There's a letter in today's Guardian from Prof Mike Devereux of the Oxford Centre for Business Taxation. In it he claims that:
Zoe Williams (G2, 23 September) claims that taxation has “a curious void where its academics should be”, and that Richard Murphy is “by a mile, the major thinker”. Both claims are far wide of the mark.
I made the first claim: I think it's true. I did not make the second, and would not: I was a little surprised by it. I think the third is open to debate.
Mike continues:
There is a wealth of serious academic work on taxation from the world's leading universities.
Not on the tax gap there is not Mike and that was what I was saying. And as if evidence was needed the letter added:
Murphy's own contributions are often highly questionable.
I hope Mike takes a slightly more broad-minded with students who wish to consider counter-arguments to his views. His evidence to support his claim is:
To take one important example mentioned in the article, the “tax gap” is a dubious concept that requires a comparison of actual tax revenues with what HMRC calls the “amount of tax that should, in theory, be collected”. It is hard to reconcile Murphy's estimate of a gap of £122bn with such a definition, and it is wishful thinking to believe that anything like such sums could be collected if only HMRC were tougher, or if companies were more ethical.
I added the emphasis, because it is important. I think we can presume as a consequence of what Mike Devereux is saying that he thinks:
1) We cannot work out how much tax should be collected in the economy, so that
2) There is no such thing as the tax gap, which means by implication that
3) There can, therefore, be no such thing as tax avoidance or tax evasion, and
4) Even if there were such things there is nothing we can do about them, so that
5) Any number I cared to offer on this issue must be wrong, meaning by implication that
6) HMRC are wrong to also suggest any such number, which means that
7) HMRC are also mistaken to consider this 'dubious' concept, and
8) Action taken to address it will be futile.
This is an opinion largely reinforced by Devereux's conclusion, which is:
If Jeremy Corbyn wants to raise significantly more tax revenue, then he will have to raise taxes, and not just rely on preventing evasion and avoidance.
That does seem rather specific: it seems to me that to link the claim to Jeremy Corbyn (which I would not do) is quite erroneous: Mike could have substituted the name George Osborne for Jeremy Corbyn and there would have been no change at all in the sense of what was being said, so I think we can safely conclude that the letter is about politics, and not debate in that case.
And this is, perhaps not surprising. The Oxford Centre for Business Taxation is heavily sponsored by large companies, whose behaviour Mike appears to defend in his letter, and whose behaviour I have heard Jeremy Corbyn criticise. And Mike is a known friend of the cause of those companies. In 2012 he wrote an article for the FT entitled
The best reform of corporation tax would be its abolition
So, let's loop right back to the beginning of Mike's letter where he said:
Zoe Williams (G2, 23 September) claims that taxation has “a curious void where its academics should be”
and
There is a wealth of serious academic work on taxation from the world's leading universities.
Not that I can see Mike.
I can see denial of there being an issue to address.
I can see political opinion.
I can see a link being made to the interests of large corporations who happen to be your department's sponsors when I have made clear that they are only a small part of the tax gap issue.
And I can even see an ad hominem.
But what I do not see is the evidence of the serious academic research on the issue. And that's what Zoe Williams reported.
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What did I say about studying economics at a University on one of your more recent posts!!!?
The ‘tutors’ (or should I say ‘inductors’) at places like Oxford have a lot to answer for (I mean, look at John Redwood for goodness sake).
I agree that there is ad hominem in this chap’s comments but we can all take heart that when so-called academics start using this as an arguing device, you know that they are really on the back foot and that they’ve been rumbled.
Keep rumbling them Richard!!
It certainly explains a great deal about the present level of cultural decay in the West to witness how well the world’s oldest profession is thriving in academia.
Is he an asset or embarrassment to Oxford I wonder? Or is Oxford happy to trade its brand and goodwill for corporate kickbacks? Money dominates science today in so many ways.
It’s a bit rich to accuse this guy’s views of being biased because his organisation is sponsored by large companies. After all, your tax gap work was sponsored by trade unions so you are open to the same questions of impartiality.
I enjoy a lot of your writing on economics, but on the tax gap side this just looks like another person to add to the list who thinks your estimate is far too high.
The unions do not create the tax gap
And he is not saying the estimate is too high: he is saying there isn’t one
“A bit rich”? So, no screamingly obvious and direct conflict interest there, you mean? No?
“Rich” is the right word, you just haven’t put it in context.
“And he is not saying the estimate is too high: he is saying there isn’t one”
He doesn’t say or imply any such thing.
Looking at the reasoning and logic you used in constructing your points 1 to 8 above, I come to the conclusion that Devereux was right when he said “Murphy’s own contributions are often highly questionable.”
How?
Rather than doing an ad hominem why not try argument?
Why Devereux is saying tax gap is dubious is because for the tax avoidance element of the calculation you have to take into account not just what the current law says but what the intention of parliament was (ie the spirit of the law). This is not always clear and is open to interpretation.
He is then saying even taking into account that the definition is open to interpretation it is still difficult to get to anywhere near your number of £122bn and so it doesn’t stack up.
You simply work under a different definition which seems to me to be hotly disputed by the vast majority of tax experts.
I refer you to my reply to Mike
There isn’t much space in a Guardian letter, so let me try to explain a little more clearly why I think the tax gap is a dubious concept.
Trying to estimate the extent of tax evasion is difficult, but at least there is a reasonably well defined question (even if there are grey areas around what is evasion). A number of academics have tried to estimate this. I have no problem with that exercise, but it is not true to say that there has been no academic work on that.
The problem is in estimating the extent of tax avoidance, since that concept is not well-defined. Is using capital allowances avoidance? What about paying interest? Or paying interest to a tax haven subsidiary? Using a patent box? The problem in trying to measure the extent to avoidance is that you first have to define what you mean by avoidance.
Richard, in your writings you are clear what comparison you are making. In the case of businesses, you make a comparison with the amount of tax that would be paid if the tax base were accounting profit. But I just don’t agree that this is a measure of tax avoidance. In fact, you say the same thing yourself in your 2008 paper: “accounting profit can be the wrong basis for assessing the Tax Gap”.
So I think what you are measuring is the tax could be levied if the tax system were changed to one based on accounting profit. That may be a reform we should consider, but it does not lead to a measure of a “tax gap”.
That is why I think the tax gap is a dubious measure. And if you look at the report I wrote with Judith Freedman and John Vella in December 2012 (http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/Reports/TaxGap_3_12_12.pdf)
you will see that we strongly criticise the HRMC approach as well.
I am not sure , but I suspect that other academics are also not persuaded by the merits of attempting to measure the size of “avoidance” – hence the lack of academic work.
As for the politics, I mentioned Corbyn because that was the context of the original Guardian article. I think all Chancellors , including Osborne, have tended to exaggerate the revenue they could generate from combating avoidance. That doesn’t mean they shouldn’t try to stop avoidance, but they should not overestimate the likely revenue gain.
And just for the record, the FT title you cite was not written by me. If anyone wants to find out what I think about corporation tax, I’d recommend reading what I have actually written – most of it is on the CBT website at http://www.sbs.ox.ac.uk/faculty-research/tax.
Mike
Thanks for agreeing there is no research. That was the point I made to Zoe Williams. You are now saying I was right to do so. In that case her suggestion that I am the foremost thinker on the issue is also right. I think you owe us both an apology.
Your follow on suggestion needs to be broken down. What you are saying is:
1) You cannot define tax avoidance. I suggest this is choice: others (and not just me) clearly can and do define tax avoidance, including HMRC;
2) Because you have decided for your own reasons not to define a clearly recognised phenomenon you say it cannot be measured;
3) Because you say you cannot measure tax avoidance (although HMRC and I clearly think we can) you imply the issue is not important by pejoratively calling it ’dubious’.
4) It seems to me that you then use this conclusion to justify not undertaking work on the tax gap, which loops us back to (1) in a never ending spiral.
This, if I might say so, is indication of the whole irrelevance of standard economuc thinking at most universities. What you cannot comprehend or measure you define as unimportant and so ignore. That the phenomena is clearly recognised does not matter: you have defined that it does not now exist in economic thinking and therefore it need not be studied.
Which again, brings me back to the point I made to Zoe Wolliams.
That in the process of presenting your case you also rely on work I have updated in 2014 where I argue corporate tax avoidance might make up £5 billion of the total £119 billion tax gap you wish to describe as dubious – revealing in the process the somewhat tenuous basis of your dismissal of my work – is just further evidence of your engagement without consideration of the argument. In contrast I have read the papers you note and admit I felt they were simply not worth engaging with, and did not. If I recall correctly David Quentin did appropriately deconstruct them, showing that they sought to categorise behaviour in untenable ways.
Best regards
Richard
As you say, the weak arguments and ad hominem slurs contained in Devereux’s letter reveal more about the capture of our universities by corporate interests and the arrogance of some academics than anything else. I was also surprised by adjacent letter from Kate Macintosh which suggests that you have ignored the benefits of a land value tax. As a long time reader of your blog (years before you became famous), I recalled that on several occasions you had advocated a land value tax. Perhaps you need to keep this in the public eye – it would do a great deal to remedy some of the obvious problems resulting from land hoarding.
By the way if you feel the need to restore your “modesty” (an unwarranted dig from Zoe), I can recommend a visit to the early 18th century Quaker hamlet and Meeting House at High Flatts, on the Barnsley/Kirk Lees boundary which we walked through yesterday. It is a haven of peace and tranquility on the edge of the Pennines. Well worth a visit if you ever find yourself in this neck of the woods.
Last point noted first!
The new book gives a big plug to LVT
Yes, the professor doth protest too much, methinks.
Included here is a link to the N.Y. Review of Books conference entitled:”What’s Wrong with the Economy – and with Economics?”
It includes a speech by Gerald Epstein (University of Massachusetts) where he explains how and why it is that the American Economic Association now requires disclosure statements from the economists writing in its journals. They are required to disclose all relevant sources of financial support.
http://www.nybooks.com/blogs/gallery/2015/mar/29/whats-wrong-with-the-economy/
Epstein’s panelists thought the principle should be extended to include non-academic articles (such as those in journals like The Guardian or the NYR of Books)as well as in testimony to Congress or any legal or government inquiry.
The AEA’s ruling followed a petition from 300 leading economists and the formation of a committee which was headed by Robert Solow.
I am not sure if the UK has an equivalent standard or initiative but it may be a good thing if they did.
Mind you, the real revelation in this post is that Oxford (of all places) actually has a “Centre for Business Taxation” that is heavily sponsored by large companies. The conflict of interest is so ludicrously obvious that it makes one wonder:
A. Why did they bother this thing in the first place?
B. How do they keep a straight face?
and,
C. If Oxford doesn’t have any credibility who on earth does?
The Borgias would find this funny. Its their kind of thing really.
It is hard to get past the impression that Devereux’s response is typical.
I think that studying economists might be almost as interesting as studying economics.
Nile,
Thank you for my earliest ever belly laugh!
A study best hosted by a Department of Theology methinks, given that so much economics seems to derive from beliefs rather than real world data..
Well said
This reference to theology may be of more than prosaic interest.
Theologians have long studied the relationship between knowledge and belief. I mention just one of them, Bernard Lonergan, take some quotes from his book “Method in Theology” and indicate how they are relevant to the current issue.
On the notion of belief, he says, “Science is often contrasted with belief, but the fact of the matter is that belief plays as large a role in science as in other areas of human activity.” The reason is that no scientist can repeat all the experiments of her colleagues and so directly verify their results. Instead, there is a collaboration of knowledge, in which scientists share their discoveries, and pass it on to the next generation. It is confidence in the method that scientists employ that enables them to believe each other’s work, trusting that any errors would be exposed sooner or later by one of their peers.
Consequently, we cannot separate our minds into a department of knowledge and a department of belief; the two are intertwined.
On knowledge, he develops a method which works as follows. “The scandal still continues,” he says, “that men, while they tend to agree on scientific questions, tend to disagree in the most outrageous fashion on basic philosophic issues.” Whether or not you want to call the existence of the tax gap a “basic philosophic issue”, it is the present bone of contention between Prof. Murphy and Prof. Devereux.
He continues, “so they disagree about the activities named knowing, about the relation of these activities to reality, and about reality itself.” We see all these elements in the present dispute. On knowing – how to define and measure tax avoidance. On the relation of knowing to reality – whether this results in a “dubious” concept. And on the reality itself – whether there is in fact a tax gap.
“However, differences on the third, reality, can be reduced to differences about the first and second, knowledge and objectivity.” The reality of the tax gap depends on one’s knowledge of it (how to define and measure tax avoidance) and notion of objectivity (whether the concept is dubious).
“Differences on the second, objectivity, can be reduced to differences on the first, cognitional theory.” Whether or not the tax gap is a dubious concept depends what one thinks about tax avoidance – how to define and measure it.
“Finally, differences in cognitional theory can be resolved by bringing to light the contradiction between a mistaken cognitional theory and the actual performance of the mistaken theorist.” This is the masterstroke of Richard’s argument. Prof. Devereux holds an entirely consistent position. However, it is not consistent with the claim that it is intelligently formulated and reasonably held. This is because, as Prof. Murphy shows, his argument is involved in an infinite regress, in which his position on reality feeds back into his sources of knowledge.
Theologians have studied and worked these matters out, so may be an unexpected ally in the pursuit of clarity. The results, however, are not widely known and dispersed, so I suspect we will see more confusion for some time to come. A person such as Richard Murphy comes like a beacon of light in the dark.
I conclude with some remarks by Lonergan on the nature of his method (which incidentally he calls “transcendental method”), in which I have substituted the word “economics” for “theology” in every instance.
“To assign to transcendental method a role in [economics] adds no new resource to [economics], but simply draws attention to a resource that has always been used… Its function is to advert to the fact that [economics] is produced by [economists], that [economists] have minds and use them, that their doing so should not be ignored or passed over but explicitly acknowledged in itself and in its implications.”
David
Thank you
Or, as I argued recently, Schrodinger’s Cat sure as heck has a role to play in economics even if many economists seem to deny it
Richard
Richard,
That is another very interesting question. Schrödinger’s Cat is a paradox which illustrates the confusion that reigned in twentieth century scientific thought, and is still dominant in many circles today.
Bernard Lonergan begins his book on Method with the following observation. “Thought on method is apt to run in some one of three channels.” These are:
1. Learning from a master. This is more of an art than a science.
2. An analogy of science. “There are, however, bolder spirits. They select the conspicuously successful science of their time. They study its procedures. They formulate precepts. Finally, they propose an analogy of science. Science properly so called is the successful science they have analysed.”
3. The “Third Way”. This is the transcendental method he develops.
The question is whether we want to be aware of the paradox of Schrödinger’s Cat in economics, or to resolve it. Science does not resolve the paradox. It is content to reveal the limitations of common, everyday thought when we attempt to apply it to scientific, theoretical objects. To resolve it, we need a “third way” for economics.
Or in other words, we can’t rely on twentieth century scientific thinking alone to bring developments in twenty-first century economics. But it’s a start.
David
Interesting idea….
I might have to read this
I am sure a person such as yourself would benefit, Richard.
But if you don’t have time for such a difficult and laborious study, then the bottom line is, continue to apply your mind to the issues, expose fallacies and bad thinking wherever they occur, promote reasoned discussion and always act responsibly in the interests of all.
That is, keep up the good work!
Best regards
David
Thanks David
Sorry, I meant to add this “third way” for economics seems to be what Richard is working on, way beyond the league of Schrödinger and his cats! If theology can lend a helping hand, then that would be great.