Reply to: Clegg to push for £12.5k income tax threshold at Budget

[Waldorf]

The best policy this government has come up with was raising the income tax threshold.

Whilst I agree that taking lower paid people out of paying income tax, I see little sense in increasing the income tax threshold whilst the NIC threshold hardly moves up as well.

It is surely better to remove all the taxes deducted from someones pay and that includes NIC. So perhaps a better tactic would be to increase the NIC threshold until it is at the same level as the tax threshold and then gradually increase them both in line with each other.

[Zero Liability]

I agree, it oughtn't be used for social engineering, at all - just to raise revenue for a defined set of services and no more. Sweden in particular had a spell of trouble in the 90s, which is when they began reforming their welfare state (scaling it down a little) and also refrained from bailing out their banks. I doubt they have dealt fully with these problems, and besides that they have a pretty open immigration policy, not too unlike Britain. My point with regard to those countries in general is it is misleading to compare aggregated figures like total tax burdens as a % of GDP or other economic indicators as they reveal very little about how they handle tax or perform against the UK more generally in terms of any specifics.

[VectraMan]

BTW the first of the Scandamania programmes was about Sweden, and said that things are getting worse there; social inequality is rising, they have more problems with poverty and homelessness, and last year there were riots. So clearly they're not getting everything right.

I think half the problem with tax is politicians trying to use the tax system to perform social engineering. If was just about raising money everything would be much simpler.

[Zero Liability]

The big differences are that they have much higher taxes as a %age of GDP and lower income inequality. The latter correlates very well with measures of social "goodness" like health and education outcomes, although the debate about cause and effect is far from settled. It's quite possible that healthy well educated people are less obsessed with money and care more about other aspects of life and it's this leads to the flatter distribution of wealth.

The problem with that sort of thing is that you're then talking about particular cultural values (e.g. keeping healthy and fit being ingrained in the culture), as in if you worry less about acquiring more and more money/goods/whatever, you are happier (arguendo.) I'm also sceptical of happiness surveys in general, but upon visiting the Scandinavian countries I wouldn't be surprised if they are happier on the whole.

Also, whilst their tax burden as a % of GDP is higher than Britain's, Britain borrows more heavily and inflates more heavily. I.e. it taxes less ostensibly than they do and derives this income from other sources. However, I agree with the thrust of your post, it could be a case of misplaced causality. Without examining the underlying cultural differences and the economies and tax systems in detail, it's difficult to say how the two compare. I'd be willing to grant, however, that their governments are probably more competent than the British one, bearing in mind their populations are fractions of the size of Britain's.

[d000hg]

Arrangement implies artificiality to me - like arranged marriage it's not genuine and therefore should be considered null and void.

Tsk tsk. It's easy to see you're not married if you think it can happen without a lot of arrangement.

[doodab]

It's worth bearing in mind Denmark ranks pretty favourably on economic freedom indexes, whatever those may be worth. It'd be interesting to compare the UK to the Scandinavian countries and see like for like where and how much more it taxes and regulates. They tend to tax income more heavily but are more relaxed in other respects.

The Scandinavians generally come out about the same as Germany & the UK on those.

Country Rankings: World & Global Economy Rankings on Economic Freedom

The big differences are that they have much higher taxes as a %age of GDP and lower income inequality. The latter correlates very well with measures of social "goodness" like health and education outcomes, although the debate about cause and effect is far from settled. It's quite possible that healthy well educated people are less obsessed with money and care more about other aspects of life and it's this leads to the flatter distribution of wealth.

[AtW]

As tax avoidance is the arrangement of one’s financial affairs to minimize tax liability within the law, describe how it is not tax avoidance

Arrangement implies artificiality to me - like arranged marriage it's not genuine and therefore should be considered null and void.

[Zero Liability]

I didn't say it was, I was just pointing out that the reason the Danes consider themselves happy probably isn't because they pay 50% tax.

It's worth bearing in mind Denmark ranks pretty favourably on economic freedom indexes, whatever those may be worth. It'd be interesting to compare the UK to the Scandinavian countries and see like for like where and how much more it taxes and regulates. They tend to tax income more heavily but are more relaxed in other respects.

[amcdonald]

Parliament sets tax rates, so there is no avoidance if one does what the Parliament intended and paying tax at the rate which was set, even if it's 0.

As tax avoidance is the arrangement of one’s financial affairs to minimize tax liability within the law, describe how it is not tax avoidance

[doodab]

Why think the tax system is there to correct this?

I didn't say it was, I was just pointing out that the reason the Danes consider themselves happy probably isn't because they pay 50% tax.

[Zero Liability]

A large part of the issue is the gap between the richest and poorest in a society. The more pronounced this is, the worse things tend to be in a particular country in terms of crime, health, mental health, educational outcomes etc. It would be no surprise if self reported happiness correlated with this as well.

Why think the tax system is there to correct this? By the by, this is largely an effect of credit expansion throughout the world. It massively benefits assets such as equities.

As far as I am concerned, the goal of tax is to provide the government with revenue to cover the provision of services it considers 'essential' and only it can (supposedly) provide. This may include a safety net provided by something like a negative income tax. If the government has created a situation where it is legally possible to minimise tax for large MNCs, then the problem lies with its laws, not them making use of it. If it runs constant deficits because it spends too much, the problem is that it spends too much, not that it doesn't tax enough, because it taxes humongous amounts of revenue, and on top of this it prints and borrows to cover any shortfalls and then spend some more. I would not be surprised if many of us pay something close to 50% of our income once all taxes are factored in, including the loss of purchasing power through inflationary credit expansion.

All around, I would like to see much lower taxes, however the 'wealthy' shoulder a big burden of it as it is, as does anyone who belongs to the productive segments of society. Rather than demonising corporations (in the end, they resolve down to shareholders, employees, suppliers, creditors etc., there is no 'corporation' ultimately), the government can find ways to structure the tax system both more equitably and efficiently. The UK tax system is bananas.

As the French experience is proving, some of them may just pack their bags whilst FDI declines if the tax system is set up to penalise them.

[AtW]

How else would you describe something whose sole purpose is to enable you to avoid paying tax ?

Parliament sets tax rates, so there is no avoidance if one does what the Parliament intended and paying tax at the rate which was set, even if it's 0.

[TykeMerc]

Yeah subsidise MyCo instead

Bog off, they should subsidise ME personally, not even MyCo

[MicrosoftBob]

It's not a tax avoidance scheme if it was clearly intended by Parliament.

How else would you describe something whose sole purpose is to enable you to avoid paying tax ?

[AtW]

So if the DTA says clearly that Amazon's storage and distribution network isn't a permanent establishment and doesn't give rise to a tax liability, it's not a tax avoidance scheme is it.....

Amazon is different case because they are multinational so they can legitimately be shipping from France in a free trade zone like EU, the solution here is to make sure taxes are about right and there are no anomalies like Liechtenstein with way too lower taxes, and also no BS loopholes like Irish-Dutch thing that is exploited by major companies.