Hellfire and Taxes

April 15th, 2013
in Op Ed, syndication

Written by

France's president, Francois Hollande, wants to eradicate tax havens, which have two functions. The first is to reduce tax by legal means, call it tax avoidance.

The second is tax evasion, which is hiding away your money or other assets to avoid paying the taxes that would normally be demanded in the person's country of residence. So does Hollande want to abolish tax avoidance?

If so, his best chance might be to call on the United Nations to set up an International Panel on Tax Avoidance (IPTA). The object would be the creation of a world tax administration system under which no one, of whatever nationality or residence, could game the system. All would pay taxes under a universal system. Marvellous.

Follow up:

World government enthusiasts would love it. It would probably turn into a body pursuing by other means what some say is the real goal of the International Panel on Climate Change, that is, the creation of a world government with a mandate to shift huge sums of money from the rich to the poor countries.

This would of course stop residents of France fleeing to the UK for tax reasons, while leaving UK residents free to flee to France for better food, wine and weather.

On the other hand large French multinationals, which game the international system as hard as they can go and pay very little tax, would rapidly cease to be the profitable businesses they are today and would join all the other French companies in having a lamentably low profit ratio, which French governments of all stripes appear to regard as what businesses need to keep them fit, just as some people think that a cold bath every morning won't kill you in the end.

And of course the tax avoidance specialists such as Google, Amazon, and such like would no longer bother creating thousands of jobs in France.

Still, it would be a fair and juster world for everyone, except those who would have to pay the taxes, who never think the system is fair and just enough.

A Swedish economist working pre-1914 (Knut Wicksell ? I am not sure) spent a lot of time thinking about tax systems and how make them just. He finally concluded that the only just tax system was a voluntary one. I am with him all the way.

In fact tax systems a century or more ago had a large "voluntary" element, as work by a Danish think tank on tax evasion by the Danes in the present era pointed out a few years ago. Tax administration these days is so efficient that surprisingly little slips through the net, perhaps three per cent of all taxable income, but in the decades around the end of the 19th century the tax administration was so feeble that tax evasion was probably of the order of 30 %. Something of the same order probably held good in most other European countries.

Switzerland is the country best known for a tax philosophy that holds that the state is there to serve the individual rather than the individual to serve the state. Therefore tax evasion is not a crime, according to Swiss law, and if it is not a crime under Swiss law, the Swiss see no reason why they should reveal the names of foreigners suspected of hiding unpaid taxes in Swiss bank accounts to the authorities of countries with a more authoritarian approach.

Francois Hollande is dedicated to "moralising" the system, he says, but what he is actually doing is playing the law and order card, more controls, additional personnel to detect tax fraud. If he wanted to moralise the system he should aim to reduce tax rates on individuals in France to tolerable levels, which would reduce the incentive to evade and avoid paying taxes.

The moralisation campaign, of course, has been set off by the confession that Hollandes' minister for the budget, who was also in charge of prevention tax fraud, that he had a foreign bank account in which he was hiding money from the tax administration. If that was bad, what was worse for Hollande and his administration was that the budget minister (now ex), when challenged, lied to the president, the prime minister and the National Assembly.

Of course, if you look at the ex-budget minister's sin in cash terms, it was a mere nothing, €600,000 hidden, a few thousand euros in taxes due. As a commentator in Les Echos, the Paris business newspaper, wrote the other day, just think of what the blithering idiocy of the country's politicians sometimes costs.

For example the cut in the working week from 39 to 35 hours in 2000, with no reduction in the weekly wage and an increase of 10 % in the minimum wage, cost about 400,000 jobs and, said the writer, if you reckon the decision was made by about 100 decision makers, the cost was about €1bn per head.

Or the far-sighted politician who thought up the 75 % income tax rate and increased the wealth tax, which cost the country a few billion as the rich went into tax exile.

But the politicians are all well-intentioned, honest people (albeit ambitious to earn status by spending a lot of other people's money), so they are forgiven, however much their errors cost the taxpayers.

Ex-minister Cahuzac faces up to five years in gaol. The worst that can happen to Mr 75 % is to lose an election. I am not suggesting it should be otherwise, but is a bizarre situation.

It always strikes me how almost unanimously in contemporary society the assumption is accepted that the individual exists to serve the state, and how this finds expression in the worship of economic growth, the sacrosanctity of an advancing GDP, to which we all must be harnessed.

Perhaps the most interesting expression of this is that it is no longer morally acceptable for women not to have paid employment, often being paid to do what they would otherwise do if they stayed at home, looking after children - anyone's but their own. Why? Because if they remain at home to care for their own children they do not earn a wage and do not pay tax on that wage, and unpaid work at home does not figure in the GDP statistics.

This is the same assumption that makes paying your taxes seem to be so important. Behaviour of many kinds that a hundred years ago would have been regarded as morally shocking and socially unacceptable are today accepted without a blush, but evading tax is seen sure to send you to the deepest and fieriest regions of the underworld.

Time to join hands and say after me these words from J. S. Mill's On Liberty (thanks to Confessions of a Supplyside Liberal here for reminding me):

"The disposition of mankind, whether as rulers or as fellow-citizens, to impose their own opinions and inclinations as a rule of conduct on others, is so energetically supported by some of the best and by some of the worst feelings incident to human nature, that it is hardly ever kept under restraint by anything but want of power; and as the power is not declining, but growing, unless a strong barrier of moral conviction can be raised against the mischief, we must expect, in the present circumstances of the world, to see it increase.....(and) this encroachment is not one of the evils which tend spontaneously to disappear, but, on the contrary, to grow more and more formidable."

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