Tax Evasion

**snapper** · 06 Jan 12,, 09:47

Evading tax I think is likely to become a hot topic in the future. While it's generaly a truism that the rich get richer and the poor get poorer it seems one of the main reasons for this divide is that rich people can employ accountants to find intricate and complicated ways for their clients to avoid 'paying their share'. Naturaly the poor cannot afford the benfits of such expertise to save what litttle they could from the tax man. The result is people on lower wages pay proportionaly more than those with more.

It also seems larger businesses are 'in on this': Barclays Bank says it payed £2bn in taxes to the Revenue... fine but most of this, it turns out, was employees contributions. In the same year (2009) it payed only £113m in corporation tax to the UK - or 2.4% of it's profits. In other words Barclays employees all pay their 'fair share' while the company itself pays very little. See: BBC News - Barclays UK corporation tax bill for 2009 was £113m

Another case in the UK was Vodaphone, who were reported as having a £6bn tax bill... It subsequently turned out they didn't have to pay! How can make a mistake on a £6bn tax bill? (Kinda like mislaying and aircraft carrier).

It turns out that Big Chief Taxman had had dinner with Vodaphone shortly before this '3rd carrier' was recalculated to non existence. Nor was he having with Vodaphone alone! "In three years, Mr Hartnett, 59, who lists food and wine as his favourite past-times in Who's Who, accepted 107 invitations to eat, drink or else do both at such venues as the Hilton in Park Lane, the Cinnamon Club and the Savoy hotel in London.

There have also been free lunches abroad including meals in Washington DC, New York and Sydney as well as drinks in Vancouver.

Mr Hartnett has enjoyed free corporate hospitality on average about once a fortnight since 2007, according to the results of Freedom of Information requests made public earlier this summer." The free drinks and dinners of Britain's most senior tax man - Telegraph

Seems the Italians and the Spanish are looking at this:

"ATTACK PLAN: Spain’s new conservative government plans to crack down on tax evasion and trim the public sector in its effort to reduce the nation’s budget deficit. Word of the plans came a week after the government announced a 15 billion euro ($19.4 billion) package of spending cuts and tax hikes.

THE DETAILS: Personal and corporate tax returns will be scrutinized more closely and tax inspectors will visit workplaces more often to ensure workers are being paid through the payroll. Spain’s various levels of government will be pressed to eliminate some of the 4,000 or so companies, agencies and other organizations they own." Summary Box: Spain vows to fight tax evasion, trim government to reduce federal deficit - The Washington Post

The Italians apparently sent a team of 80 officers from Italy's inland revenue agency to some ski resort (Cortina d'Ampezzo) and they found: "Tax officials traced the owners of 133 Lamborghinis, Ferraris, SUVs and other top-end cars that they found parked in the snow-lined streets of Cortina d'Ampezzo, a winter playground for the rich and famous in the Dolomites.

They found that 42 of the owners – nearly a third – had declared incomes of less than 22,000 euros (£18,000) a year. A further 16 claimed to be earning less than 50,000 euros a year." Italian ski resort lays bare tax evasion - Telegraph

The problem is that with most western economies facing budget deficits and making cuts to Government spending those with clever accountants are getting away without paying their 'fair share'. With the poor driven further into the dirt it seems likely that we shall see new tax legislation to enforce a more 'equitable' distribution of the debt repayments/tax bills this year.

**Doktor** · 06 Jan 12,, 10:34

Snapper,
Tax evasion is so lucrative people will always try to do it.

Poor people also wont have a good cost/benefit ratio even if the accountants do it for 10% of their usual fees.

Sending 80 tax inspectors to a ski resort to checkthe plates of few Lambos and Ferarri's is stupid waste of hardly collected taxes. The could have run the database checking the owners of the fancy, expensive cars and compare their tax files, all this from the office (also paid from taxes even when empty).

Greeks did it better using free service such as google maps to find tax evaders. 17,000 pools around Athens of which only ~300 were declared

Imagine the cost to actually check all 17,000 yards.

**ArmchairGeneral** · 06 Jan 12,, 16:52

One reason I'm in favor of ending corporate income taxes. Corporations can hire armies of accountants and tax lawyers to find loopholes in tax law, and hire fleets of lobbyists to put in exceptions and write offs and such into the laws to start with; no individual taxpayer can match that ability to evade taxes, legally or illegally, even the super-rich.

**snapper** · 06 Jan 12,, 17:24

So you're saying that Barclays in 2009 shouldn't have even payed the £113m in corporation tax on the £4.6bn profit they made? I fear the 'revisions' we shall see this year will be on the other side of the equation.

**ArmchairGeneral** · 06 Jan 12,, 18:10

Originally Posted by snapper

So you're saying that Barclays in 2009 shouldn't have even payed the £113m in corporation tax on the £4.6bn profit they made? I fear the 'revisions' we shall see this year will be on the other side of the equation.

I'm saying their shareholders should have paid taxes on any capital gains they received, and their employees should have paid taxes on their compensation. Taxes are paid by people, not corporations. A corporate tax just allows some people (especially rich people) to coordinate their efforts and share resources to reduce their tax burden.

http://en.wikipedia.org/wiki/Tax_incidence

**ArmchairGeneral** · 06 Jan 12,, 18:16

I've seen some arguments, especially from Scott Sumner, that all taxes are effectively consumption taxes, some just tax consumption indirectly (this may actually be standard economic theory, but I'm not sure). I'm beginning to come around to that view, and beginning to think that some sort of consumption tax would be more efficient than income taxes. Possibly difficult to implement straightforwardly, however, especially if you want to make it progressive.

**Doktor** · 06 Jan 12,, 18:32

That can be true only if you force companies to pay higher salaries to the employees. How you gonna do that?

Remember that all the sale prices will rice for at least x% (sale tax).

We had that when implemented VAT, only the salaries remained the same

**snapper** · 06 Jan 12,, 18:39

I am not arguing with you AG! I loathe paying tax. The problem seems to be that some can 'escape' (me included) due to accountancy 'fiddles/tricks' while the rest of Marx's proliteriat suffer. As a Christian I see the inequity but as a taxpayer and (relatively) well off person I hate it. The question for the legislators will be tricky.

**ArmchairGeneral** · 06 Jan 12,, 19:12

Originally Posted by Doktor

That can be true only if you force companies to pay higher salaries to the employees. How you gonna do that?

Remember that all the sale prices will rice for at least x% (sale tax).

We had that when implemented VAT, only the salaries remained the same

What can only be true?

**ArmchairGeneral** · 06 Jan 12,, 19:21

Originally Posted by snapper

I am not arguing with you AG! I loathe paying tax. The problem seems to be that some can 'escape' (me included) due to accountancy 'fiddles/tricks' while the rest of Marx's proliteriat suffer. As a Christian I see the inequity but as a taxpayer and (relatively) well off person I hate it. The question for the legislators will be tricky.

I don't know about the UK, but rich people certainly don't completely escape here- the top 1% by income pay about 35% of total federal income taxes. Not to say evasion both legal and illegal doesn't occur, but I would argue it's much more difficult for rich people to do so than it is for corporations. The other thing that I think would help reduce evasion is simplification of the tax code. The more rules and exceptions and what not you put in, the more opportunities for evasion and obfuscation. That may be another argument for a consumption tax- income taxes have to take into account expenses to some degree- don't want to make a guy who took in a million dollars but had to pay other people 10 million dollars have to pay too much tax, necessarily.

**Doktor** · 06 Jan 12,, 20:08

Originally Posted by ArmchairGeneral

What can only be true?

That it can be a good idea to tax consumption only.

**Parihaka** · 06 Jan 12,, 20:31

Originally Posted by ArmchairGeneral

One reason I'm in favor of ending corporate income taxes. Corporations can hire armies of accountants and tax lawyers to find loopholes in tax law, and hire fleets of lobbyists to put in exceptions and write offs and such into the laws to start with; no individual taxpayer can match that ability to evade taxes, legally or illegally, even the super-rich.

Yep, one rule.

**ArmchairGeneral** · 06 Jan 12,, 20:41

Originally Posted by Doktor

That it can be a good idea to tax consumption only.

Okay, then, I don't follow. Why would a consumption tax require companies to raise salaries?

**DOR** · 06 Jan 12,, 20:48

When we were trying to construct a VAT (actually, a Goods and Services Tax, or GST) for Hong Kong about 10 years ago, the core principle was to keep it incredibly simple and very, very low.

Low taxes aren't worth evading, particularly with good enforcement. Evasion problem solved.

However, low tax rates don't necessarily generate sufficient revenues. So, the answer was to tax EVERYTHING, a little bit. Books, medicine, food. everything.

However, that raises taxes paid as a percent of income on the lower classes significantly, and out of line with those paid paid by the upper classes.

The solution was to directly subsidize the lower income folks, to the point that the lower 1/3rd of income earners paid no new tax. Since the objective was to broaden the tax base (as opposed -- directly stated -- to raising new revenue), there was a bit of compromise required.

Workable tax, minimum evasion, fair to low income-earners, capable of generating sufficient revenue . . . but, less broad than desired.

Never got to a vote for purely political reasons.

**Doktor** · 06 Jan 12,, 21:23

Originally Posted by ArmchairGeneral

Okay, then, I don't follow. Why would a consumption tax require companies to raise salaries?

Let's assume you add X% tax on everything people buy to compensate what companies don't pay now.

All the goods will be more expensive for X% and the demand will go down. You need to compensate that simply by adding Y% on top of yesterdays salaries. That should come from companies who now don't pay corporate tax. The question is how to make them pay it.