The Panama Papers Tell Us Nothing and We Have No Solutions

What exactly do the Panama Papers tell us? Nothing, absolutely nothing. There is nothing surprising in the Panama Papers at all.

The Guardian have made a good job of the whole shock horror, class war, what about the poor millenials thing, but ultimately there is very little to say.

Is anyone surprised that wealthy people like to keep hold of their money? That maybe they don’t see handing it over to an incompetent State as the best option available to them? Or that crooked tyrants from Russia to China to Africa and even Icelandic Premiers use these tax schemes? The answer to all these questions is no! Not a single person should be surprised by any of this.

One interesting aspect to this story, that Nico raised in his post, is why this leak occurred, who was behind it and who benefits from it. It certainly isn’t Dave the Lorry Driver from Dagenham…

Of course something must be done about the Panama Papers and all this tax haven stuff. If something isn’t done what about the children..?

There have been calls for greater transparency, light is the greatest disinfectant and all that… It’s not by the way, I believe Dettol is… Either way, ‘transparency’ is a typical look at John with the new BMW, not at me policy. Transparency is a ‘great idea’ if it just applies to large corporations and the rich… But imagine if we all had to be transparent. Imagine if we all had to reveal what we were earning. How difficult would it be to work out that Steve and Janice across the road were living off their credit cards? I mean, a big house, two new cars, 3 kids, a holiday in Lanzarote and only earning 40k. Who are they kidding..?

Transparency is a terrible idea because it means the end of privacy and absolutely everyone has something to hide. The only proven method of reducing evasion and avoidance are flatter, simpler, lower taxes. Russia implemented a flat tax of 13% in 2001 that has been very successful, it even increased revenues God forbid… The reason flatter, simpler, lower taxes work is because they reduce the need to avoid or evade tax — the risk is no longer worth it. They also make it far easier for authorities to administer and enforce them — just look at Estonia.

No one I’ve seen however is suggesting we move to flatter, simpler, lower taxes. There are obvious reasons why no one is suggesting this. It would entail a significant reduction in the size of the British State. And as we know our money is the cocaine our State thrives on…

However we could move to a flatter, simpler system that removed all other taxes, even if that meant we had for example a two rate system based on income of 40% and 60%. Now those rates may not be high enough to cover the largesse of the British State, but even if we had to set the rates higher it would still solve a lot of problems.

Despite the obvious logic of a simpler tax system it hasn’t happened and doesn’t look like it will. The reasons for this isn’t necessarily obvious at first. However it’s rather simple, it’s all to do with image. The reality is our government and politicians like and benefit from our complicated tax system. It’s politically convenient and it looks good — it looks progressive. On the one hand politicians can claim they’re redistributing wealth via taxes and at the very same time they can leave open or create various loop holes to keep their system ‘competitive’.

There is also a myth that persists which states that you can tax a legal entity. When I say legal entity I of course mean a company, it’s why we have Corporation Tax and Sales Taxes. We like to pretend we can tax companies. I mean we can’t just let them do their evil work here and not pay any tax, that would be outrageous!! Sadly though all taxes ultimately fall on the individual — higher costs, lower wages, etc, etc…

The reason we have taxes like Corporation Tax is because it looks good, it seems fair. Companies must contribute something to our green and pleasant land… However as most contractors know, myself included, our ‘companies’ pay all the taxes and we pay as little as we can as individuals. This though is simply an accounting trick, a little bit of magic. I am the one who goes out and earns all the money for my company, every penny of tax paid by my company comes out of my labour. The legal entity doesn’t just magic the money and tax out of thin air, I have to work for it, it’s not as if I work for Goldman Sachs…

A simpler system would just tax the income I take from the company. Then there would be little need for any trickery and company directors would pay the same amount of tax as the company cleaner.

There is though another reason governments like our current tax system. It obfuscates how much Tax we actually pay. People don’t notice tax so much when it’s 20% here on your income, 20% on the TV you just bought and 10% in ‘National Insurance’. Our current system reduces the direct impact of our State’s largesse. Imagine if we actually had a flatter, simpler tax system like the one outlined earlier and this meant all income over 20k was taxed at 50% and over 40k at 70%. People would be furious, the next elected government would deliver austerity on speed. Both the government and the electorate prefer to rob and be robbed quietly over an extended period of time, not upfront and in your face like some sort of Mafia gangster…

If we actually want to reduce tax evasion and avoidance we need to move to a simpler more competitive system. Continuing to complicate our current system with more rules and regulations simply won’t work and we will see more and more Panama Papers.

  6 comments for “The Panama Papers Tell Us Nothing and We Have No Solutions

  1. Paul Marks
    Apr 7, 2016 at 6:18 pm

    I had almost finished a long comment – but I touched the wrong key (or something) and the whole thing vanished.

    I am too tired to type it all out again.

    So I will confine myself to saying – good post Rob.

    • Apr 8, 2016 at 9:59 am

      Thanks Paul, that is appreciated.

  2. James Strong
    Apr 15, 2016 at 6:58 am

    There are very good ideas in this article, but you are presenting them in the wrong order.
    Your statement that ‘transparency is a terrible idea’ comes too soon, and it is too strident.
    You’ll lose the undecided members of your audience there.
    You could leave that idea till the end, after you’ve led people there by the arguments you put about the way people don’t know how much tax they are paying because of Income Tax, VAT, NI. You could add others too: Insurance Premium Tax, Air Passenger Duty.
    Your suggestion of two rates on income 50% and 70% has the power of pointing out how much is taken.

    In fact I think you should just drop the idea ‘transparency is a terrible idea’ altogether. You don’t need it, it can’t do any good and it could do harm because people won’t listen past it.

  3. Mr Ed
    Apr 17, 2016 at 6:04 am

    Good article, thanks. A fine example of a tax ‘con’ (i.e. a mickey-take on top of one) is that when you buy petrolor Diesel you pay VAT on the excise on the fuel, as of the value were added by taxing it. The UK government does, or did once recently, send out to income tax payers a breakdown of where their money went, but not an indication of how much of their net income goes in tax, e.g. On full-VAT goods, a £5 item has £1 of VAT added to make it £6 to buy, and so on. The floating of a flat tax is a start, to get the idea of lower tax more widely discussed and more easily recognisable as achievable.

  4. Julie near Chicago
    Apr 17, 2016 at 8:01 pm

    Rob, you absolutely nail it on the “business tax” (“Sadly though all taxes ultimately fall on the individual — higher costs, lower wages, etc, etc….” and following explanation).

    And also on the NON-transparency of how much the taxpayer actually pays:

    “[Our current system] obfuscates how much Tax we actually pay. People don’t notice tax so much when it’s 20% here on your income, 20% on the TV you just bought and 10% in ‘National Insurance’. Our current system reduces the direct impact of our State’s largesse.

    This is a problem with our present (American) tax system, and it would be a problem under Sen. Ted Cruz’s proposed Flat-Tax/VAT system.

    One question: You say,

    …[C]ompany directors would pay the same amount of tax as the company cleaner.

    If you are speaking of a so-called “Flat Tax” in this paragraph, it’s not that the CEO and the janitor would pay the same amount; rather, they would pay the same percentage of their book-earnings. At least, that’s what it means in the U.S.

    Excellent piece. Thanks. :>)

Comments are closed.