[Closed] Tax avoidance/minimisation - what's realistic?

You structure the tax system in the way described above. At first more or less everyone behaves in the way I said I would, i.e. relatively altruistically, contributing as much back in charitable contributions as they do now in taxes.

But a few people don't behave that way. They act entirely selfishly. Those around them/close to them, see this and feel aggrieved at this and adjust their behaviour accordingly.

This is then replicated among society, passing like a ripple through it, that becomes like a standing wave reinforces itself.

Pretty soon everyone is forced to act entirely selfishly until the system collapses.

It's a bit too simplistic and again relies on the overwhelming selfish instincts of humans. What about the people who see the benefits to society and despite seeing others shirk, still contribute? What about the wealthy Philanthropists? What about the strong moral conviction that many people still have?

I guess it boils down to your general view of humanity. Me? I'd like to remain optimistic so don't burst my bubble!

JY - this all sounds rather familiar - just need RPRT to join in now!!

I am not arguing for Tom per se, merely interested in the logic and symmetry of the debate.

You can make similar cases with the sink estate as your starting point but you will always have the same issue. On the face of it, meritocracy is a fine concept that most of us support. But dig down, and it is flawed for the simple reason that natural talents (or whatever you want to call them) are nor evenly distributed. Life is unfair. For every Rooney, there is a Rooney minus - same background, same work ethic but unlucky in the random distribution of talents.

[ps JY not making any value judgements on people who do/dont work hard and therefore earn little/less/lots/more]

They aren't all doing so well now and I do struggle to have sympathy for them!

But then the nobbers are simply abusing the system in the way that the rich are arguably doing now. Is that fair?

But then the nobbers are simply abusing the system in the way that the rich are arguably doing now. Is that fair?

Not on an individual level no, but from society's point of view you have to deal with both ends of the bell shaped curve.

So Peyote, do Tom and Dick have the right to take some of Harry's "excess" leisure time?

For every Rooney, there is a Rooney minus - same background, same work ethic but unlucky in the random distribution of talents.

yes and equality oif talent cannot be guaranteed but a better equality of outcome can be be achieved....tbh we dont need everyone to be completely equal we may wish to reward effort success etc...however the disparity between the rewards of the most well of compared to the least well of [especially] globally are repugnant.

FFS we have people with multiple million pound homes and yachts and wrth Billions and we have people dying from a lack of water and having to eat and live off rubbish dumps..thats capitlaism and the haves using the labour of the have nots to have more...it entrenchesd and exacerbates the inequities that may naturally be there. It does not liberate people

Lets not forget that the top 1 % own almost 40% of the WORLDS wealth ..indefensible
top 10 % 85 % and the bottom 50% own only 1 %

its not down to lack of effort on their part or the natural inequities of life it is man made

then the nobbers are simply abusing the system in the way that the rich are arguably doing now. Is that fair?

Of course it is not fair that the rich are abusing the system now...you may join me on the barricades commrade :wink:.

As above yes theywould and we would need top address this. Still fewer people would starve so I coud live with it

Comrade, we have debated equality of outcome before and I think we will have to agree to differ. For me it is a non-starter. But we can agree on other things!!

Emotions aside, whether this is a fault of "capitalism" or not is an interesting question. Try today's FT and read the Laurence Summers article. I am a bit loathed to C&P due to FT's warnings on the matter, so hope you can see the article. But in which country/economy have we had a free-market?

a clip from Summers in the FT today:

...that the roots of the problem lie deep within the evolution of technology.

The agricultural economy gave way to the industrial one because progress enabled demands for food to be met by only a small fraction of the population freeing large numbers of people to work elsewhere. The same process is now under way with respect to manufacturing and a range of services, reducing employment prospects for most citizens. At the same time, just as in the early days of the industrial era the combination of substantial dislocations and greater ability to produce at scale is enabling a lucky few to acquire great fortunes.

The nature of the transformation is highlighted by the 50 fold change in the relative price of a television set of a constant quality and a day in a hospital over the last generation. While it is often observed that wages for median workers have stagnated, this obscures an important aspect of what is occurring. Measured via items such as appliances or clothing or telephone services, where productivity growth has been rapid, wages have actually risen rapidly over the last generation. The problem is that they have stagnated or fallen measured relative to the price of housing, healthcare, food, energy and education.

As fewer people are needed to meet the population’s demand for goods like appliances and clothing it is natural that more people work in producing goods like healthcare and education where outcomes are manifestly unsatisfactory. Indeed as the economist Michael Spence has documented, a process of this kind is under way: essentially all US employment growth over the last generation has come in non-traded goods.

The difficulty is that in many of these areas the traditional case for market capitalism is weaker. It is surely not an accident that in almost every society the production of healthcare and education is much more involved with the public sector than is the case with the production of manufactured goods. There is an imperative to move workers from activities like steelmaking to activities like taking care of the aged. At the same time there is the imperative of shrinking or least slowing the growth of the public sector.

Interesting?

So Peyote, do Tom and Dick have the right to take some of Harry's "excess" leisure time?

It depends on the context I suppose. If Harry has chosen to live in a society that considers it to be a 'good thing' to do that, then Tom and Dick (as part of that society) have a right to take some of Harry's excess leisure time.

It's all a bit simplistic though!

THM - interesting if you read that in association with Orwells views on the socialist preoccupation with machine worship (esp ch12 of wigan pier) - that mechanisation may become the end of socialism rather than the source, and the effect on lifestyles and health of productive work being relegated to an unneccesary pastime making people economically wealthier but less free - [i]if machines were to do everything, what should people do?[/i] 😉

Flat rate tax would make life simpler for most but what about all those tax inspectors that would lose their jobs? We would want that would we? Anyway, the middle classes should be proud as they finance most of this country's spending and happily support lots of people who feel they are unable to work.

flat rates are simple but unfair. It is not rocket science to work out that the rich have the most and the burden should fall more on those with the broiadest shoulders. It may be ok to set a very high personal allowance then tax quite highly above that rate say 20 k ???
Ie you can have a living wage but I am obvioulsy a huge fan of progressive taxation.

Interesting as machinery and improvements in agriculture or mechanisation were meant to free us all up when in reality it seems liek the speed of life if getting faster for all. Dual income families trying to juggle work and childcare commitments for example..Wrap arounf care for school kids so we can all work our 40 hour week etc..,its really a very western issues but I dont se eanything i disagree with it...we have moved production form here to the east /cheapeer areas ...this will work well till we realise we have run out of oil then we are screwed.

Is wigan pier worth reading Zulu? read 1984 and animal farm but not this.. i am quite close to wigan pier FWIW

even the torries are admitting that the 50p tax rate is a good thing

[url= http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9001307/David-Cameron-abandons-plans-to-scrap-50p-tax-at-least-until-2015.html ]http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9001307/David-Cameron-abandons-plans-to-scrap-50p-tax-at-least-until-2015.html[/url]

in FT 2012 survey of top economists only 3 out of 80 thought scrapping it was a good idea iirc

why not increase it then?!

kimbers - politics or economics.

But JY - if you have an allowance and then a flat rate above that, it is still progressive as the marginal tax will increase with income. So if you think that is fair. you have a simple system that collects rev, is simply to apply and understand and is progressive.

Flat rate tax is only very slightly progressive. Its manifestly unfair. we have historically used the tax system to redistribute wealth from those who have the power to grab it to those who do not. flat rate taxation unless thresholds are very high and the rate is very high would increase inequality

The more unequal a society is the less happy it is - for the rich as well as the poor.

So if you want an unhappy and unequal society with more social strife go for a flat rate tax.

is simply to apply and understand and is progressive.

A poor person has a lower % of their income left after tax and other fixed costs than someone much better off...I would argue that it is actually regressive

I earn 40 k say you earn 100k

I pay out on housing costs, car insurance tax etc and am left with say 12 k to play with

100k person does the same but is left with 50 k to play with

Does not sound that progressive tbh in terms of what we have left over etc and a flat rate is technically neither regressive or progressive as it is a flat rate [ hence we need allowances and you are strecthing a point o say this makes a flat rate progressive - it is does indeed it will be very very marginal indeed if it kicks in at 20 k and you earn 1 million for example

The gretaest burden should fall on those with the broadest shoulders

Doe snay [ non tax haven] have a flat rate tax system ? Even the USA is progressive [ just] and was under Bush and I bet even Reagan

Junky, I'd thoroughly recommend it

free online here:

http://www.george-orwell.org/The_Road_to_Wigan_Pier/

as a piece of journalism, what he did in going "undercover" is amazing, and you can't help but see how he both looks down on, and at the same time respects, the carachters in the book.

if you read them in order, wigan pier, homage to catalonia and then animal farm and '84 it gives you an interesting insight to the process of thought that he went through over the years.

JY - when people talk of a flat rate tax it is usually assumed that you still have a tax allowance. As long as there is a tax allowance, a flat rate will still be progressive. Its pretty simple maths.

Assume 10k is un taxed
After that tax rate is 40%

A 20k earner will pay tax of 4k (ie 40% of 10k after allowance) ie an effective tax rate of 20%
A 50k earner pays 16k ie rate of 32%
A 100k earner pays 36k ie rate of 36%

so it is still progressive and gets more progressive the higher the tax free allowance.

100k person does the same but is left with 50 k to play with

Well, in your example it depends on their housing costs but it's hard to know how to deal with them. Interestingly we do have tricky tax situations now/soon. When a person with kids goes just into the 40% rate band they lose their child allowance so will be worse off than if they were under the 40% rate. I think the same thing happens at £100k as they lose the tax free amount as well right?

The complication of the tax system does not come from progressive rates of tax, it comes from the difference in treatment between different types of income and indeed whether income or capital. Therefore a flat tax is largely a red herring unless all income and profit is taxed the same. But even that is not as simple as that because we have concluded treaties with countries agreeing how we share the taxing rights over different types of income.

For instance, Philip Green did not pay his wife a salary of £400 million. She is the owner of a company that paid a dividend out of previously taxed income of £400milion. No matter where she was resident, other than the UK, no further UK tax would have been paid.

The complication of the tax system does not come from progressive rates of tax, it comes from the difference in treatment between different types of income and indeed whether income or capital.

This.....

The super rich simply do not earn there millions (PAYE). Their income comes from capital, which comes with a much lower tax rate.

At a guess, would the biggest loss to the exchequer from legal tax avoidance come from the avoidance of inheritance tax? It's a tax which seems aimed far more at redistribution than others, given that it is levied on already taxed income.

So income from capital comes with lower tax burden. Why? Err, it involves a much higher risk. Where is the problem in that?

Err, it involves a much higher risk. Where is the problem in that?

What the hell has risk got to do with the taxation of earnings?

Well if you want to encourage people to commit their capital to investing in growing companies at the risk of losing all their money, there needs to be an incentive. That is very different to normal income.

[i]Flat rate tax is only very slightly progressive. Its manifestly unfair. we have historically used the tax system to redistribute wealth from those who have the power to grab it to those who do not. flat rate taxation unless thresholds are very high and the rate is very high would increase inequality[/i]

But inequality is only a problem when those at the bottom starve (or live in the workhouse); its not a problem that one person earns a vast amount, as long as protection exists for those that have nothing (or less, I guess).

teamhurtmore - Member

Well if you want to encourage people to commit their capital to investing in growing companies at the risk of losing all their money, there needs to be an incentive. That is very different to normal income.

don't wash at all. they also get tax relief on losses and most investment income is very safe

BR - not at all - inequality breeds resentment and crime and unhappiness - lots of research to show this. even rich people are happier in a more equal society

TJ - be serious

[edit -dont bother. CGT is such a red herring. Less than 1% of tax revenues. lets not sweat the small stuff]

But incentives for people to invest capital should be encouraged not the other way round.

[i]BR - not at all - inequality breeds resentment and crime and unhappiness - lots of research to show this. even rich people are happier in a more equal society [/i]

While I'm not (fully) disagreeing with you, resentment only occurs when the have-nots have really nothing. As long as they get enough to satisfy them they accept that they can't have everything.

You've only got to look though the long boom to see that.

And in any society they will always be people at the bottom, the failing we now have is that its very hard to get out if you are born here - and this is a basic change in the UK over the last 20 years.

BR following on from my quote from today's FT, there was an interesting article a few weeks ago which compare the role of the great philanthropists of previous times (Ford, Carnegie etc) with the current ones (Gates, Buffet etc).

When Ford built his empire, he was employing more local people and so the trickle down effect was more noticeable. These days Gates benefits from his intellectual capital but outsources the manufacturing elsewhere, hence the trickle down effect is much less direct and less as a quantum. Linking this with the Summers article above makes for interesting concepts. How to adapt to this change that globalisation has bought. We may benefit from the cheap TV, car, PC etc but not if we dont find other skills and jobs than making them.

Trickle down effect - don't make me laugh!

Really guys - THM you claim to not be right wing - you are espousing far right policy here.

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Well if you want to encourage people to commit their capital to investing in growing companies at the risk of losing all their money, there needs to be an incentive. That is very different to normal income.

What percentage of the money invested in stocks and shares is actually used to grow a company? Investment is actually a misleading description for the majority of trading that goes on. I can see the point of giving tax breaks for small start up businesses in the first 2 or 3 years of existence, but that kind of entrepreneurial investment is a tiny percentage of what is currently classified as investments.

And what if I take a job in a growing company? am I not also taking a risk worthy of a lower rate tax as well?

Making value calls on different forms of earnings is a dangerous path to go down, and as we see already panders to those with wealth and influence rather than to the values wider society would make.

don't wash at all. they also get tax relief on losses and most investment income is very safe

Just going to leave this here

TJ - for once, stop and read what someone else is writing, then engage brain and then, and only then, reach for the keyboard.

I am making the comparison between history in the days of Ford and Gates. Of course, there was more of a trickle down effect in Ford's time as all parts of the value chain were located close together. So whole local communities saw the benefit. Today, this is less obvious as globalisation does not naturally lead to trickle down into the same communities. Hence Gates can make billions and be philanthropic without a local community benefiting the the same degree as in Ford's day.

There is no wing -right or otherwise here - merely an observation as to why trickle down may be less obvious today.

MSP - ok, make no incentives for people to invest in companies but don't complain if there is nobody willing to support more start ups.

MSP - ok, make no incentives for people to invest in companies but don't complain if there is nobody willing to support more start ups.

Try reading what I actually wrote, I support giving tax insensitive to start ups, but that is a minimal part of the so called investing that currently goes on. Buying shares in most companies does not provide finances to the company, you are buying from someone else who owns them, just like buying second hand goods provides no further income to the manufacturer.

You need to take a more realistic view of what the markets really are, they do not primarily provide finance for growth.

And what do you think will happen to all that money, it will still be traded on the markets whether taxed as earning or not, where else do you think its all going to go?

Teramhurtmore -I did read what you posted

trickle down is a discredited far right idea. Thats the point. It simply has no meaning and is an excuse to grab as much wealth as you can. It does not happen - there is no trickle down effect

Right thru this thread you have been espousing discredited far right dogma

MSP, love your theory. I assume you studied at London Business School or Harvard to gain such a knowledge of business funding or did you hear it down the pub?
Some very blinkered and wrong views on how businesses work and the taxing of their profits, effects of losses and distribution of wealth to it's share holders. Pointless me telling you how it does actually work since you already know it all but I'd try checking your facts before making more factless comments.

MSP - ditto, you made the leap to stock and shares. I was talking broadly (if not clearly accepted!) about investing directly in companies. 50/50!!

OK TJ well I simply don't agree. There was considerable trickle down in the times of Ford, Carnegie and even the Cadbury family here. There is less (arguably) today - you can get stuck into dogmas of whatever wing while I will prefer to read the sensible analysis.

FWIW - there is a whole series on the future of capitalism (as weakly as that is defined) in FT starting today.

I have only appeared to take one view because I am interested in the argument/logic. Not fussed about the politics. So I merely challenged the assumptions made on fairness in taxation and the automatic assumption that equality of outcome (esp income) is fair earlier. And I challenged the idea that utilitarianism is naturally better than Libertarianism (although not in those words) merely because the Utilitarian argument was presented first. As I said (if you had read) each of the three core principles of philosophy can be challenged which is whey these subjects are interesting and frustrating at the same time.

If I appear to be defending a RW dogma then that will only be because the LW dogma will have been spouted before. Trust me, you have no idea about my persuasions!

Go on then craig - explain why shareholders in say Pricewaterhouse should get tax relief on their unearned income from the shares? what risk have they taken?

Why do bonuses get given in shares - to avoid tax.

Teamhurtmore - sorry - you maybe fooling yourself, you are not fooling the rest of us - you espouse not just right wing but far right wing economic dogma on here all the time.

Go on then craig, enlighten me with your wisdom!

MSP - ditto, you made the leap to stock and shares. I was talking broadly (if not clearly accepted!) about investing directly in companies.

The discussion was about the classification of investments as defined for tax purposes, if you decided that you are only talking about a small subsection of this, then can I assume that you support the more general taxation of capital gains as earnings.

TJ - you are doing it again. But I do not want to get into the usual TJ will keep posting BS until he bashes you into submission type arguments again. If you want to think that, feel free. I hope it makes you happy. I accept that on this thread my posts may have taken on a libertarian bias, but for the reasons outlines above.

[ oh and dont forget that paying bonuses in shares was essentially about aligning interests and then locking people into contracts (via deferrals etc) long before any idea of tax avoidance. But that doesn't fit your more overt dogma does it.]