Thursday, 12 July 2012
Protesting Too Much

Recently, the Times of London carried a large, bold headline that practically vibrated with moral indignation: THE TAX AVOIDERS. It headed a story about wealthy people who use a loophole to avoid almost all of their income tax, paying only 1.25 percent instead of nearly 50 percent. The government revenue supposedly lost annually was about $7 billion.

The scheme, for the moment legal, allows the rich to pay their income into a trust established in Jersey, an offshore island completely independent of the British government (though a possession of the British crown). The trust then returns the money in the form of a loan which, strictly speaking, could be called in—but since the trustees are the accountants whom the rich pay $64,000 per year to administer the scheme, it’s unlikely that they ever would be.

High rates of taxation are to accountants what anabolic steroids are to athletes: they stimulate performance. Or, as one accountant said: “It’s a game of cat and mouse. The Revenue closes one scheme, we find another way round it. It’s like a sat-nav. I’m driving, get a message there’s been a smash, press the button to re-route. That’s all we do with tax avoidance. The Revenue puts a block in, we just go round the block.”

Whether this is the finest use to which formidable intelligence can be put may be doubted; but in high-tax regimes, it is all but inevitable. The British chancellor of the exchequer, popularly though unjustly criticized for having been born with a large trust fund, said that he found the tax-avoidance scheme “morally repugnant,” thus establishing his credentials as a man of the people. Could he be a member of the same government, I wonder, whose head, David Cameron, is reported on page 12 of the same newspaper—after several pages of almost undiluted indignation at the conduct of the rich—to have offered financial asylum to the French who want to flee President François Hollande’s proposed 75 percent tax on incomes greater than $1.25 million? WE WILL ROLL OUT THE RED CARPET FOR FRENCH TAX REFUGEES, SAYS CAMERON, the headline read. Not since the Revolutionary Terror or the expulsion of the Huguenots have there been so many French refugees in London, and that was before Hollande’s proposed tax increase.

There is surely something inconsistent about a government that welcomes foreigners fleeing their own country to avoid tax, but excoriates its own citizens who do everything legally possible to do the same. The inconsistency can, perhaps, be explained by the fact that 50 percent of the population is now dependent, directly or indirectly, on the government for its income. That is why the government will never draw any general conclusion from this paradox.

As a more fitting subject for the moral indignation of members of Cameron’s government, I suggest the following question: How and why is it that, after 11 years of compulsory attendance at schools, at a cost to the taxpayer of $80,000 per head, more than one-fifth of British children leave state schools barely able to read or write?

First published in City Journal.

Posted on 07/12/2012 7:52 AM by Theodore Dalrymple
12 Jul 2012
Send an emailStan

There is no paradox.  Avoiding paying taxes through a loophole is clearly not the same as leaving your country in order not to be subject to its tax laws.  Presumably the British rich who don't pay their income taxes now will still be welcome to go somewhere else when the loophole shall have been fixed.

12 Jul 2012
Send an emailHugh Fitzgerald

Isn't it possible for there to be "moral indignation" over more than one thing? Can't one deplore the loss of self-confidence by what was a self-assured cultural elite, that once controlled the school system, and does so no longer, and at the same time be amazed and furious at the avariciousness of too many in the entirely too self-assured financial elite? 

The writer's prescription for dealing with tax evasion is to lower taxes, for then there will be less reason for evaders to evade. This is similar to the argument one hears from various immigrant right" groups, that if only there were a general amnesty for those they carefully describe as "undocumented aliens" (as if it were just a little matter of misplaced paperwork), then the problem would go away. There will always be those who will try to move heaven and earth to avoid paying less tax. But that is not a reason for attacking the tax rate -- which is now ridiculously low compared to the wonderful  1950s, a time of family and societal stability -- but for figuring out how to keep shutting down those tax havens, and thwarting those tax strategies, which, creative accountants are quoted in the piece as saying, will always re-emerge, in new guises. That's a counsel of despair, designed to make governments give up trying to enforce the tax laws, and instead to steadily lower taxes as the only conceivable way to end evasion.

I have another idea, quite different from the views of Dalrymple. To wit: raise the marginal tax rate, so as to dampen the kind of financial finagling by some, and widespread depressoin spreading among others, at the site of the concentration of wealth now surpassing banana-republic levels. I never tire of reminiding people that in the 1950s, under Eisenhower, the marginal tax rate was 91%, and there was no hectic financial finagling, no fears about losing one's job -- often a lifetime job -- after a merger or acquisition, and the captains of industry not figures of admiration and even, in the case of some high-tech tiptops, figures of cult-worship. Raise those rates, and with some of the revenues,  pay for many more enforcers of  both  the immigration laws, and the tax laws.

There is no need -- while deploring the comical stupidity of the schools, and alerting people to the menace of Islam, and to the madness of the immigration policies all over the Western world -- to become a defender of privilege, or rather of the degree of privilege, of economic inequality, that lessens the sense of national solidarity that is required, damages the immune system, to ward off such things as Islam.

12 Jul 2012
Mary Jackson

There will always be those who will try to move heaven and earth to avoid paying less tax

Whereas if you avoid paying more tax it only costs you an arm and a leg.