The Impossible Dream of Fair Taxes and Income Equality.

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The liberal left, assorted groups of anti-capitalists and genuinely concerned, but frequently misguided, do-gooders are clamouring for the heads-of-state attending the G8 conference in Ireland to Do Something about evil corporations not paying their “Fair Share” of taxes.

What hypocrisy.

As sure as night follows day, there are some corporations (and individuals) who have in the past, do now and will continue to, evade taxes, which is illegal. Although their tactics may be understandable given the oppressive and punitive tax systems in many countries, if it is against the law and if they get caught, they should not expect any sympathy.

Tax avoidance however is entirely legal and part of the duty of responsible corporate officers in their objective of running businesses at a profit. If that includes exploiting loopholes created by government incentives to encourage investment, how can they be criticised.

If that involves the creation of holding companies and taking advantage of offshore domiciles for business registration, as long as it is legal, what is the problem?

Those squealing for “corporations” to be punished should remember that those same corporations, are owned either publicly, or privately, by people. People who breathe oxygen and bleed red blood just like those who are doing the squealing.

Unlike the majority of those complaining however, the owners of corporations have generally exerted some effort to be productive in life and not merely demanded their share of the taxes paid by those same productive people as do the entitlement afflicted whiners.

Other than those employed by various levels of government or quasi government institutions – all paid by the taxpayer – sources of income are profits from businesses, returns on investments, self employment or salaries and wages from employment by corporations large or small.

Pensions paid to retired workers from both the public and private sectors are largely funded by dividends or interest paid to pension funds by the corporations in which they have purchased shares or bonds.

I have long argued that the only morally and ethically fair form of taxation is a standard rate on all expenditure in the form of a sales or value added tax. This ensures that the wealthy will pay more tax in absolute terms because they will spend more. It would also encourage a higher level of savings than would a flat rate on incomes.

As moral or fair as that may be, I am cynical enough to realise that it would not fly. It is quite all right for people with low or no incomes to demand that “the rich” pay their fair share of taxes. The top 5% of North American taxpayers already pay 54% of all taxes, not much “fair” about that.

In parallel to the clamour about evil corporations and taxes, is the whining about “income inequality”. The media are largely to blame for this one. Anyone with a very basic knowledge of the English language, economics and politics, knows that in a democratic, free enterprise society, incomes can never be equal. The correct term is “income disparity”. Although correct, it is not dramatic enough for biased headlines, it does not stir up enough resentment.

Income Equality could only exist in a pure communist system, we all know how wildly successful that system is. Cuba and North Korea being the last pathetic examples. Even in the original cradles of communism, the former USSR and China, some were more equal than others with disparity of incomes and standards glaringly obvious.

Yes, great disparity in income levels does lead to resentment, we should be concerned about it. But trying to re-distribute wealth from the productive to the unproductive is not the answer. That causes those who can to depart for greener pastures with their wealth and reduces those who cannot to the lowest common denominator.

Regrettably the rise of social media has allowed these myths to be propelled around the world with greater speed and reach than ever before.

There is one certainty about the attack on corporate and individual’s legal tax reduction strategies. It is that investments will be taken away from countries with punitive tax laws and moved to those with either more favourable or less rigidly enforced tax laws. Jobs will move with them.

That is human nature, we all want to protect what we have worked for, except of course those that feel entitled to steal from the productive.

 

peter wright

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