Pious hypocrisy about tax avoidance

Sunday, 22 April 2012 04:01
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I for one am sick of complaints about tax avoidance. It is legal and it arises because of the incompetence of legislators. The papers this weekend are full of ill-thought-out comment on the subject. Those who write this stuff, and most politicians, appear unable to grasp the most obvious fact: taxes on people's earnings and companies' profits are bound to be avoided and evaded. It cannot be otherwise.

In the first place there are problems of definition, which keep a army of lawyers in business. In the second, companies are abstract concepts. If a company has a multinational personality it can make its profits pop up in the most advantageous (to it) location. People can just move. Or work any residence rules to their advantage.

Sales taxes are just avoided through cash-in-hand trading and claiming the cost of the purchases as business expenses.

A further problem with these taxes arises because they have a deadweight cost. If a government wants to discourage a certain type of behaviour, it will put a tax on it. Taxes on alcohol lead to less boozing. But most taxes are on economic activity and have a deadweight cost: they discourage economic activity. It then becomes necessary to mitigate their effects with exemptions and concessions, thereby creating loopholes.

A tax on the rental value of land has none of these effects. Much corporate profit consists of land rental value and could be picked up through LVT before the accountants have had the chance to work their magic spells on it. Much of the rest should not be taxed anyway.

Those who are not prepared to speak out loud and clear for LVT, should stop complaining about tax avoidance. It shows either a fundamental lack of understanding or is pious hypocrisy.
 

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