Tax remains one of the great taboo areas of finance, and the most controversial along political lines. Since the financial crisis seven years ago this situation has only become more in focus. After all, where did the money come from to bail out the banks? The taxpayer. But where has the money gone from the recent spate of banking fines? Probably not the taxpayer.
Most will be aware that taxation in its current form was dreamed up from the late 19th century to early 20th century by our socialist friends who used their politics of envy to get those of average and even modest means to pay tax. This was on the basis that the rich were paying as well – hopefully until the pips squeaked and they had to abandon their stately homes.
Of course, we know that the richest in society always pay the least, courtesy of accountants and under the non-domicile flag of convenience. Hence we have the recent statistic that 1% of the world’s population controls 99% of the wealth. While tax may be a necessary evil, in its current direct form it really does not address inequality.
This is not surprising given that socialism prefers that a billionaire is entitled to both child benefit and free healthcare in the way that a person with no assets is entitled to them. No means testing. But tax is obviously an easier “sell” if everyone pays and receives benefits than if they do not.
Unfortunately, in the wake of the aforementioned financial crisis, when governments assumed massive amounts of debt in order to prevent the collapse of the Ponzi scheme that the welfare state concept is, vanity projects such as the National Health Service appear increasingly untenable. At the same time the rich have become significantly richer due to the QE inspired asset bubble in real estate.
But what is the solution?
Mine would be a flat 10% income tax and 50% VAT, so essentially a “the more you spend, the more you pay” regime. Instead, Draconian and largely retrospective (like the banking fines) policies are being unveiled, in which, ironically, the world’s centre of capitalism seems to be leading the way.
Last year we witnessed the Tax Inversion “loophole” being snuffed out by the U.S. Treasury tapping the relevant parties on the shoulder, the best example being AbbVie. Here it paid a deal breakup fee to Shire (SHP) of $1.6 billion after the U.S. authorities blocked what was a legal deal, in a manner that China or North Korea could learn from.
But of course, the U.S. still needs cash.
Rather than sit back on the golf course like any lame duck / second term President is expected to do, we see Barrack Obama deliver U.S. style communism with a plan to close another “loophole”, whereby the overseas profits of U.S. corporations is not liable to tax. This is expected to rake in $238 billion. Tradition has it that if you don’t live in a country, you do not have to pay tax there as you are not presumably a burden on it. Think again. It would appear that even if overseas profits currently amounting to $2.1 trillion are not repatriated they are still fair game.
Luckily, this outrageous plan is unlikely to receive approval in Congress as the Republicans are currently in charge. However, one could say it is the thought that counts, and indicates the fiscal desperation that lies behind the surface of the world’s leading economy, allegedly at a time of decent growth.