Tax Extortion

Tax Extortion

Tax is one of those four letter words that have immense implications on all whom have anything to do with it and they would be quite willing to see its demise in a bonfire of legislation that spawned its inception, together with perpetrators responsible for its virulent expanding survival. It has become one of the two certainties of life of a modern world, both unavoidable, (perhaps) both unwelcome, (sometimes) and both essential, with a bit of thought, to an integrated progression civilisation.

Every country in the world which steps onto the arena of organised administration, that lays down any level of common infrastructures, that amalgamates social effort to common aims, that aspires to achieve overall social / cultural development and improvements; will eventually adopt some form of unified collective resource to be utilised on agreed endeavours that are for the betterment of the whole modern system and occupiers thereof.

There can be no rational argument that would contend that in a civilised structure the acquisition and application of resources to the common good is unnecessary. In some discussions that lean towards an academic liberal view, primarily when considering the use to which such resources are put and on which there is an element of disagreement, it has been suggested that the individual is in a better position to judge how and where their own contributions should be placed, disbursed under their own control rather than have it miss placed or ‘wasted’ by the controlling authority. Some proponents of this point would argue, that on an individual basis or with a small group of ‘like minded’ individuals, that it is quite possible to act in concert to agree and develop a beneficial project that suits an agreed need. This is certainly possible on a small numerical basis, one that might be workable where all the participants of the, for example (say) a bounded village(?) contribute to the necessity of say installing a drainage system, internal access routes, communal hall, public lighting or security etc. This assumes that they are all of relatively equally resourced and derive a common good from such investment. But what does cause complications is, if there is an inability by one or more not to contributes, by deed of dissent, or lack of resources, what happens then? It may be possible, being charitable, that such a drop out of contributors might be carried by the rest of the inhabitants but if the drop out exceeds that of the available generosity of those of the contributors; it will ignite perhaps unwillingly, resentment of any free use / access for those not contributing to the common good, eventually revealing the self preservation element of human nature and the individuality predilection vs. joint enterprises.  Then the common goods might not get done or just eventually fails. One might suggest that this is the same reason that private enterprise have not and still do not undertake the installation of public common good investments of any substantial nature without having a form of reimbursement. Someone has to pay, as in pay to use, or via an applied common revenue tax resource!         

Linking to this view of independently applied resources to attain a common good, is the idea of hypothecation; were the majority of contributors have a direct say on how the resources are applied. This also seems to be a proffered extensive idea of unrestrained liberals but neither the idea of individual controlled disbursement or selective hypothecation of financial resources can satisfactorily avoid the problem of the need for the organisation of a managing structure and after having created a form of joint funded enterprise for the agreed beneficial common good projects, supervision and control maintenance is still required in all complex large social undertakings. Those that started the projects, over time, may not be the ones able or willing to commit to its continuance, even if the long term overall common benefits outweigh the ‘running’ cost.  

There is, as an alternative to the above, a place for something called ‘additionality’, an  element of voluntary or elected top up funding when applied to a collective resource that might be gained with selective hypothecation. But it can only work where there are clear controlled auditable strictures that demonstrates what the existing expenditure is in undertaking an existing or proposed ‘common good project’ and its ongoing committed to collective financial support (via tax revenue); that is not ultimately ‘top sliced’ off to reduce the collective input and can with a good measure of certainty, identify the additionality contribution and benefits of the ‘voluntary’ directive contributions.

Hypothecation is something democratic treasuries do not like, it is dangerously expansive to all sorts of other expenditure items and governments would not want to be exposed to such popular ordinance that dictates democratic preferences. However something akin to this will eventually come into force and it may be driven by issues that all governments have played with without any real equitable success, how to, from where and how much tax can it get for its own use at a time when the tax revenue stream is being pressured down by; austerity, lack of productivity, political popularism for voting gains, international state tax competition and a unwillingness to attack supranational dubiously legal tax avoidance and outright evasion. In addition to this diminishing ability to counter tax loses, increasingly there is growing concern of the tax lose also being incurred (in the UK) by the rapid rise of fabled self employment, ignored thus far by governments as an expediency trend of reducing unemployment numbers.

This ‘self employment’ trend is welcomed by a certain political dogma belief of the ‘self determinate’ benefits attached to this and “flexible working”. Encouraging self employment is tendentious, with a certain laxity of regulations and by business taking advantage of the lax control in defining just what self employment is; such as i.e. the new ‘GIG’ economy comprised by "a labour market characterised by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs". This has however resulted that these jobs individuals fall into are often controlled by a single company or agency user and do not provided any real flexibility in how they work, when they work, their own charging rate, or for whom the individual can ‘work’ for. It is little more than reminiscent of a slave or indentured labour pool that is giving the company / agency a guarantee of labour at a fixed cost, with flexible labour usage, without requirement to any minimum time usage, or commitment to a normal workable week of 40? hours and without any obligation to normal financial overheads attached to typical general labour contracts for holiday pay, NI, sickness, indemnity, or personal accident cover. This trend has resulted in a reduction in the tax take and in the long term creates a problem of equitability between those companies employing full time working staff under contract and the overhead cost they are obliged to carry and the new unconstrained labour usury of the gig businesses avoiding contributing to a financial collective resource. This problem of tax take is amplified with the growth of internet companies that provide a service on the resources of others productive output yet are able to move their profits out of Inland Revenue reach.     

All democratic governments like that of the UK, has no money itself, its money is tax derived from a number of sources, mostly from the population that is then accumulated under the governments management function to disburse and carryout action on behalf of the people. It uses the money it gets from these sources to pay for all the activities it is empowered to carry out and of course people have very little influence on the amount raised or application of the overall pot.

There are a number of sources that government use to raise revenue funds, for example this is a short list is of the main items as a forecast of 2016/2017 revenue stream. 

Income Tax:                 182bn.

National insurance:     126bn.

Value Added Tax:       120bn.

Corporation Tax:            42bn.

Excise Duty:                   55bn.

Council Tax:                   30bn.

Business Rates:            28bn.

Source Office for budget responsibility.

By far the largest source is direct income taxation, with Ni and VAT, following up with a range of other taxes used by the government to pay for the nation’s assets and infrastructures.

In the tax take it is often wrongly professed, as an unjustifiable expression, that the richest 1% pays most of the total tax revenue, when in fact they approximately pay just 27% of income tax alone. Whereas some 30% of middle class income earners pay 40% of all taxes and these earners are not generally in a position to influence where, when or how such tax is taken. Unlike the rich and corporate bodies who can afford to lobby and pay for tax efficiency manipulation schemes, these middle class workers unlike the rich and business, do carry the greatest tax burden. Not that playing with the ‘who pays the most tax’ is taken as important politically just now, to really revamp the tax take for a more equitable one, it is just too complex particularly with the affect of the 23^rd June decision last year. Unless there is a dramatic shift in the ability to maintain a revenue stream or there is unintended consequence in the policies that drive how things and who are taxed, on what or paid by whom, ignorant complacency will see that that a consensus for change will not happen.

There is in any system of revenue collection a balance of superficial equitability to be meet between different taxable earnings, this balance is not obvious, not fair and driven by political party doctrine that attempts to disguise the huge beneficial benefit given to wealthy, land ownership, financial markets and corporate manipulation. Due to technological changes effecting labour markets and the rapid accumulation of unearned asset wealth in the past decade, with a reduction in productivity, there have been a number of expanded resource dimensions which are escaping tax. This brings in massive element of uncertainty in the future nature of a discriminatory tax stream that is slowly working its way to public consumption, which together with the extrication of 'Brexit' and the breakup of the union, will have dire impact on regions of England.

Although direct tax on income earned and vat on sales is easy to collect, they are the most ‘profitable’ but fall perhaps disproportionally on the middle income poor and despite their complexity they are generally contentiously understood even if their purpose and application are not and although there is often minor adjustments to the system, there is no comprehensible reappraisal on offer to replace them. However there are two taxes that do get a ‘bad’ press and the government wants to off load the application of them and both the political and public invidious nature of difficulties attached to them; yet in doing so will have some unsuspecting costly dangers.     

Business rates are the name of non-domestic rates, charged to occupiers of non-domestic property. Business rates are a property tax, where each non-domestic property is assessed with a rateable value, set by valuation office, expressed in pounds. The rateable value broadly represents the annual rent the property could have been let for on a particular valuation date according to a set of conjectures. The actual bill payable is then calculated using a multiplier set by central government, applying any reliefs. Revaluation dates are set by the government and at revaluation the government adjusts the value of business rates to reflect changes in the property market. It usually happens every 5 years. The most recent revaluation came into effect in England and Wales on 1 April 2017 based on rateable values from 1 April 2008.

Residential property also attracts rates, (council tax based on the estimated market value) assessed in bands of value with sole occupation discount and like business rates are reassessed periodically in revaluations to take place every five years. In practice they were frequently delayed or suspended for political reasons and this has caused a tax take lag that does not match the increase in property values. The total tax raised by these two streams amounts to 58bn or 13% of the best three tax streams and it is known that they have not kept pace with the increase in property prices overall but particularly the rapid rise in the southern and a few affluent regions which meant substantial increases would be required to reconnect property value to tax take.

This swelling of a tax demand would not be a vote winner hence the continuing avoidance of any effective adjustments, instead there is a move to negate the government political ensnarement and transfer the problems to local authorities. The proposal is that in 2020 all authorities will levy, collect and retain all the revenue raised via property rates to fund their own requirements with potentially the existing rate support grant to Local Authorities being ended. It is assumed that valuation rates will be constrained, by region, bands, and allowable increases as is the case now. This move will get the government of the direct political hook and dump the continuing discomfort / blame onto the Local Authorities, a scenario similar to the poll tax fiasco.         

The problem with this revenue move is that there is a wide disparity between regions and Local Authorities. At it simplest the richer counties and Local Authorities regions will, like London gain massive tax resources while smaller and less affluent areas will hardly be able to cover their own spending requirements and without the continuation of something like a rate support grant, they will decline. These poorer areas will not be able to increase any tax take to a level to match requirement while the richer ones, because of their property volume, could well choose to reduce their tax take or spend more on their own area creating a new prosperity divide. In any event it is difficult to see the government allowing any Local Authorities the absolute freedom to adjust property tax anyway they want to, other than favouring the governments political whims.     

The problems with these two taxes are being pushed into the future and will have to be resolved. Although easy to collect, not simply avoidable and can’t be hidden they are based on historical precedence linked to landed gentry and no longer reflect the actual ability to pay, (not that they did) and do not reveal the wealth derived from land nor the subsidies laid out to land owners / developers, for reclamation, pollution and compensation. There is a growing call for a reappraisal and reform that is akin to a land value tax that would be levied on ALL land ownership and use, with an ad-valorem element for multiply tier structures. There is doubtful reason why large landowners of any description should continue to be paid by the tax payer just to own land and pay no more property tax than the current private high band compared to those that have no great land holding. With a well constructed land value tax, property developers, land lords, vacant land and those ‘land banking’ should contribute more justly to the overall tax revenue stream.

Tax is hardly a voluntary system, it has in built inequities, no one now is willing to vote for an increase to fund the social good to achieve overall social / cultural development and improvements. In austerity, little rise in incomes, prevalent hardship, wealth divide, individual and corporate tax abuse; there is resentment with some and how it’s paid but not enough yet to force a change. But tinkering with the collection of property taxes is not going to aid a unity of commonality within the UK; with Brexit and province independence, divisive wealth and who pay what and how, is likely to be ultimately more discordant.

No one volunteers to pay tax, so a more adaptable, possibly fairer way that meets the needs of a progressive civil society has to be found to improve the extortion of taxes that matches the alterations in the way wealth is earned, acquired, accumulated and spread. The wilful disregard of all the indicators that shows the UK has had a dramatic shift in the wealth divide over 20 years, increased poverty level more dramatically since 2007 and that its civil structures are being deliberately degraded to hold onto a political self interested dogma is covered by its Machiavellian mendacious spurious pronouncements that everything is fine!        

© Renot

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