New Internationalist

How Those Who Have It, Keep It

Issue 137

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THE RICH [image, unknown] Avoiding paying taxes

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Tax dodging:
how those who have it, keep it
Some of the myths and facts, as seen by N.I. co-editor Debbie Taylor

Well, they’re everywhere, aren’t they? Good-for-nothing layabouts. Living off our taxes. There’s a family down the road - he hasn’t worked since - oh, I can’t remember when. Her neither. And kids! They just don’t seem to know when to stop. Five children. All paid for by the likes of you know who. He reckons he gets more on welfare than he ever would in a job. There’s that slut round the corner. Ten to one she gets money from her fancy man. But who ends up paying her rent? Not her, that’s for sure. It’s muggins here: you and me. If you ask me she should get a job like everyone else and work for a living. I don’t know what the government’s doing, throwing away our hard-earned cash on people like that. It makes me hopping mad.

Fact...

Social security fraud, or welfare fiddling, cost the taxpayer an estimated $3.5 million in Britain in 1974/5. Government investigations in 1951, 1956, 1958, 1961, 1964 all found less than one in ten people on unemployment and welfare benefits appeared to be genuinely work-shy. On the other hand, benefits not claimed by those entitled to them amounted to an estimated $990 million in 1974/75 - nearly 300 times the amount lost in welfare fiddles.

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The cowboys are as bad. None of them pay tax. Half their gear - pipes, gutters, tools, you name it - falls off the back of a lorry. And the other half is ripped off from council building sites. They say the bricks are just unloaded from council lorries at one gate and loaded straight onto the cowboys’ pickups at another. That’s where our money’s going: to pay for the stuff they steal and to make up for the taxes they don’t pay. It’s enough to make you vote Social Democrat.

Fact...

Tax evasion by casual labourers, moonlighters and the self-employed cost the taxpayer an estimated $750 million in the UK in 1974/75.

Yes. Tax evasion - not paying what is required by law - is a crime. Tax avoidance - taking advantage of various tax law loopholes - is not. Tax evasion is a crime the poor commit. Tax avoidance is a special, and totally legal, prerogative of the rich.

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Well, who can blame them? The more you earn the more they tax you. There’s no incentive to better yourself any more. It all goes in taxes. You’re better off being a labourer than an executive these days.

Fact...

That s not true in America. In 1976 billionaires like L Hunt and Paul Getty with incomes of $50 million and $100 million p.a. paid only a few thousand dollars in taxes. In contrast a New York dishwasher that same year who earnt $4,800 paid $1,213 in federal, state and city taxes. The wealthier the person the greater the opportunity to enjoy lightly taxed or nontaxed income from capital gains, expense accounts, taxfree municipal and state bonds and various other kinds of business and professional deductions. For the very rich almost any kind of investment can be turned into a tax shelter - from herds of cattle to orange groves, baseball teams to office blocks. Tax loopholes for the rich cost the American people $277 billion in 1982. A British bricklayer working overtime might earn $22,000 a year and would pay a third of that in taxes. But a middle-ranking executive earning the same would enjoy a peck of perks - company car, pension, private medical insurance, mortgage relief - in all worth another 35% on his salary. In fact 70 per cent of all new cars built in the UK are purchased with company cheques - that’s a bill of around ten billion dollars; mortgage relief totals around five billion dollars a year; in total the tax relief for middle and high income earners in the UK amounts to around $50 billion a year.

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Well, a man’s home is his castle, after all. Everyone should own their own home. And it’s natural that a father should want to leave his property to his kids when he dies. But you just can’t do that any more. Every time a man dies a great chunk of his property has to be sold off to pay taxes. It’s a tragedy the way these stately homes are having to be sold off or opened up so hoards of tourists can go tramping over the Persian rugs in their muddy shoes. Half the aristocracy are living in poverty because of taxes. And what’s going to happen to the national heritage if this goes on, that’s what I want to know?

Fact...

With taxes on capital and inheritance (of land, property, stocks and shares) being - in almost every country - lower than taxes on earnings, there’s not much danger of that happening. In the UK 20 per cent of the population owns 85 per cent of the private wealth - a position that has barely changed over the last 20 years. And in higher-income developing countries with a relatively well-developed tax system, the story is much the same. In Mexico, for instance, earnings from work are taxed at around 42 per centincome from capital at lust 20 per cent, while the tax on inheritance of capital has been described as merely a ‘sieve of loopholes’. In Brazil taxes on inheritance are almost nonexistent. Who owns America today? Approximately 1.6 per cent of the population own 80 per cent of all capital stock, 100 per cent of all state bonds and 88.5 per cent of all corporate bonds.

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Well, I don’t know what all the fuss is about. Everybody’s middle class these days. The rich are a dying breed. There’s only a few left and most of them have been forced to live abroad to escape the tax inspector. Good for them too. It’s their money. Why shouldn’t they hold onto it?

Fact...

Tax avoidance accounts for nearly 50 per cent of the US black economy. And the scale of inheritance tax avoidance in the UK can be estimated by comparing these two facts: 80 per cent of the privately-owned stocks and shares are owned by less than 0.01 per cent of the population. But inheritance tax (called Capital Transfer Tax) contributes only two per cent of the taxes collected by the Inland Revenue.

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They deserve to get away with it, crafty buggers. You’ve got to hand it to them,

Fact...

Yes, well, it is handed to them, actually. Every time a new tax law is introduced by the government, the best financial brains in the country sit up all night working out ways of getting around it. The number of chartered accountants in the UK has more than quadrupled in the last ten years - from 20,000 to 85,000. And the number of tax avoidance schemes has kept pace: a veritable pornography of elaborate schemes with exotic names like Franco, the 39 steps, dividend-stripping, bond-washing, bed-and-breakfast deals and roll-up funds.

The Vestey family - one of the richest families in the UK, with a fortune estimated at over $1.5 billion - had a recent tax demand of $17 million, none of which they paid due to deft manoeuvring by their accountants. ‘Coming to grips with the Vesteys is like trying to squeeze a rice pudding’ lamented one tax inspector. Another commented that the only people who pay Capital Transfer Tax are those who hate their heirs even more than they hate the Inland Revenue. At least five billion dollars are lost in the UK alone from tax avoidance and evasion. And this is likely to be a meaninglessly conservative estimate, given that avoidance schemes are perfectly legal and so seldom investigated.

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But you can’t really begrudge them the odd little tax dodge. Taxes are all about stealing from the rich. So you can’t blame a few of them for fighting back. Like I said, everybody’s middle class these days. A few million dollars here or there isn’t going to make much difference when the whole system is set up to make the rich poorer and the poor richer.

Fact...

The richest ten per cent got 26.6 per cent of all the pre-tax income while the poorest ten percent got only 2.6 percent in the UK in 1974/5. After tax the richest ten percent still got 23.2 per cent and the poorest ten per cent only 3.1 per cent, a situation that has changed hardly at all since 1959. So taxes do not have any major effect on the distribution of wealth. And taxes are even less ‘progressive’ in Australia and Canada. with the US tax system worse still.

Ronald Reagan’s 1981 tax laws brought massive new cuts, designed to give those in the top income earning brackets savings of $20,000-$30,000 over the year, those in the lower brackets savings of $50-$150. It was an estimated tax break of $15.6 billion over the years 1982-5 for those lucky enough to have large fortunes already.

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They’re generous, though, the rich. Think of the Ford and Carnegie Foundations - all that money for cancer research, education and the arts. They may not pay all their taxes, but they certainly do their bit.

Fact...

The Vesteys have a contingency plan allows them to move their entire business empire and fortune out of the country within 24 hours if they are threatened by too great a tax bill.

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Like I say, you can’t blame them. What would happen to business and industry if no-one was allowed to keep their profits? The economy is in a bad enough state as it is without us crippling the entrepreneurs with taxes. They’re the ones who keep the world turning, after all,

Fact...

In most countries corporation tax (taxes on profits) is much less than tax on income. In Iran 23 per cent of government revenue comes from income tax, compared to only five per cent from corporation tax. In the UK the contribution of corporation tax to Gross National Product fell from 5.1 per cent to 1.9 per cent in the ten years between 1955 and 1965. And income tax made up the difference, rising from ten to 15 percent over the same period. The change has been mirrored on the other side of the Atlantic where the share of US federal income from private taxpayers has been rising, the portion paid by business has dropped from 50 per cent in 1945 to 14 per cent by 1979 and an estimated 9 per cent by 1983.


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