Avoiding Taxes

There is an interesting little spat going on between the TaxPayers' Alliance and Derek Draper's increasingly irrelevant LabourList. Draper seems determined to paint the TPA as an evil organisation that will force you and me, the casual taxpayer, to pay more money to the government. He writes:

If government spending stays the same and tax revenue stays the same (I understand you would prefer they don't but they are going to, at least for now) and companies engage in the tax avoidance schemes outlined in the Guardian, corporate tax levels would decrease and so the burden on individuals would have to rise?

This is in response to the TPA's comment of:

"Far too many companies are being driven abroad by this country's punitive and complex tax system. As a result, our economy and our public finances are losing out. The Government should be doing all it can to bring business back, and the best way to do this would be to lower tax rates and make the system much simpler. We can't expect companies to bring investment and job opportunities to Britain if the only thing they get in return is excessive bureaucracy and high tax rates. Lower taxes would tempt business to Britain, and help ordinary families to pay the bills at the same time."

Can anyone spot where Draper makes his glaring mistake? Yep, it is in the phrase "I understand you would prefer they don't but they are going to, at least for now". Because therein lies the problem, and nicely highlights the utter inflexibility of the Nu Labour position. They refuse to consider reducing taxes or reducing spending - even though, as the TPA points out, this could have a knock-on positive impact on the economy as a whole. The real insanity of their position is that Labour are in a position to implement this positive change, but are refusing to even consider it. Draper reveals the mindset of Labour very nicely - spending is high therefore taxes are high; therefore, everyone must be made to suffer equally.

There is a further interesting point made by the TPA, in response to Draper's angry phone call to them, on the issue of tax avoidance:

When asked to make clear whether he was talking about tax evasion (illegally dodging tax) or tax avoidance (an emotive term designed to sound like the illegal practice of evasion, but in fact meaning legally choosing to live or work in such a way as to minimise your tax bill), he confirmed he was talking about the legal practice.

Closely followed by:

Corporate tax avoidance is a rational response to an overly complex and burdensome tax code. With Britain having fallen behind other OECD countries, and now imposing a higher than average corporate tax rate, companies face a significant incentive to avoid that burden if they can within the law. We now also have the most complicated tax code in the world, having recently overtaken India, which encourages and enables firms to find loopholes. With that in mind, Draper’s approach to the issue misses the point. If we want businesses to stop avoiding the tax system we need to make it less onerous and simpler so there are fewer loopholes and fewer incentives to try and find them. As I pointed out to Derek – when he wasn’t shouting at me – there is physically nothing that you can do to force companies to register in Britain rather than abroad, so the best thing to do is to cut taxes and simplify the rules to entice them back.

So tax avoidance is legally minimising the amount of tax you pay - every business would want to reduce tax, because it is a cost that will either impact on their profits or (more likely) be a cost that will have to be pushed onto their customers in the form of higher prices. In fact, I'd argue tax avoidance is a perfectly natural thing to do - it is just reducing the amount of money we have to give to a wasteful and demanding government. Another way in which Labour could reduce tax avoidance would be to piss less money away - lower spending could lead to less tax.

Of course people are going to avoid paying tax if they can; the government is the equivalent of a drug-addicted relative - they will beg, borrow and steal money from you and then come back to demand more to spend on their expensive habits.