Sunday, February 14, 2010

The tax revolt of the elites

We have already commented on the catastrophic impact of tax evasion in Greece. As in many other countries, the vast majority of the Greek wealthy elite and professional classes have simply opted out of paying taxes on their wealth and income, leaving lower income households to carry the burden. This is well known and has become something of a sport for those with the means to play it.

According to The Observer's Will Hutton, the shadow economy -- i.e. the non-tax-paying element -- runs at 30 per cent of the total: "Uncollected tax runs at 13.5 per cent of national output per year - more than the deficit. The Civil Service is over-manned and corrupt. Everyone mercilessly tries to profit at someone else's expense."

Hardly surprising, in the circumstances, that successive governments have failed to get to grip with the budget. Tackling this culture of non-compliance is a priority for the reform programme that must urgently be adopted. But, as Hutton observes, this culture runs deep: "Greece has been so plundered by its super-rich elite of bankers and ship-owners, so fully bought into the conservative doctrine that taxation is a form of coercion akin to slavery, that in key respects it is not a functioning state."

And the same applies in any number of countries in Latin America, Eastern Europe, Asia and Africa. Those of us who travel extensively know that the culture of tax evasion runs deep within the rich elites of most countries. For example, Britain's right-wing Mail on Sunday leads today with an article about footballers and media personalities facing investigation for exploiting tax loopholes involving investments in film production.

What can be done to reverse the culture of tax scamming? Writing about the 'revolt of the elites' American essayist Christopher Lasch warned in the 1980s against the corrosive effect on society when rich people withdraw from their responsibilities to the communities on which their wealth is based. But the rise of right-wing libertarian thinking in the 1970s gave the rich elites the "intellectual base" - read "excuse" - they needed to justify their greed and self-absorbtion.

And the 'revolt of the elites' has been mirrored by the growth of a supply side: a globalised tax evasion infrastructure that creates no wealth but nonetheless absorbs the intellectual capacity of a massive army of lawyers, bankers and accountants. This brainpower could be used far more productively in other, more socially worthwhile, activities. Not to mention the secrecy jurisdictions that provide the enabling environment of lax laws and regulation to exploit the weak framework on international cooperation on tax matters.

We don't claim to offer an all-encompassing, solution to the pressing problems facing the people of Greece. But tackling the problem of tax evasion is an imperative. And this will require a full, head-on, assault on the tax avoidance industry (remember the maxim: poor people evade tax, rich people avoid tax). This will involve Europe-wide cooperation: Britain, for example, should desist from allowing Greek ship-owners tax-free status under its notorious 'non-domicile' tax rules. And Europe's Savings Tax Directive must be strengthened without delay to cover trusts and other legal entities which rich elites use to hide their nefarious practices. And last but by no means least, a General Anti-Avoidance Principle must deliver, in the strongest possible form, a message to the tax avoidance industry: your practices are harmful and unacceptable to modern society.

1 Comments:

Anonymous Adrian Wrigley said...

The Greek problem is compounded by the corrosive EU imposed tax and regulatory structures.

Most obviously, VAT is quite unsuited to any nation which abhors and ignores bureaucratic machinery. The EU ETS is a failure Europe-wide - relying on the political process to hand out tradable assets to the biggest polluters (through grandfathering).

The EU rulers should recognise that complex schemes like the ETS and the VAT system are responsible for deep damage to the economic, political, moral and environmental fibre across the Union and embark on rapid and substantive reform.

In this example, the solution is clear. Phase out VAT completely, phase in an upstream Carbon Tax, phase out the ETS. Within five years, EU business would be revitalised, VAT fraud would be history, fuel imports (from Russia, and Middle East) would be down, pollution would be down. Real entrepreneurship would break out, even in Greece. Trade would expand. What's not to like?

Blaming the Greeks for the consequences of the EU's grossly deficient and inequitable tax system gets us nowhere. Equally harmful is the taxation of "taxable income" - corporate and personal income tax and employment levies. Substituting Land Value Tax would free-up from the economic mire we wallow in.

Make secrecy jurisdictions, non-doms and tax accountants redundant!

9:16 am  

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