Tabloid Edition

The $1,200 a month garage

Blimey, I knew that New York was expensive but seriously, $1,200 a month just to park your car?

And more if it's an SUV?

The monthly parking rate at The Empire, a condominium building on 78th Street and Third Avenue, rolled up to $1,200 on Dec. 1. The rate -- which may well be Manhattan's highest -- adds up to $14,400 a year. And parking an SUV or another oversize car costs an extra $100 a month. "It's gotta be the most expensive rate in the city," said an Empire employee. "That's more than I pay in rent." Empire rates also look to be about $250 more than those of the priciest neighborhood competitors, according to bestparking.com.

It's stuff like this that makes a mockery of having one taxation system for a place the size of the US. Or even one definition of poverty or wealth. Because any such single, national, system, doesn't take account of the different costs of living in the different areas.

Take, as an example, the fight going on over income taxes. Sure, yes, $250,000 a year as household income is pretty good going. But in New York City, certainly in Manhattan, that doesn't really add up to being "rich". Just as an example, a couple of public sector employees married to each other can get close to that sort of level: and I'm not talking about senior managers either. A subway train driver married to a bus driver will be getting up to that sort of level if they've both got a bit of seniority.

Rich does really rather depend on expenses as well as incomes....

Gaining tax relief

The tax code is now so complex that it's simply not possible for each of us, as individuals, to keep up with it. There's just no way that we can read all of the tens of thousands of pages and make sure that we're making use of all hte get outs and clauses which are there to reduce our tax burden. Similarly, there's no way we can make sure that we're not using too many of them and thus underpaying. That's why we all need to use tax experts to make sure that we don't pay too much (which we wouldn't like) nor too little, which we definitely wouldn't like when the IRS comes after us.

This is where experts like Tax Relief come in. They help us navigate through the horros of the complexities of the system.

And it's not just in the paying of taxes of course. One of the fast growing crimes is identity theft: not just to try and gain access to your bank accounts and so on, but as a way for others not to pay taxes. They take your social security number and claim they are you: they then get paid for the work they do. However, you then end up being liable for the taxes that they should have, but did not, pay.

This sort of horror story is becoming more common and it's one of the ways in which Tax Relief can help you. See here at Yahoo news for more on how they can indeed do that.

Death and.....

Well, as we know, the completion of that phrase is that death and taxes will always  be with us, will always happen to us. But while death is both personal and inevitable, taxes can at least be ameliorated.

The method of amelioration is quite obviously to find oneself a decent firm of tax accountants. Now in the old days this could in fact be rather difficult. You were dependent upon whoever it was that was running the accountancy services in your town. They may or may not have been experts in taxes....they could have been more simply book keepers for example.

This here internet thing has changed that, for now one can look for accounting firms online. No longer are we constrained by physical geography, something which all of us still constrained by the taxman are grateful for.

Just as an example, looking for accountancy firms in Chatswood, I find people who can handle my affairs. I'm not in Chatswood, no where near, but I have a greater choice of experts and that has to be a good thing, right?

Fun With Statistics: TUC Edition!

Via Richard Murphy we get this, a fun filled list of ten things you didn't know about inequality. Number nine is especially interesting.

The richest fifth pay £18 tax on every £100 of disposable income, while the poorest fifth pay £30. (HMRC direct and indirect tax).

How can that be? We know that income taxes are higher for the richest than the poorest, so how can this be?

Aaah. The secret is in the word "disposable". Disposable income means what you can spend after income taxes, NI (and yes it does include any benefits you might get, either directly or via the tax system) and housing costs have been deducted.

So, in order to make our comparison we're going to look at the numbers without including the higher income taxes the richer pay because they have higher incomes. Pretty good, eh?

Oh, but wait! There's more! The poorest fifth pretty much don't pay income tax (although they do NI, much to the shame of the tax system)....but they do get things from the benefit system. Certainly, for a large majority, if not all of the poorest fifth, the tax and benefit system supplies them with disposable income, not reduces it.

So if we were to look at actual taxation numbers leading to disposable income, our top fifth would be paying £40 to £50 per £100 ( dependent upon difficult to work out things like the elasticity of something or other to do with Employers' NI contibutions plus income tax, and based of course on the last tranche of their earnings) and our poorest fifth probably a negative number, say, just for illustration, -£20 per £100.*

But no, we'll ignore the progessivity of our income tax system and benefits system and that's how we'll make up our figures, eh?

OK, now, let's assume that everything above is entirely wrong. Wouldn't be the first time that I've got the wrong end of a stick, after all. So let's say that the TUC figures are exactly correct, with no distortions at all. It really is true that from the money they have available to spend, the poor pay a higher tax rate than the rich. What could be the explanation of this?

Well, that would be that consumption taxes are in fact regressive. VAT is a little more complex as food is zero rated...but we know that the poor spend a greater portion of their incomes on things like heating, light, petrol and so on, than the rich do (quite apart from anything else, whatever the rich save isn't subject to VAT). We also know that the poor spend a greater portion of their incomes on booze and smokes than the rich do: and you should try looking up the duty rates on those.

So what the TUC appears to be complaining about is the fact that duty on petrol, tabs and lickker are too high.

Well, quite agree, right on Brothers. First TUC campaign I've ever been able to get behind.

* Would be interesting to know what that number is actually.

Inheritance Tax

Yes, the reason we have inheritance tax is to make sure that large fortunes are not handed down creating dynasties of inherited wealth.

Lord Forte, who made a multi-million pound fortune creating the Forte hotels group, left just £80,150 in his will, it emerged yesterday.

The self-made man passed on his money to his family before he died, aged 98, in February in order to avoid inheritance tax. He handed over the reigns of the company to his son, Sir Rocco, 62, seen here this weekend competing in the World Age Group Triathlon Championships in Germany.

Sir Rocco now runs his own chain of boutique hotels with his sister, Olga Polizzi. The Forte family, once owners of the world's largest chain of hotels and restaurants, is thought to be worth about £385 million.

Works so well, doesn't it? That must be why it is now levied on anyone with a 3 bed semi in the South of England.

So Why So Little Corporation Tax?

As we know, the NAO released a report part of which pointed out (the actual report was about the efficiency of the taxman in collecting the money) that a lot of large companies pay little or no corporation tax. There's a nice piece explaining this:

"After the likes of BP and HSBC there is a very long tail of     much smaller companies," says Bill Dodwell, head of tax policy     at Deloitte. "If you look at the companies pushing for     promotion to the FTSE 250, you come across names like Melrose     Resources, Law Debenture and Kingston Communications. These     companies are not very big. Take Melrose Resources - it makes     pre-tax profits of about £5.6m. When you think this through,     it's no surprise that so many of the 700 biggest companies in     the UK pay less than £10m tax. Many of them don't make £10m profits."

That seems entirely sensible: I'd not really thought about it that way, that there aren't actually that many companies that do have profits of hundreds of millions to be taxed.

"One of the industries that pays little or no tax is the car     industry," says Patrick Stevens, tax partner at Ernst &     Young. "One reason for that is that car industries have very     big investment programmes. In the car industry, you have got to     build a dirty great factory. Building factories brings tax     allowances, which governments put there in the past to encourage     people to build things like car factories and stimulate     manufacturing. The tax allowances come to you quicker than you would     write the value of those factories off in the accounts."

This would apply to pretty much any form of manufacturing of course.

Moves to wipe out pension fund deficits have also slashed their     tax bills. Accounting rules mean that cash sums paid into pension     funds can be offset against tax. In the year the NAO report refers     to, billions of pounds were pumped into pension funds by FTSE companies.

J Sainsbury, the supermarket group, paid £110m into its pension     fund in 2005/6 which resulted in it receiving a tax credit of £3m.     Last year, it paid £240m into the fund, leading to credits of £9m.

Again, it all seems entirely sensible. Certainly, so far there's nothing that we would even call tax avoidance, let alone evasion.

But the biggest mitigating factor is more obvious. UK corporation     tax is only paid on the profits made in the UK. These days,     Britain's biggest multinationals make most of their money     overseas.

Aha....and....

Take British American Tobacco. Last year, it made profits of     £2.6bn and paid £716m in corporation taxes. But none of that went     into the Treasury's coffers because BAT's comparatively     small business in the UK lost money.

But that logic also works in reverse: profits made by the UK     subsidiaries of American, German or Japanese companies are taxed in     Blighty. It is worth noting that overall UK corporation tax revenues     have soared by close to 50 per cent in the past four years and are     projected to hit £50bn in the current financial year. Clearly     someone is paying tax.

So we might have this rather odd situation that, the largest 700 companies are paying very little UK corporation tax because they are paying foreign corporation taxes...while there are chunks of revenue coming from the foreign companies operations in the UK....it's just that we don't count them amongst the 700 because they're not British.

There's one more spanner in the works here, something which might (will?) have a much greater effect in the future. There's an EU law (the Bolkestein Directive maybe?) about company taxation. Rather than where the economic activity takes place being the determinant of where profit taxes are paid, it's where the head office of the SE (Societee Europeienne?...equal to a PLC) is based. Under this it would be entirely legal for BP, for example, to have the head office in Liechtenstein (yes, any EU or EEA country) and the only corporation tax would be that levied there. Or Estonia, where that on retained profits is zero.

I've mentioned this before and I'm really not sure that directors who don't move in order to take advantage of it might not be in breach of their fiduciary duty to shareholders. Being able to pay 0% corporation tax on all profits made in the EU certainly seems worth the cost of having board meetings and a brass plate in Tallinn.

Progressive Income Taxes

It's true what the man says:

The incidence of the tax system itself also needs review. It is often supposed that the present taxation pattern is "progressive", taking a higher proportion of income the more you earn. This is only true, however, for taxes on income and capital. Indirect taxes, such as VAT, taxes on tobacco and alcohol and so on, work the opposite way, taking a higher proportion of lower incomes. Taking the two together, people pay much the same proportion of their income in taxes all the way up the income scale.

There are two obvious ways in which the system could be made more progressive. One is to raise the taxation on top incomes to, say, 50% and reinstate the starting rate of 10%, as the Lib Dems once proposed. The other would be to increase inheritance tax on the largest estates to help tackle the growing inequality in the distribution of capital.

There's actually a much better way of increasing the progressivity of the system (if that's indeed what you want to do). Simply stop taxing the incomes of the poor. Set the NI and income tax thresholds at something around our definition of poverty. Median income (in 2001, the figure I found first) was £310 a week: £ 16 k a year. 60% of median income is this £ 9,600 a year. Anyone earning less than this simply shouldn't be paying income tax or NI. (The figures will obviously be higher now, 6 years later).

Personally I would go further. Those on less than median shouldn't be paying into the pot. So the allowance would be £ 16 k come the glorious day. Some of the revenue forgone could be raised by increased tax rates on incomes over this figure (effectively, by raising the rate we'd be making up for the tax not collected on that £ 10 k or so of income not being now taxed) and the books balanced by taking a chainsaw to the spending side of the ledger. Note that the imbalance won't be quite as bad as some claim: there are people out there both being nominally taxed and then getting it back as credits: recorded as revenue and expenditure but not a real movement of money.

But this would both simplify the system and increase its progressivity. Wonder why more people don't advocate it (apart from the obvious nutjobs like myself, the ASI and UKIP and, wasn't there some muttering in the Tory Party about raising the allowance)?

Timid Tories

John Redwood's on The Telegraph explaining how the (very) modest tax cuts being proposed can be paid for. He's certainly right about this:

There are five ways of paying for tax cuts. A government could, as Labour say, cut teachers and nurses. It could borrow more. It could increase other taxes. It could cut wasteful and unnecessary expenditure. It could use the proceeds of growth.

He's suggesting using that last (and no, it's not a function of the Laffer Curve here, it's more a combination of fiscal drag and the increased size of the economy) and fair enough. However, why so timid? What about the fourth, unnecessary and wasteful expenditure?

We'll never actually get to a lower tax burden unless we have a smaller State. This isn't just about how efficiently some tasks are currently undertaken: it's about whether some tasks should be undertaken at all. Again, it's not just about cutting out nonsenses like ID cards, of the NHSW Spine, things that clearly are a) not needed and b) aren't going to work anyway.

No, we need to look at entire swathes of the spending departments. The Arts Council, for example. What is this except a bribe to the upper middle classes and the luvvies to support the redistributionist State? Away with it, in its entirety. Agricultural supports (yes, I know this is EU): now that they're a flat payment they are simply an increase in the rental value of land and thus push up capital values. Abolish them, tout sweet.

We've renamed the DTI but not abolished it....nor the regional subsidies to business which do so much harm. We could hack 10% out of the budget in this manner without even breaking a sweat. £50 billion....that's a third of the income tax take.

Far from "sharing the proceeds of growth" we should be working out which accretions of the past half century to the State we can and should be doing without: all corporate, farming and artistic subsidies as a start. Any further offers?

Andrew Lilico on Taxation

Well, sorta, but a bit weak.

The right approach, in my view, is to begin by asking what it is that we want the state to be involved in, and what is best left to the market and the voluntary sector.

There are three things we need to get straight before we go further on such a discussion.

1) There are things that only the State can do. These are the things that need to be done both collectively and by compulsion.

2) There are those things which only markets can do.

3) There are things which can be achieved by either markets or the State: where while they need to be done collectively, there is a choice as to whether they should be done voluntarily or with compulsion.

So it isn't  "what we want" the State or markets to be involved : that is addressing only section 3.  We need to start from the point that 1 and 2 are essential. Then we can start arguing over which side of the dividing line in 3 various activities are. That not many are on the State side in my worldview is well known  but that's another matter.

Scrapping Inheritance Tax

Behold the power of the blog! Two weeks after I propose that inheritance tax should be abolished in order to increase social mobility (the so called "bonking for virginity" argument) the Tories come out with a proposal to do exactly that!

Slightly more seriously, there's going to be a huge outbreak of indignation on the left. How dare anyone let the plutocrats pass on their unfair privileges down the generations? Well, quite. Only, there's one major problem with this argument. The rich don't actually pay inheritance tax. There's so many things exempt from it (farmland, AIM stocks, family businesses, a huge array of trusts) that anyone with a serious sum of money doesn't actually pay it, or at least not in any great amount. It's those in the 1x to 3 x the tax free limit that do in fact pay it: a tax supposedly designed to hit the very rich actually gets at the petit bourgouis (and yes, given house prices in the South, I think it fair to call someone with £1 million in assets petit bourgeois).

Even better is somethng I haven't seen in the papers (as yet) but is on the ASI site. Lifetime Savings Accounts. However it's dressed up this is a move to something highly desireable: consumption, not income, taxation. What you stick into your savings gets tax relief: this is the same as saying that you only pay tax on your consumption, not your income. As long as the tax is then collected when you take money out of that savings account (on the same basis as any other income in that year) then we've got there. Consumption taxation.

While this isn't currently being proposed, perhaps someone should: add to this system BOGOF. For the low paid, buy one get one free. Those below some level of income (or assets) for each pound they put into such an account they get another one deposited there by the Govt.

The aim, of course, is to make everyone a property owner, everyone petit bourgeois. If you like, the abolition of the working class, those who rely solely upon the product of their labour for their income.