Sunday, 9 October 2016

A Free Market in Tax

Nick Cohen in The Guardian

Donald Trump’s tax affairs are as nothing compared to those of the great global corporations



 


Keeping it offshore: Jost Van Dyke in the British Virgin Islands, a tax haven for the world’s rich. Photograph: Alamy


Donald Trump is offering himself as president of a country whose federal income taxes he gives every appearance of dodging. He says he is fit to be commander in chief, after avoiding giving a cent more than he could towards the wages of the troops who must fight for him. He laments an America where “our roads and bridges are falling apart, our airports are in third world condition and 43 million Americans are on food stamps”, while striving tirelessly to avoid paying for one pothole to be mended or mouth to be filled.

Men’s lies reveal more about them than their truths. For years, Trump promoted the bald, racist lie that Barack Obama was born in Kenya and, as an unAmerican, was disqualified from holding the presidency. We should have guessed then. We should have known that Trump’s subconscious was trying to hide the fact that he was barely an American citizen at all.


He would not contribute to his country or play his part in its collective endeavours. Like a guest in a hotel who runs off leaving the bill, Trump wanted to enjoy the room service without paying for the room. You should never lose your capacity to be shocked, especially in 2016 when the shocking has become commonplace. The New York Times published a joint piece last week by former White House ethics advisers – one to George W Bush and one to Barack Obama, so no one could accuse the paper of bias. They were stunned.

No president would have nominated Trump for public office, they said. If one had, “explaining to the senate and to the American people how a billionaire could have a $916m ‘loss carry-forward’ that potentially allowed him to not pay taxes for perhaps as long as 18 years would have been far too difficult for the White House when many hard-working Americans turn a third or more of their earnings over to the government”.

Trump’s bragging about the humiliations he inflicts on women is shocking. Trump’s oxymoronic excuses about his “fiduciary duty” to his businesses to pay as little personal tax as he could are shocking. (No businessman has a corporate “fiduciary duty” to enrich himself rather than his company.) Never let familiarity dilute your contempt.

And yet looked at from another angle, Trump is not so shocking. You may be reading this piece online after clicking on a Facebook link. If you are in Britain, the profits from the adverts Facebook hits you with will be logged in Ireland, which required Facebook to pay a mere €3.4m in corporate taxes last year on revenues of €4.83bn . If you are reading on an Apple device, Apple has booked $214.9bn offshore to avoid $65.4bn in US taxes. They are hardly alone. One recent American study found that 367 of the Fortune 500 operate one or more subsidiaries in tax havens.

Trump may seem a grotesque and alien figure, but his values are all around you. The Pepsi in your hand, the iPhone in your pocket, the Google search engine you load and the Nike trainers you put on your feet come from a tax-exempt economy, which expects you to pick up the bills.


The short answer to Conservatives who say “their behaviour is legal” is that it is a scandal that it is legal. The long answer is to invite them to look at the state of societies where Trumpian economics have taken hold. If they live in Britain or America, they should not have to look far.

The story liberal capitalism tells itself is heroic. Bloated incumbent businesses are overthrown by daring entrepreneurs. They outwit the complacent and blundering old firms and throw them from their pinnacles. They let creative destruction rip through the economy and bring new products and jobs with it.

If that justification for free-market capitalism was ever true, it is not true now. The free market in tax, it turns out, allows firms to move offshore and leave stagnant economies behind. Giant companies are no longer threatened by buccaneering entrepreneurs and innovative small businesses. Indeed, they don’t appear to be threatened by anyone.

The share of nominal GDP generated by the Fortune 100 biggest American companies rose from 33% of GDP in 1994 to 46% in 2013, the Economist reported. Despite all the fuss about tech entrepreneurship, the number of startups is lower than at any time since the late 1970s. More US companies now die than are born.

For how can small firms, which have to pay tax, challenge established giants that move their money offshore? They don’t have lobbyists. They can’t use a small part of their untaxed profits to make the campaign donations Google and the other monopolistic firms give to keep the politicians onside.

John Lewis has asked our government repeatedly how it can be fair to charge the partnership tax while allowing its rival Amazon to run its business through Luxembourg. A more pertinent question is why any government desperate for revenue would want a system that gave tax dodgers a competitive advantage.

What applies to businesses applies to individuals. The tax take depends as much on national culture as the threat of punishment, on what economists call “tax morale”.

No one likes paying taxes, but in northern European and North American countries most thought that they should pay them. Maybe I have lived a sheltered life, but I have no more heard friends discuss how they cheat the taxman than I have heard them discuss how they masturbate. If they cheat, they keep their dirty secrets to themselves. Let tax morale collapse, let belief in the integrity of the system waver, however, and states become like Greece, where everyone who can evade tax does.

The surest way to destroy morale is to make the people who pay taxes believe that the government is taking them for fools by penalising them while sparing the wealthy.


Theresa May promised at the Conservative party conference that “however rich or powerful – you have a duty to pay your tax”.

I would have been more inclined to believe her if she had promised, at this moment of asserting sovereignty, to close the British sovereign tax havens of the Channel Islands, Isle of Man, Bermuda and the British Virgin and Cayman Islands.


But let us give the new PM time to prove herself. If she falters, she should consider this. Revenue & Customs can only check 4% of self-assessment tax returns. If the remaining 96% decide that if Trump and his kind can cheat, they can cheat too, she would not be able to stop them.

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