Jul 04 2011

Art Uncut on U2 protest

Posted by: Nick Shaxson in: Thoughts

I missed this while I was away, but I’d like to draw attention to this article from Art Uncut – an article that is worth reading in its entirety.

Art Uncut aims to bring about a culture shift, to create a world where people automatically and instinctively think about tax ethically. We’re not claiming that individuals have a duty to pay as much tax as possible. Rather each of us has a duty to think about tax in an ethical context, to ask questions such as: what’s my fair share? What do I owe to the country that paid for my healthcare and education? What’s the spirit as well as the letter of the law? What effect does how I arrange my tax affairs have on the globe?
. . .
We want to encourage individuals who have made a bit of money to realise that their tax decisions are shot through with value.
. . .

We want to see a world in five years’ time when credible musicians just don’t do what U2 Ltd did, because they know the public won’t support it.

Which is rather similar to what I argue in my conclusion chapter to Treasure Islands.

The culture change is the pre-requisite for all the others that are now required, on a worldwide scale.

14 comments so far

AlienEdouard 7th July, 2011 4.04 pm

There is an interesting question here: “what’s my fair share? What do I owe to the country that paid for my healthcare and education?…”

In the UK non-domiciled residents are typically foreign nationals (mostly Americans), educated in the US, who send their kids to private schools (mostly the Amrican School) and then sends them back home for high school and college. They have private healthcare, fly home for most treatment, and may not even tyry their luck with an NHS ER if their life depended on it.

On that basis, can we agree they owe the UK nada in terms of tax?

Or would you care to re-formulate the question?

Nick Shaxson 7th July, 2011 11.28 am

Various ways of answering this. First, you have airbrushed out the important stuff: the courts which guarantee their contracts, the airspace, the roads, the healthy and educated workforces that these people rely on utterly to make their profits, the safe lodgings for their clients, and on and on. So no, we can’t agree that, not at all.

But there’s more. Turn this on its head. Take a UK non-dom from somewhere else – India, say. If they pay zero tax in the UK, as many do, then they are stiffing their own country out of billions in taxes. They are free-riding. That’s what they are doing. They are stiffing someone, somewhere. How to address that? Well, it’s simple. You tax them properly in the first place. They’d be less inclined to relocate, and might do their often poor home country some good, instead of riding on the backs of everyone else.

AlienEdouard 7th July, 2011 1.14 pm

cannot see my original comment (“Your comment is awaiting moderation” is showing). Can you allow it so I can remember what I wrote.

Nick Shaxson 7th July, 2011 3.27 pm

sorry, i replied without approving yours. it’s there now.

AlienEdouard 7th July, 2011 6.15 am

Hold on a minute. The domicile rule does not give nondoms a free pass on all taxes. It only excludes non-UK income to the extent that it is left offshore. UK-sourced income is very much taxable.

So your example about UK courts is well off-the mark: if a nondom applies for enforcement of a UK contract, the underlying asset/income/arrangement will by definition be in the UK (the only place where a UK court has jurisdiction) and therefore by definition taxable.

Your example about the “educated” British workforce is even further off-target. If a nondom employs British workers and makes a profit, that is fully taxable. (never mind the fact that the true beneficiary of the state-funded education is the worker, who by receiving employment from the nondom can pay tax to repay the state for the investment in his/her education).

The comment about the airspace and the roads is also weird. A nondom using a British airport pays air passenger duty like any domiciled Brit. Also, a nondom driving around the UK pays highway tolls, car registrations fees, gas duties, parking fees, etc. like any domiciled taxpayer.

You will have to do a lot better than that to convince anyone that the nondoms are not paying their way for using the UK’s state-funded infrastructure. So far, all you have done is exhibit your lack of understanding of the domicile rule.

The rest of your post is interesting, but naive. (it is also largely irrelevant, as the UK only attracts a very small number of immigrants that stiff their “poor” countries of origin; the vast majority are Americans or Europeans working in London and paying UK tax on their UK earnings). There was and will always be one or several jurisdictions with low taxes prepared to welcome affluent immigrants. A decision by the UK to discontinue the domicile regime would have no impact on the nondoms’ home countries because nondoms would simply move somewhere else, and not necessarily to some tiny Caribbean rock. Canada has a program that allows immigrants to shelter offshore income. In Europe, Spain and France have recently started to offer extensive tax breaks. Israel has generous and effective arrangements. And then there is of course Switzerland, but you already know about it from first-hand experience.

The idea that nondoms would be free-riding or stiffing anyone is somewhat perplexing in light of your own personal situation (this is not meant to be personal, your situation is only an example): you have moved to a low-tax jurisdiction (whether you were motivated by tax is irrelevant, so hold your fire), with a 25% saving in the process. Irrespective of your motives, are you not stiffing the UK, which paid for your education, healthcare, etc.? Are you not free-riding at the expense of the UK taxpayer, stuck with higher taxes, inferior education and healthcare (compared with Switzerland), poor infrastructure and disintegrating communities? By your logic, any emigrant, from wherever, would be stiffing their home country, including yourself. Surely, this is not what you have in mind.

Nick Shaxson 7th July, 2011 8.04 am

I concede part of the point about air passsenger duty – but that assumes that that particular tax captures all that it should – which it almost certainly doesn’t. But the other part of my post covers and rebuts all of your points decisively. I’m sorry, but you cannot get away from the fact that we have some of the world’s wealthiest people free-riding on the backs of everyone else. Taking the cream from globalisation, and leaving everyone else to pick up the tab. There is no way you can get around that. And your statement that “there was and will always be one or several jurisdictions with low taxes prepared to welcome affluent immigrants” is factually correct, but it doesn’t support your point. When you raise taxes on wealthy people, history shows, time and again, that two clear results happen. Scenario 1: They scream ‘we’ll all relocate to Switzerland.’ and the government backs down. Scenario 2: They scream ‘we’ll all relocate to Switzerland.’ The government holds its nerve, raises the tax, a small smattering of those particular people uproot their children and move away, but the large majority stay put, muttering that they will relocate ‘if it happens again.’ And meanwhile, by virtue of the country becoming a slightly less unequal place than it would have been, others are attracted in to live and work, and pay taxes. You seem to be raising, or at least suggesting the spectre of, the old canard, the Laffer which has been disproven time and again. And as for your bigging up of their ‘uk tax on uk earnings’ it is you who is being naive – of course some UK tax does get paid, but for most of them the game is to shift their income offshore so they don’t have to pay it. Why so many shrill complaints from US non-doms when the free ride is threatened? I guess you’re a banker (are you?) and you would know this very well. Bankers have told me how this is done. So don’t try and pull that one. And to argue that “all” nondoms would relocate to some other low-tax juisdiction is simply ludicrous. Some would, and some wouldn’t. That’s the nature of tax reform. You crack down on a loophole, you get some benefit, but you don’t get it all. Some, but not all, will escape the net.

You cannot get away from this free-riding issue. It’s front and centre of this issue. The non-dom rule is a disgrace, and should be scrapped. Why do you support distortions in capitalism and in our tax system?

One last thing – have you ever been to the UK? Just how often do you remember paying our ‘highway tolls’?

AlienEdouard 7th July, 2011 8.25 am

Nick, this is ranting. You have not answered any of my comprehensive demolition of your earlier arguments (UK courts, roads, workforce, etc.). I will take it that you have no reply other than the usual “it’s unfair”…. Well, life is not generally fair. Just get on with it.

My professional background is totally irrelevant. But the contribution of nondoms to the UK treasury is not: it is around £7 billion, so they really do “pay UK taxes on UK earnings”, in fact approximately £70,000 per head. That is 3-4 times the median income. In other words, they support 350,000 government workers. You really don’t let the facts get in the way of your arguments, do you?.

And since you have started to make it personal, can I please ask how you feel about paying no taxes in the UK, the coutry that funded your education, healthcare, provided you with the vast majority of Treasure Islands’ readers, etc.?

Nick Shaxson 7th July, 2011 9.57 am

AlienEdouard, You have no idea, do you? If you start from the premise that there is no such this as society, no such thing as political community, no such thing as justice, and that there is only one thing that matters – money, I’m alright jack, screw everyone else, screw developing countries, then your points begin to make some sense. I write about a kind of groupthink that develops offshore, and in banks, where everyone talks to everyone else and develops this worldview where this kind of mentality becomes normal. It isn’t. You just don’t understand what this is about, do you? Now let’s turn to the Financial times chief economic commentator Martin Wolf on the non-dom issue:

“Non-doms, we are told, make a gigantic contribution to the economy. If they are taxed too heavily, they will depart and the economy will suffer. Again, why not pursue this argument a little further? Should the UK not subsidise the inflow of human capital, just as many countries subsidise inflow of foreign direct investment? What about a negative tax (a subsidy) on all UK income earned by non-doms above, say, £100,000 a year? Yet this, too, ought to be extended to highly paid citizens who, presumably, also provide big benefits to the economy. Why should the country wish to subsidise people to employ foreigners instead of citizens. So why not give everybody who earns about £100,000 a year a negative tax rate or at least a nice juicy lump sum? Moreover, if having non-dom billionaires resident in London is good, why not subsidise them too? So why not compete for billionaires the way countries compete for investments by Intel and the like?”

Which exposes anyone arguing in favour of the non-dom privilege as being guilty of, er, shall we say, a gross lack of understanding. I mean your argument is simply nonsense. I am mentally allocating 90 seconds per reply so you have done well here – at least 3 minutes.

Your professional background is marginally relevant. Why stay in the shadows? What do you have to hide?

AlienEdouard 7th July, 2011 8.29 am

Nick, just one last thing. I live part-time in the UK, but I do not own or drive a car (I use and pay for public transportation) and really only move around a handfull of ZIP codes in central London anyway.

But my nondom acquaintances pay for parking fees, registration, lots of taxes on gas, etc., etc. That tells me they pay several times over for their road usage.

Nick Shaxson 7th July, 2011 9.58 am

I mean you can sit there and simply assert that they pay their way several times over, but that doesn’t make it any more true.

kim bjorkland 7th July, 2011 5.17 pm

Your last comment didn’t address the issue of moving to Switzerland and stiffing the UK treasury of taxes paid.

There will always be differences in tax rates paid between domiciles in different countries. Does this mean that all immigrants, UK non-doms and authors in Switzerland included, are screwing their home countries by traveling the world and doing interesting things outside their home borders?

I don’t think so.

Nick Shaxson 7th July, 2011 10.09 am

This is an issue about a country making a tax system that is abusive and wrong and dangerous for society at home, and abusive and wrong and harmful for countries elsewhere. The non-dom rule is such a thing. My own status is a separate issue – whether or not people move to countries for tax reasons. As I’ve explained, I didn’t move for tax reasons. If my effective tax rate is lower here – I’m not sure that it is, though I haven’t done a study on it – then in purelyu monetary terms ordinary taxpayers in Britain will have lost a bit. The answer is not to stop citizens moving, but for each country around the world to tax their citizens and residents properly, otherwise they let wealthy elites escape there or take their money to these zones and cut or eliminate their tax bills. The non-dom rule is exactly such a case of where proper taxation doesn’t happen. And I am complaining about that.

AlienEdouard 7th July, 2011 1.57 pm

I don’t know if I should be flattered that you took such a long time to address my points. But 180 seconds of mental attention do not seem enough for you to make a coherent argument.

And quoting Wolf as a fallback does not much help either, because Wolf makes the same mistake you do which is to somehow assume that the UK subsidizes non-doms, notwithstanding the fact that non-doms arrive here fully educated, healthy, solvent and turn immediately into net contributors. They also bring in skills that the locals will never acquire in this life or next. If anything, it is the non-dom who is subsidizing the UK, having incurred all the costs of his/her education (US college ain’t cheap) and delivering many of the benefits to the UK economy and society.

Wolf’s misunderstanding is obvious when he asks “what about a negative tax (a subsidy) on all UK income earned by non-doms [which he then extends to domiciles as well] above, say, £100,000 a year?”. The rest of the questions are along the same vein, and they all miss the point of the domicile rule. There is no suggestion that non-doms (or billionaires or whoever else) should have any special privilege with respect to their UK taxes. The rule says that the income from non-UK assets, which never reached UK shoresand which the UK did not contribute anything to create, should not be taxed. It is what parents teach to their pre-schoolers when try to steal other kids’ candies: “you cannot have what is not yours”.

There is another question from Wolf that deserves an answer: “Should the UK not subsidise the inflow of human capital, just as many countries subsidise inflow of foreign direct investment?”. Well, the UK can do whatever it wants but much of the rest of the world certainly tries to make itself attractive: Canada, Australia, Spain, Israel, New Zealand all have tax breaks for affluent and skilled immigrants, while the UK is drawing the bridge. It is not about people threatening to leave the UK because of tax increases, and then acting on it or not. It is about attracting new people to allow the UK to compete in a dynamic world.

You tank about fairness, society, community, justice ,etc. It is fairly easy to have people say they believe in these concepts, but they are completely subjective; what is just and fair for soemone is not for the next person. One’s sense of community is very personal matter. Look at your own reply to another commentor’s question: In your view, it is perfectly fine that you left the UK and made the UK taxpayers worse off as a result. Others would disagree, and say that since you enjoyed a highly subsidized education, your departure to a low-tax jursidiction is a betrayal. Personally, I do not care at all.

Anyway, if you are not prepared to put in more than 90 seconds for an intelligent discussion, I suppose this conversation is now over.

Nick Shaxson 7th July, 2011 5.10 am

Well, if there isn’t a subsidy or privilege, as you bizarrely claim, let’s repeal the whole damn thing and nobody’ll be the worse off, will they? Or will the fact of their being taxed at the same rate as ordinary mortals, including on their worldwide income, suddenly become unfair? This is what your point hinges on – and I think looking at it this way demonstrates how your argument fails. And arguing that other countries provide subsidies too – I never said they didn’t. I’m not sure what your point is here. That we should merely give up trying to make improvements? And you are foolosh to accuse Wolf of misunderstanding the issue. He doesn’t. Fairness and justice is sometimes subjective, yes, I accept that – but in this case concept of the the level paying field is a pretty straightforward basis for appraising the right way forward.

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