tisdag 11 mars 2008

Only the little people pay tax

"Only the little people pay tax" was the phrase famously uttered by American millionaire Leona Helmsley when caught out for tax dodging. It was the title of a piece on the privileges enjoyed by the non-domiciled residents, written by Martin Wolf in the Finanical Times last Friday (7 March). In his view, their privileges are unjustified. What he failed to pick up was the possibility that is that there could be an underlying problem with the tax system itself. And nowhere in the course of the present debate on tax evasion and related issues has the point been made in any of the papers, neither in editorial comment nor in letters from readers.

Taxes are indeed a deterrent against whatever is taxed - windows, smoking, drinking, betting, etc. In some cases, that is their aim and purpose. But modern taxes fall primarily on work and enterprise, which cannot be right, since their effect is to impoverish. And they are levied primarily on people and companies, which is no longer practicable practicable, since people are mobile, companies are increasingly globalised and it is possible to transfer large sums of money between countries at the click of a mouse button. The consequence is that taxes that are supposedly based on "ability to pay" are, in practice, anything but. It really is in the nature of the system that "only the little people pay tax".

Low taxes are not the solution because goverment at both national and local level needs vast amounts of money to maintain the public realm to the standard a civilised nation can reasonably expect. Given that the present tax system has been shown yet again to be unfit for purpose, the only alternative is to levy taxes on entities that cannot move, such as real estate. Land cannot be hidden or demolished or removed to a tax haven. If taxes are tied to land titles, compliance is easily enforced; in the first instance, governments can make attachment orders on rental income, and as a last resort, titles can be forfeit in the event of non-payment.

If governments are losing tax revenue, the problem is self-inflicted, since practicable and politically acceptable solutions are available to any that are serious about dealing with the issue.

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