In this world nothing can be said to be certain, except death and taxes (Benjamin Franklin, 1706-90)

I have to create my own incentives to sort out my tax

Fortunately I haven’t had to deal with the former this weekend, but have been collating all the information that precedes the latter, namely putting together my accounts. I don’t actually fill in my own tax return – there aren’t enough millionaire’s shortbreads (oh, the irony) in the world to numb the pain and and anyway, that’s what accountants are for. But I do have to dig out all the paperwork, and put it into a sensible order prior to handing it over… which is how I have spent much of today.

I don’t object to paying tax – I like the idea that if my house is burning down, a bunch of professionals will turn up to put the flames out and won’t ask me for my credit card (possibly melting in the conflagration) before they do so. I like the idea of healthcare that is open to all – rich or poor. I like the fact that we care for the most vulnerable in society. What I don’t like is that if Benjamin Franklin was writing today, he’d be adding ‘except Amazon and Starbucks’ to the end of that sentence.

Taxation is (generally) a good thing – not fun, I admit, but good*. But it should be equitable. I have no issue with paying taxes, I just have a problem with rich individuals being able to pay clever accountants to help them avoid paying their fair share and large corporations manipulating the system to avoid (in some cases) paying any of their share. Here in the UK our government is determined to have a ‘competitive’ tax system, i.e. one that encourages big business to come here because there are tax advantages. According to David Cameron, our Prime Minister:

Every country sets its own tax rates, but I think in a world of global capital, in a world where we’re competing with each other, in a world where we want to send a message that we want you to build businesses, grow businesses and invest, I think it’s wrong to have completely uncompetitive top rates of tax.

And so, we try to tempt business and the very wealthy with our ‘competitive’ taxes. Meaning that us little guys have to make up the shortfall. Our government would have us believe that it’s worth it: seducing big business is supposed to benefit us all – creating jobs and encouraging investment. But, in fact, it’s small local business who retain wealth within communities. With big business, profits disappear. Work by the New Economics foundation suggests that:

every £1 spent with a local supplier is worth £1.76 to the local economy, and only 36 pence if it is spent out of the area (NEF)

So, small businesses are more valuable to an area although they tend not to get tax breaks. And if we do give tax incentives to big business, does it help the country overall? Evidence suggests that we won’t lose big companies if we don’t have the lowest taxes. NEF analysis shows that

Dramatic differences in taxes as a share of the economy – from 29 percent in Japan to over 55 percent in Denmark – have no obvious impact on growth. As the FT’s Martin Wolf concludes: “Such a spread seems to have no effect on economic performance”

And, furthermore

High-tax countries have been more successful in achieving their social objectives than low-tax countries. They have done so with no economic penalty.

Even people involved in investment agree that a competitive tax system makes no difference. For example, Warren Buffett is quoted as saying:

I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain.

So, let’s celebrate the good things that we can achieve with taxes and lets apply them fairly. After all, corporations, not being alive, can avoid death, so they shouldn’t get away with the taxes too!

-oOo-

* I don’t always agree with what our taxes are spend on – but that’s a discussion for another post.