The Google Red Herring

Tuesday, 26 June 2012 21:17

Google makes a lot of money. The company is often cited by those who purport to be fighting against injustice in taxation, as an example of an outfit that would get off scot-free by relocating its head office to some remote place - such as an island off the coast of Greenland. The so-called Tax Justice Network (TJN) likes to wheel out this argument as a reason why LVT is not the way forward when it comes to dealing with tax avoidance.

It is a red herring. As it happens, Google has its UK head office in Buckingham Palace Road and presumably pays a hefty rent to Lord Marchmain. Being a near-monopoly corporation, most of the profit comes out of the economic rent of the country, through patents and from monopoly control of advertising. If these revenue streams are taxed away, what is left? It does, of course, take skilled staff to keep a company like Google going, and they have to be well paid. People who are wealthy want to live in the most desirable locations. They are not insane. They would therefore end up paying LVT one way or another.

But if they are insane, what then? Let them live under Brighton Pier if they are desperate to avoid paying LVT. Or in the Arctic, and get the same income. If they got a minor disease they would probably die. If they needed shopping it would take days to fetch it. They would never be able to go outside for long and breathe fresh air. Extravagant displays of their wealth would be impossible. It would be a hard, miserable life. What could they accumulate?

And if they want to move to Luxembourg to avoid LVT, that is also fine. They are welcome to leave.

TJN could not be more wrong. People want to live in Britain because the rent seeking
opportunity is the greatest due to high taxation and debt. Returns to capital are relatively low, so physical capital moves away. It is a Europe-wide problem.

This is why industry goes east and it cannot start up. Corporations might be bad but they are not stupid. They are intelligent and ambitious. So if LVT substantially replaced existing taxes, capital, like water that flows down hill, would flood back in. The rent-seekers would pack up and go. Good riddance to them.

Given we would not be taxing goods any more, what is the TJN's point? They reveal that they
have no clue about taxation. We should want to make the UK the world's biggest tax haven and be bold about this. The tax avoidance/tax competition narrative is dangerous. Let us have tax competition and let the country with the best tax system win. The winning country will not be one where there is a large pool of bitter and malcontented long-term unemployed who take to rioting when the weather turns warm.

TJN can say what they like, but their misguided view of what is happening sounds plausible if one does not think about it too hard. Many people are swallowing it. The people who are running the circus will look in every direction except the right one for an answer, but that is unsurprising. They are themselves rent seekers with a lifetime of work invested in the wrong idea. They will never support an effective LVT, even though they pretend to "sort of" support it. LVT is their nemesis because if they proposed it they would immediately find themselves silenced and cut off from their sources of support, since their main funding comes from top-of-the-pyramid rent seekers.

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