayer is happy for HMRC to compulsorily acquire that asset at the valuation price.
Many caveats about margins, errors, etc., but this could serve as a guiding principle.
Wealth tax non declaration resulting in forfeiture is good
And also that a person must be willing to sell to the state at the value declared – which is a right that would have to be enforced, very occasionally
Isn’t the problem here defining what ‘wealth’ is, for example:
– where does the wealth tax start?
– is it net wealth (i.e. asset values less borrowings)?
– someone who starts with little capital and property and, through their own efforts achieved a well paid position, managed to save a proportion of their income after paying all taxes required, and now have a (relatively) substantial amount of capital – are they to be wealth taxed?
– is primary residence property now mortgage free (but paid for over years of mortgage payments) to be classed as ‘wealth’?
Many more questions, I’m sure.
Wealth is net worth
A primary residence could be excluded if we had a progressive land tax on them
Next?
Max, when you buy a secondhand car and then trade it in for a better one, do you expect to get more than what you paid for the first car?
Houses are different to other commodities because of the land element, which doesn’t wear out and increases in value with no effort on your part. Indeed it is only the local public investment in infrastructure and services(paid for by all tax payers) which maintains or increases the land value. For that reason alone it should be taxed.
And I do not agree at all that only second homes should incur LVT. KISS
Ignore last part of comment – I didn’t read Richard’s reply properly.
So far as a wealth tax on top of LVT is concerned, I have a concept of a simple ‘mansion tax’ based on living area (could include outhouses and swimming pools, etc). With a high threshold of, say, 200 sqm (more than double average) this could be paid by occupiers, unlike LVT, and require self notification and assessment (with random checks and data in public domain), so collection cost would be minimal. This is in the Communist Party tax pamphlet http://www.communist-party.org.uk/pamphlets/1887-from-each-according-to-their-means.html – but is my original idea;o)
“All well and good” Richard but…… your first demand for “automatic information exchange from domestic banks to domestic tax authorities on trading activity” is asking the head poacher to become game-keeper or the wealthiest crook to become the police constable. He may well take it on but it will still just be a front for skulduggery!
No we need to lower the tax required by introducing more debt free sovereign money and hiking bank capital reserve requirements to curb their money creating boom and bust activities to a respectable level. In the UK it was 50% M3 in 1970 and is now approaching 98% – or has QE dropped this considerably? – albeit into asset bubbles and not into the economy!
In a competitive environment a sales tax or purchase tax such as v.a.t. is a tax on the seller not the buyer so this is a realistic means of raising revenue whilst encouraging savings [and bubbles perhaps!] Income tax can be lower in order to stimulate demand; you cannot run a successful consumer-led economy with customers who are on the bread-line.
There is a strong case for “Basic Income” as on-going mechanisation, robots and 3d printers remove the best of meaningful and constructive employment options.
I am a fan of basic income
And Green QE
But there is no way QE can pay for a basic income. I think that is fantasy economics
An annual property tax (preferably on non-consumable land) should form the biggest tax base for any economy. It is unavoidable, is irrelevant to international tax competition and can correct the dysfunctional land market, which does not allocate to best use.
If I may, I think that the order of battle is to win hearts and minds first, it’s not just a question of taxing wealth, it has to be about clearly stating the benefits and positive impact of raising and spending taxes and how that – if we all contribute – we all benefit.
So the way I see it, we need to be better at pointing out the beneficial outcomes of taxing to spend (the same princple should be about NI contributions as well).
To me taxation is like the glue that helps society to function and although it also has to pay for civil servants to get it to work for us, I’d rather pay them than have to fork out for returns to investors for example.
My book The Joy of Tax addresses these issue
On its way……
Well Mr Murphy don’t work too fast – I haven’t finished your first book yet!!
We’re months away….
In setting out the benefits of the public sector in your book, have you researched (or do you plan to research) the issue by working inside the public sector for a while — particularly in a role where you get to see a wide range of activities?
I’d suggest a get-your-hands-dirty finance or procurement role within a local authority, preferably a county Council or other unitary one.
You’d get to see a broad range of activity — social care, regeneration, leisure, culture, waste and other neighbourhood services, transport, highways, public health, planning, licensing — etc. Much broader than in central government, NHS etc.
Your book would benefit from such personal research. You can’t find out much about this subject simply by talking to people – the culture is far too secretive for outsiders to really have much of an accurate idea. You need to see it first hand for yourself.
(I’d imagine it would be hard for you to get such a role if they knew you were doing it to research a book, but there you go…)
I am not taking on such a role, no
‘Next’?
OK, first question.
Where to wealth tax start – i.e. for the avoidance of doubt, how much net wealth is tax free?
A few hundred thousand?
It would need to start very low and be progressive
Of course, this wouldn’t ‘create’ anything, just shift it around. ‘A few hundred thousand’ would bring in just about every house owner who owned their home for a decent period into the net. Certainly just about every house owning pensioner. Income that they had previously spent in the community would now be passed to the state (perhaps to pay for the army of civil servants your sponsors at the PCS want).
You seem to think that there’s billions sat in biscuit tins or stuffed in mattresses and it’s there waiting for you to liberate and turn to state use.
There isn’t. People spend their money, particularly those at the levels you are talking about.
Your philosophy is that that the state knows how best to spend other people’s money, the people who have had the drive and gumption to earn it in the first place when history shows time and again that it does not. States like the one you want plough on regardless, unchanging, unyielding until inevitably they collapse.
Thank goodness your dreams are made from pipes.
Did you notice the programme on the Super Rich on BBC 2 last night?
Take a look
Made by a Telegraph journalist
Wealth taxes will happen – I guarantee you = and will liberate funds within the economy for the benefit of us all – the wealthy inckuded
Oh yes, because of course the super rich will just sit around while you milk them. No chance they’ll move to a more benign tax regime is there?
I can undestand some of your supporters being so naive they believe you when you say such things, I’m just can’t believe you’re so naive to say them.
If we have a US style tax system, as I propose, they can move where they like and still owe us
So how do you plan to inform yourself on how the public sector works?
I’m genuinely curious how you’ll do it. Simply relying on what others tell you would give you an incomplete picture.
And I’m not suggesting you would see a horror show – far from it. But you could expect some of your preconceptions to be challenged.
Adrian
You may not be aware of this – but you don’t have to do a job to be able to comment on it
And yes, being able to research, generally, helps
Your method would prevent all progress
I guess that is what you want?
Richard
Thanks for the reply.
That’s my point: there are some things in life you have to experience to be able to make useful comment to contribute to progress – and in my view (as a current public sector worker) working in the public sector (particularly in certain roles seeing a range of activities) is one of those things.
We’ve been discussing this around the office this afternoon, and we all agree with this view. This is not something you can research from academic journals.
One of my colleagues asked why you’re so averse to working in the public sector.
Another asked: if you don’t plan to have a go yourself, how will you research it?
Good questions!
With the greatest of respect, you are talking a great deal of nonsense
How long must I work in the public sector before I can comment?
And what as?
And why would anyone appoint me?
Do you really think it is impossible after 35 years of experience at work observing vast ranges of functions and operations to not be bale to form a view on an issue without taking a job doing the task?
If you do I think you need to broaden your imagine and horizons
Or stop talking nonsense
Of course, you can comment. It is a free country.
But if you haven’t researched the subject the way a bunch of us procurement, finance and social service commissioning types think you should, then there is a credibility issue.
The half dozen or so of us discussing this today probably have a century of public sector experience between us, but what do we know on the subject, apart from nonsense?
I imagine you have the skills to get work in the public sector quickly, probably in a finance role. Can you do project management or policy work?
Try contracting for a year at your County Council – you’d see a lot. I reckon you’d need at least a year to see a breadth of things.
And you might enjoy it and want to stay longer — there is interesting work, and nice people.
What’s really holding you back, assuming you are genuinely interested in the role of the public sector?
Call an agency and you can be doing it by the end of the month.
So I can continue to work in tax reform and related issues, where many (even opponents) see me as an expert and key to change in many areas or get some experience which will have limited impact on anything I do
Yes I do question your judgement
And I do doubt you had the conversation you suggest took place
OK, fine, write what you want, and good luck with it.
This may surprise you, but I never needed your permission to do just that
I know you don’t need my permission.
As I already said, you can write freely about the public sector.
Something I can’t do freely and publicly in my own name if I want to keep my job.
Maybe a point for you to reflect on. A higher percentage of the population in the public sector means a higher percentage of the population keeping their mouths shut out of self interest.
If I have misled my colleagues on your ability to write credibly on the public sector, please let me know, and I will correct it with them on Monday. I already mentioned chartered accountant in private practice, serial entrepreneur and your TR work.
What have I missed?
People in the private sector do not have freedom either
Note what is happening to a former PWC employee in Luxembourg
Shall we get real here?
Of, and state sector experience is in several schools and one HE college
And much discussion and observation up to Treasury level
“People in the private sector do not have freedom either”
Well you’re in a lucky position then. Inherently, from the private sector.
It is up to you whether you use your lucky position to research the subject responsibly. As someone at the coal face, I have given you my opinion of what’s required, but you seem relaxed about it.
Having said that, there is a big difference between the freedom to criticise the State (with its unique powers to make law, impose taxes, jail people, go to war and impose capital punishment) and a private employer which does not have those powers. If you regard them as equivalent, then I am alarmed.
“And state sector experience is in several schools and one HE college And much discussion and observation up to Treasury level”
What did you do at the schools and HE college? And what do you mean by ‘discussion and observation’ – what’s that? I hope it is something a bit more substantial than being a school governor and going to a few meetings in the visitors area.
Why are you so vague about what you did? Am not sure this will impress my colleagues – doesn’t come across as particularly extensive or ‘at the coal face’.
Chair of Governors
Pretty interactive role
But Adrian – nothing will impress you – you’re wasting my time
And I have better things to do
It was just Friday afternoon banter at our cluster of desks in an open plan office. Nothing more. We talk about all kinds of things while we work. Haven’t you ever worked in an open plan office?
I posed the question: there is a some chartered accountant guy who wants to write a book about the public sector, but refuses to work in it. Can he write on the subject with credibility?
Why would you think they should say ‘yes’?
Maybe my colleagues aren’t typical. Maybe most middle management local authority employees do think chartered accountants who have never worked in the public sector understand how it works.
One of my colleagues asked why you don’t just get a 12 month contract to help you research your book. Good question. Your resistance to working in the public sector has now got me puzzled.
I have finite time
I have some expertise
I am writing a book on tax
I undoubtedly believe in the public sector
I never plan to run the public sector
I have choices to make
Your question was wrong as to my subject and purpose and so offered inappropriate choices
You misled your colleagues
You even gave them an inappropriate assessment of my qualifications for the task
Unsurprisingly I have got the right answer and you the wrong one in that cases
Stop wasting my time
Oh dear oh dear…………..Geoff!!
Has it not occurred to you yet that it is the markets that collapsed in 2008 – not the State – it was MARKETS left to their own devices (as States had been advised to do) that failed. Markets stopped functioning.
It was the State that has had to bail out the market either through QE to keep money moving and also provide rescue funds for other financial institutions.
It is about time you stopped just regurgitating this inducted neo-liberal dogma and tried to use a bit of deductive thinking instead. The facts are known. The evidence is there. Where have you been all this time Geoff?
Where would you rather be, then, Mark? In the UK now or the collapsed Soviet Union?
The banking crisis has still left us with a standard of living far beyond the reach of anything achieved by any centralised state led economy.
You should go out more, look around. If this is us in the middle of a crisis, it’s a crisis I could put up with.
Where have I been all this time? Working since 1987, in the public and private sector, through economic ups and downs. Watching as free markets recover from these set backs while centralised markets collapse and fall, never to recover. Knowing that the trite slogans of the left become more and more meaningless as time goes by. Knowing that those that expect the state to come to their rescue will be disapointed and those that wave magic ‘tax wands’ that promise ‘every thing wil be all right’ are just charlatans.
You carry on Mark, hoping for some sort of collapse of society to make you feel vindicated. Me, I’m off down the pub with some mates. It’ll be heaving.
I think you show your true colours Geoff
They’re not appealing
More relevant, how many Chinese would swap their centrally controlled state for capitalist India where poor lower class women haul buckets of shit from open sewers within smelling distance of luxury hotels?
Geoff
The USSR collapsed because western policies were designed to get it to collapse (such as the arms race, space race etc.,).
And it did not really collapse – it just ground to a halt really. It did collapse however when western advisors using free market ideas went in there in an attempt to change it overnight instead of introducing gradual, managed change.
That’s how we got Putin. They’ll never trust us again and I don’t blame them.
As for your wonderful free markets Geoff, the North in this country has never really recovered from the economic vandalism of Thatcher. That’s why the tax payer has to keep forking out to keep the North viable to this day.
And what is this nonsense about me wanting things to collapse?
As a member of the shrinking middleclass who has seen his pay and conditions reduced, why would I want that?
Every time your free markets mess up, more people are thrown on the scrap heap and fewer get back on the wagon when things get moving again. More poor are generated (working poor Geoff) and the middleclass shrinks. And that is progress is it? That’s getting back on your feet is it? Hmmm……………
As for your post 2008 recovery – how can the standard of living be called high when it is fuelled by increasing debt? And the rich have got richer (as they tend to do)!
Albert Einstein apparently said that the definition of insanity was doing the same thing over and over again expecting the same results.
This is what the idea of free markets has become: insanity as defined by Einstein.
You talk of economic ups and downs as if they were natural occurrences. They are not natural or necessary. They are caused by greed and stupidity and a lack of regulation/self control in the hub of the so-called free markets called the financial sector.
Let’s do a deal. I’ll get out a bit more if you promise to actually read a bit more. That’s fair isn’t it?
And that’s because all I represent is a desire to redress an imbalance.
On their own, your free markets are actually no better than a centralised state working on its own. By themselves, both tend end in tears. We need balance. The two should work together for all – not just the rich.
I hope that you had a good night at the pub.
Carol Wilcox @ 10;40am
I can’t be making myself clear. Regardless of the mechanism (of which LVT is just one) how will wealth taxes work?
For example, you quote the increase in house prices as a taxable wealth (above LVT ?) but what is the value ot the asset. Is it the price paid in cash, or the price paud after mortgage interest or what?
To take your earlier example, can I offset the loss on a car against my wealth before it is assessed for tax?
Can I discount any savings made out of pre-taxed income?
The whole pointis that ‘let’s have a wealth tax’ is not quite as simple as that.
How do you think it would work?
It’s an issue you will need an opinion on: it is inevitable we will have one
Hang on – I’m not proposing a wealth tax. It’s not for me to say how it would work, it’s for the proposers surely. Why can’t they answer some fairly simple questions like ‘where does ‘wealth’ start?’
I do have an opinion – it will (apart from the beloved LVT) be completely unworkable IMHO.
Let’s start at £400,000 with a very low rate, increasing
And it’s all worth
And misdeclaration is penalised by forfeiture
And under valuation by forced sale to the state at declared price
Would it work? Oh, yes
And it will
‘It’s all worth’
Gross? Nett of debt? Includes primary residential property ?
Forced sale? Forfeiture?
This is about punishment for wealth, not taxation.
This is about addressing inequality – the vast majority of which has less than nothing to do with ability or effort
Net worth, of course
And yes, property in, of course
Open market value – HMRC rules on that apply
Your problem – apart from your obvious commitment to the politics of envy – is?
“Let’s start at £400,000 with a very low rate, increasing”
Any old fool can put forward a proposal like this. Think of a number and apply a percentage to it. It really is not difficult at all. The trouble for its proponents is: is there a demand for it, and will it be accepted?
Contrary to your claims, I see no public clamour whatsoever for wealth taxes as you describe at such low levels.
Will it be accepted? You are no doubt aware what £400k buys in the south east. Virtually everyone who has paid off a mortgage is going to be sitting on a property worth £400k. Many people whose properties are worth at least £400k but are still mortgaged are not going to vote for it because they’ll end up paying it. There are about 13 million electors in London and the rest of south east England. If you think this proposal is a genuine vote winner you are living in cloud cuckoo land. This is what surprises me, Richard: as another commentator said, it is understandable that your audience thinks this will work, but I can’t seriously believe you do.
I assure you I do believe this will work
And that it will happen