In a long-ago post I wrote about how huge debts don’t make you poor, and illustrated this with the story of real-estate mogul Donald Trump. Negative large fortunes are closer to positive large fortunes than either is to zero. (I later had to correct my interpretation later, on discovering that the counterintuitive behaviour of Trump’s creditors was largely a reflection of their involvement in money laundering.)
Now we learn from the N Y Times that Trump has been paying $750 in federal income tax each year as president. Presumably that’s just an arbitrary number that he made up so that he could say it wasn’t zero. (Apparently even Trump has some limits to his his explicit lying.)
But here’s the thing: $750 is probably worse than $0. People have been assuming he wasn’t paying taxes. It sounds like a general insult. $750 is too specific (as well as being too small). The number becomes a shorthand for his tax-dodging, as well as inviting people to compare their own tax bills to Trump’s.
This demonstrates again how absurdly miserly Donald Trump, above and beyond his criminality. He had to choose an amount to pay purely for the symbolism of possibly needing to tell average Americans how much he had paid. He could certainly have afforded not to choose an amount large enough that even Americans of modest means would find risible. At least four figures…
With The Guardian portraying the magnitude of Oxford and Cambridge college endowments on the front page as a major scandal — though taken all together they don’t reach even half of the endowment of Harvard — it seems like a good time to repost this comment I made five years ago, when the government was being attacked by Oxford’s chancellor for considering limiting the tax deduction for charitable donations to educational institutions. The post begins:
Let’s think this through:
The government wants philanthropic funding of universities to replace public funding.
Under current law, contributions to universities (and other charities) are matched by a 40% tax rebate for higher-earning taxpayers, so 2/5 of the costs of nominally “private” contributions are actually paid by the taxpayers. The government proposes to cap this subsidy at 15% of income or £20,000.
Do you see the contradiction? Neither do I. In a time when the government is cutting funding for all manner of worthy projects, it seems pretty undemocratic to effectively allow wealthy citizens nearly unlimited access to the treasury to support their own favourite causes. The £560 million in charitable gifts last year presumably included more than £200 million in “gift” from the government. Whether or not this is a good thing, it seems troubling, as a point of democratic principle, that control over these £200 million has been passed from the citizenry at large (in the person of their elected representatives) to the infamous “one percent”.
I think everyone would agree that if the wealthy elite want to spend their money on providing luxury education in medieval buildings to particularly talented young people, many but not all of whom come from privileged backgrounds, that’s probably not the most useless or antisocial thing that they’re free to do with their money. (And I can confirm, from personal experience, that Oxford colleges spend insane sums of money on maintenance for their buildings.) But as long as they’re leveraging public funds, which the current government has decided to withhold from educational institutions that serve a broader public far more efficiently, it’s no longer a simple matter of private choice.
Democrats need to work harder to keep their attacks on Trump consistent. On the one hand, they say that his income tax proposals would selfishly benefit himself and his family. But now they point out that he doesn’t pay any income tax anyway. So he doesn’t stand to gain personally. Contradiction!
Just another example of how the business elites have normalised their criminal activities:
So when politicians, journalists and the public ask rude questions about how Google can pay its chief executive more in one year than it hands over to the British tax authorities, the company should have a simple answer. You make the rules, we obey them – if you don’t like it make some new rules, otherwise go away and leave us alone.
The article suggests that Google is suffering from a sick compulsion to hold itself to a higher standard than is just obeying the rules.
Except, they don’t actually obey the rules. What they do (as I’ve discussed at greater length) is to create structures to exploit the ambiguity in such legal terms as “residence” and “business activity” and “profits”, ambiguity that is in the rules because the lobbyists would otherwise squeal about unreasonable constraints and irrational behaviour being forced upon them by more specific regulations. The law doesn’t actually permit you to pretend your business is actually transpiring at the shell address in the Cayman Islands, but it’s sufficiently hard to prove otherwise, and the elite civil servants are sufficiently unmotivated.
In fact, despite the billions of dollars they spend on tax lawyers in lieu of taxes, they’re not even particularly conscientious about keeping their plausible deniability plausible. Former London Google employee Barney Jones gave evidence to HMRC:
He had watched Matt Brittin, his former boss at Google, give evidence to MPs on the Public Accounts Committee with interest but also mounting disquiet. Mr Brittin emphasised to the PAC one reason Google paid so little tax in the UK was that it did so little business here. The bulk of its work was generated through its Dublin headquarters – where corporation tax was lower than in London.
Mr Jones, a father of four and a devout Christian, knew that wasn’t true. He had worked in the London office from 2002 to 2006 and had his own view of the large turnover of work that was really going on in the UK. He took the facts to PAC chair Margaret Hodge and then on to Her Majesty’s Revenue & Customs (HMRC), which took his evidence but wasn’t exactly overjoyed by it.
“They seemed quite defensive and seemed to be more interested in justifying their position.”
For that matter, it’s not even entirely true that they don’t make the laws. Unless you think the US Treasury just decided in a purely independent and disinterested way that the European Commission doesn’t really understand its own tax rules.
Oxford University has a new mathematics building. It’s very nice, looks like it would be a good place to work. But I found it fascinating to learn that the building is split in half, one part for teaching, one for research, with undergraduates basically forbidden to enter the research part. It’s a bit of a nuisance for the faculty, who need to give tutorials, and would sometimes find it convenient to do it in their Maths Institute office rather than in their college. Why is it? The story — I can’t vouch for its truth, but I’ve heard this from several people — is that it is for tax reasons. Apparently, research is considered a charitable activity, while teaching is… I don’t know, commercial activity? By splitting the building this way, they were spared paying VAT (close to 20%) on the construction.
This suggests an updated version of an old Jewish joke:
(Student tries to enter the research side of the Maths Institute Building.)
Receptionist: Where do you think you’re going? You’re not allowed in there.
Student: I’m looking for my brother. He’s a graduate student here.
Receptionist: Why don’t you ring him?
Student: He’s probably in one of the interaction zones, which have been designed to facilitate informal discussion outside the framework of traditional office spaces.
Receptionist: You could ring his mobile.
Student: As you are probably aware, the lovely metal cladding on the interior walls has exactly the right dimensions to block all mobile telephone and computer wireless radio signals. (True, apparently.) Please, I just need to go in for two minutes.
Receptionist: Well, okay. But don’t let me catch you learning in there!
I’m no expert on the subject, but I think that when the costs and benefits “match up”, you’ve gone too far…
More seriously, the article is based on weird analysis like this:
“It’s unfair to tax people for parking their cars when there is no real alternative (to driving),” he said.
That sounds superficially fair, but does it correspond to any principle that is more generally followed? How about: It’s unfair to tax people (i.e., charge them) for riding a bus when there is no real alternative. Or, it’s unfair to tax people for getting a passport when there is no real alternative. Why is it that services provided by the government ought to be free by default? Conversely, if “fairness” (defined as not charging people for necessities) is an important principle for the public sector, then why not for the private sector?
Following up on my recent comments on piracy, recent news reports have forced me to learn the subtle difference between “tax evasion” and “tax avoidance”. Apparently “evasion” is when you don’t pay the taxes you’re required by law. “Avoidance” is when you don’t pay the taxes you’re required by law, but structure your property or income in such a way that you don’t pay (much) tax. It sounds like a pretty clear distinction, but the application can be dubious.
The Times recently reported on a widely used scheme that is so banal, so transparent, that one can hardly see it as representing anything other than a fig leaf to cover the authorities’ wish not to to tax the wealthy and powerful. The way it works is, extremely wealthy individual X doesn’t like his salary from company Y being taxed by government G, as though he were just an ordinary citizen. So he comes to an agreement with Y that they will stop paying him a salary, and instead pay an offshore shell company K2 for his services. So far so good. Y now pays no tax, because he has no income, but for obvious reasons this is not entirely satisfactory. Poor Y, who is now starving in a garret with no visible means of support, appeals to the good will of K2 (which has made such a great profit from Y’s tax aversion) for a loan. They’re a soft touch, and they loan him essentially all the money they’ve earned on his case, telling him, “Pay us back when you can.” He never pays it back, but they never lose hope. Loans are not taxable, of course, unless they are written off. Continue reading “Evasion and avoidance”