tag:theconversation.com,2011:/africa/topics/tax-system-6157/articlesTax system – The Conversation2023-07-27T02:20:54Ztag:theconversation.com,2011:article/2073052023-07-27T02:20:54Z2023-07-27T02:20:54ZmyTax is fast and free – so why do 2 in 3 Australians still pay to lodge a tax return?<figure><img src="https://images.theconversation.com/files/530786/original/file-20230608-16-qg0jg7.jpg?ixlib=rb-1.1.0&rect=0%2C1189%2C7337%2C3713&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Ten years ago, the Australian Taxation Office (ATO) created the “myTax” portal, an easy way to lodge your tax return online.</p>
<p>There was an “e-Tax” filing option before the 2015-16 tax year, but this was quite complicated and barely better than filling out a form online. </p>
<p>In comparison, myTax <a href="https://resources.taxinstitute.com.au/tiausttaxforum/acceptance-of-mytax-in-australia">is simpler</a> and more automated. It’s available 24 hours a day, is free to use, and you will typically get your refund within <a href="https://www.ato.gov.au/Individuals/Your-tax-return/How-to-lodge-your-tax-return/Lodge-your-tax-return-online-with-myTax/">two weeks</a>.</p>
<p>But the chances are you won’t be using it. </p>
<p>In fact, slightly less than <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2020-21/?anchor=IndividualsStatistics#IndividualsStatistics">36%</a> of Australia’s 15 million taxpayers used the myTax portal in 2020-21 – the most recent tax year for which the tax office has published data. </p>
<p>About <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2020-21/?anchor=IndividualsStatistics#IndividualsStatistics">64% of tax returns</a> were lodged through tax agents. This is one of the highest rates among 38 <a href="https://www.oecd.org/about/">Organisation for Economic Co-operation and Development</a> nations. Meanwhile, just 0.6% of Australians still used the paper-based form. </p>
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<p>So why have Australians – who have quickly embraced the internet for everything from shopping to dating – been so slow to embrace myTax? </p>
<p>For some, particularly older people, it’s about being intimidated by the technology. Others may be concerned with cybersecurity risk. </p>
<p>But for most it’s about the perceived complexity of the tax system and the process, regardless of the technology. They see using a tax agent as easier and the way to maximise their tax refund.</p>
<p>While in some cases this may be true, in many instances it’s simply a perception – but one the tax office will need to address if it wants to promote use of myTax.</p>
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<h2>Reasons for the low uptake of myTax</h2>
<p><a href="https://resources.taxinstitute.com.au/tiausttaxforum/acceptance-of-mytax-in-australia">Our research</a> suggests most people who have used the myTax portal think it is easy to use. </p>
<p>We surveyed 193 taxpayers who have used the system. About three-quarters agreed the system was clear and understandable, and said they would keep using it.</p>
<p>But of course these are people who have chosen to use the system, so their responses don’t shed much light on the reasons people don’t use myTax. </p>
<p>Answers to that come from other published research, in particular from the <a href="https://www.igt.gov.au/">Inspector-General of Taxation</a> (the independent office investigating complaints about the tax system) as well as the House of Representatives’ Standing Committee on Tax and Revenue.</p>
<p>Evidence submitted to these bodies indicate that Australians prefer tax agents to avoid errors in claiming deductions. </p>
<p>The parliamentary committee’s <a href="https://parlinfo.aph.gov.au/parlInfo/download/committees/reportrep/024169/toc_pdf/TaxpayerEngagementwiththeTaxSystem.pdf;fileType=application%2Fpdf">2018 inquiry</a> into the tax system was told the use of tax agents ballooned from about 20% in the 1980s, peaking at about 74% of all taxpayers: </p>
<blockquote>
<p>The Tax Commissioner considered that the size of the TaxPack had probably
contributed to that rise, driving many people with simple tax affairs to a tax
agent because it looked daunting.</p>
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<figure class="align-center ">
<img alt="Australians' use of tax agents spiked during the 1980s and has remained high ever since." src="https://images.theconversation.com/files/539464/original/file-20230726-27-ii0clw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/539464/original/file-20230726-27-ii0clw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/539464/original/file-20230726-27-ii0clw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/539464/original/file-20230726-27-ii0clw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/539464/original/file-20230726-27-ii0clw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/539464/original/file-20230726-27-ii0clw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/539464/original/file-20230726-27-ii0clw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Australians’ use of tax agents spiked during the 1980s and has remained high ever since.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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</figure>
<p>In short, habits are hard to break. Having come to rely on tax agents, most Australians keep using them, despite the system being vastly improved.</p>
<p>For example, the myTax system now simplifies the process by <a href="https://www.ato.gov.au/Individuals/Your-tax-return/How-to-lodge-your-tax-return/Lodge-your-tax-return-online-with-myTax/Pre-fill-availability/?=redirected_myGov_prefill">pre-filling</a> data from government agencies, health funds, financial institutions and your own employer. About 80% of our survey respondents said this was helpful. </p>
<h2>Taking care of the digital divide</h2>
<p>This suggests the main barrier to increasing use of the myTax system is mostly habit and the perception the tax system is too complicated to navigate without an expert. </p>
<p>There is also a small percentage of people who feel uncomfortable with computers. This is reflected in the minority of respondents in our study who said they were unlikely to use myTax again, as well as the tax office’s data showing some people continue to stick with paper lodgement.</p>
<p>Those more likely to find the system daunting are the elderly, those with low English skills, people with disabilities and those with low educational attainment.</p>
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<p>These people’s needs should not be forgotten as the Australian <a href="https://www.dta.gov.au/digital-government-strategy">Digital Government Strategy</a> aims to making Australia a “world-leading” digital government by 2025, delivering “simple, secure and connected public services”. </p>
<p>Even with the greatest online system in the world, it’s unlikely there will ever be a complete transition.</p><img src="https://counter.theconversation.com/content/207305/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jawad Harb receives funding for related research from RMIT University. He is affiliated with RMIT University as a PhD candidate.
He also receives a Research Stipend Scholarship (RSS-SC) funding from the Australian Federal Government to complete his PhD degree.
Jawad is affiliated with St John Ambulance Victoria as a volunteer. </span></em></p><p class="fine-print"><em><span>Elizabeth Morton is contracted to co-facilitate a short-term training contract for tax and crypto facilitated by UNSW for the ATO. This is not related to the topic of this article. Elizabeth has not received grant funding for research in relation to the content of this article; however, does undertake research in this space.</span></em></p>Most Australians pay tax agents because they see it as easier and a way to maximise tax refunds. Yet our survey found most people who have used the myTax site found it easy, and plan to use it again.Jawad Harb, PhD Candidate, RMIT UniversityElizabeth Morton, Research Fellow of the RMIT Blockchain Innovation Hub, Lecturer Taxation, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1782572022-03-06T12:15:17Z2022-03-06T12:15:17ZCorporate taxes can be good for shareholders: Why some actually want their companies to pay tax<figure><img src="https://images.theconversation.com/files/449610/original/file-20220302-13-kbwrv2.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C6240%2C4156&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">When it comes to shareholder credits, shareholders prefer their corporations pay the standard tax they owe — not a lower tax — to ensure higher cash flows.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>There is a prevailing assumption that, in the name of profit, shareholders don’t want their corporations to pay taxes. It’s easy to see how less taxes should mean more money in their pockets, but it turns out this is a common, yet understandable, misconception. </p>
<p>Contrary to this belief, shareholders (people who have invested money in a company in exchange for a share of the owndership) sometimes prefer their corporations to pay taxes to maximize cash flows. But, how can that be? Take common news stories about <a href="https://theconversation.com/the-pandora-papers-how-punishing-tax-cheats-can-serve-as-a-deterrent-170435">offshore tax schemes</a>, creative tax planning and <a href="https://www.cbc.ca/radio/day6/episode-363-apple-s-tax-shelters-marvel-vs-dc-london-s-wartime-stretcher-fences-lost-jewish-music-more-1.4391482/how-apple-managed-to-pay-almost-no-tax-on-billions-in-profits-1.4391505">corporations reducing their taxes</a>, for example. These stories all seem to imply that less taxes mean higher cash flows for both corporations and shareholders.</p>
<p>It turns out that isn’t always true. Certain incentives, like shareholder credits that reduce the amount of tax owed on dividends, actually <em>encourage</em> shareholders to prefer their corporations pay the standard tax they owe — not a lower tax — to ensure higher cash flows for themselves.</p>
<h2>A brief overview</h2>
<p>Some countries around the world, such as Australia and Canada, run what’s called an “integrated tax system.” This means that corporate income and individual income are only taxed once, together, as the money makes its way from the corporation to the shareholder. Other countries, like the United States, do not integrate corporate and personal tax, leading to <a href="https://www.investopedia.com/terms/d/double_taxation.asp">double taxation</a> where corporations and individuals end up paying tax twice on the same income. </p>
<p>Let’s take a closer look at why this is important.</p>
<p>Imagine three people: Person A is an employee, Person B runs an unincorporated business and Person C is the sole shareholder of a corporation. Each of these cases generates income of $100,000 for the same type of work. It makes sense that, because the economic activity is the same, taxes at the end of the day are the same. It shouldn’t matter which person you are or how you organize your work life. </p>
<p>But because Person C and their corporation pay taxes separately, that can change which of the three persons you’d prefer to be. To remedy this, we need some way to account for the difference in taxes each person pays. Integrated tax systems are designed to do just that, by ensuring all three individuals are taxed the same amount.</p>
<h2>Integration in action</h2>
<p>Now let’s consider how this works for the shareholder. </p>
<p>Shareholders pay taxes on the dividend payments they receive from a company. Dividend payments are monetary rewards shareholders receive for investing in a company. To accomplish tax integration, shareholders include their proportion of the corporation’s pre-tax income (also known as the dividend) in their individual taxable income as a dividend. The tax is then calculated and shareholders are able to reduce their individual tax liability with credit for taxes the corporation has already paid. </p>
<p>My colleagues and I <a href="https://doi.org/10.2308/accr-52315">developed a numerical illustration</a> to show the incentive this system creates. Shareholders want the corporation to pay taxes and to avoid spending money on <a href="https://www.investopedia.com/terms/t/tax-planning.asp">costly tax planning</a>. The <a href="https://www.penguinrandomhouse.com/books/304634/nudge-by-richard-h-thaler-and-cass-r-sunstein/">valuable tax credits nudge</a> shareholders into wanting their corporations to pay taxes, rather than paying for tax planning to reduce tax — all in the name of greater shareholder after-tax cash flows.</p>
<p>Next, let’s take this illustration into the real world.</p>
<p>In our study, we used a set of European countries that eliminated their integration systems, mostly in the mid-2000s. We compared these “eliminating” countries to other countries that did not change their tax policy and found that getting rid of the credits also got rid of tax incentives. After the change, corporations in these countries engaged in substantially more tax planning to reduce the standard tax they owed. </p>
<figure class="align-center ">
<img alt="A woman walks by the entrance to a building that says 'Cour de Justice de L'union Europeenne' on the front." src="https://images.theconversation.com/files/449931/original/file-20220303-6135-1h3jaqq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449931/original/file-20220303-6135-1h3jaqq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=387&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449931/original/file-20220303-6135-1h3jaqq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=387&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449931/original/file-20220303-6135-1h3jaqq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=387&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449931/original/file-20220303-6135-1h3jaqq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=486&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449931/original/file-20220303-6135-1h3jaqq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=486&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449931/original/file-20220303-6135-1h3jaqq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=486&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A series of rulings by the European Court of Justice in the late 2000s led several countries to eliminate their tax integration systems.</span>
<span class="attribution"><span class="source">(Geert Vanden Wijngaert)</span></span>
</figcaption>
</figure>
<p>Why? In the new tax system without integration, income could be taxed twice as it transferred from corporation to shareholder. So, to maximize shareholder cash flows, the new incentive was to minimize the amount of corporate income that was initially taxed.</p>
<h2>Hold your horses</h2>
<p>Long story short, shareholders can prefer their corporations to pay taxes. But don’t go overboard — no silver bullet exists to kill taxpayers’ inherent preference to minimize taxes. </p>
<p>Our research also showed that other important factors can limit the attractiveness of the shareholder credit incentive. The more a corporation operates in foreign jurisdictions (which do not offer credits), the fewer credits it generates and the more dispersed the shareholders are. This results in a weaker incentive to generate shareholder credits with higher corporate taxes.</p>
<p>In each of these cases, shareholders would rather the corporation minimize its taxes. Nevertheless, an integrated tax system with its shareholder credits might just change the way you, I or governments think about shareholder tax incentives. Typical shareholders want more cash flow, and they’ll do anything — including paying more tax — to get it.</p><img src="https://counter.theconversation.com/content/178257/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Bauer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Incentives, like shareholder credits for corporate taxes paid, mean that shareholders want their corporations to pay taxes.Andrew Bauer, Assistant professor, Canada Research Chair in Taxation, Governance and Risk, University of WaterlooLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1757772022-01-31T13:00:29Z2022-01-31T13:00:29ZThe IRS already has all your income tax data – so why do Americans still have to file their taxes?<figure><img src="https://images.theconversation.com/files/442821/original/file-20220126-21-1uhwjxm.jpg?ixlib=rb-1.1.0&rect=65%2C45%2C4296%2C2798&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The government could toss the 1040 in the trash. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/crumpled-tax-forms-royalty-free-image/173618522?adppopup=true">Kameleon007iStock via Getty Images</a></span></figcaption></figure><p>Doing taxes in the U.S. <a href="https://www.businessinsider.com/filing-taxes-america-system-how-other-countries-do-better-2021-8">is notoriously complicated</a> and <a href="https://www.creditkarma.com/tax/i/pay-to-do-your-taxes">costly</a>. And it gets even worse <a href="https://www.al.com/news/2022/01/irs-expects-backlogs-and-delays-heres-when-to-file-taxes.html">when there are delays</a> and backlogs, making it especially hard to reach the Internal Revenue Service for assistance.</p>
<p>But to me this raises an important question: Why should taxpayers have to navigate the tedious, costly tax filing system at all?</p>
<h2>The case for a ‘simple return’</h2>
<p>In 1985, President Ronald Reagan promised a “<a href="https://www.reaganlibrary.gov/archives/speech/address-nation-tax-reform-may-1985">return-free</a>” tax system in which half of all Americans would never fill out a tax return again. Under the framework, taxpayers with simple returns would automatically receive a refund or a letter detailing any tax owed. Taxpayers with more complicated returns would use the system in place today.</p>
<p>In 2006, Austan Goolsbee, who later went on to serve as President Barack Obama’s chief economist, suggested a “<a href="https://www.brookings.edu/research/the-simple-return-reducing-americas-tax-burden-through-return-free-filing/">simple return</a>,” in which taxpayers would receive already completed tax forms for their review or correction. Goolsbee estimated his system would save taxpayers more than <a href="https://www.brookings.edu/research/the-simple-return-reducing-americas-tax-burden-through-return-free-filing/">US$2 billion a year in tax preparation fees</a>. </p>
<p>Though never implemented, the two proposals illustrate what we all know: <a href="https://www.pbs.org/newshour/show/dreading-taxes-countries-show-us-theres-another-way">No one enjoys filling out tax forms</a>. </p>
<p>So why do we have to?</p>
<p>As an <a href="https://law-vbe.proxy.library.vanderbilt.edu/bio/beverly-moran">expert on the U.S. tax system</a>, I see America’s costly and time-consuming tax reporting system as a consequence of its relationship with the commercial tax preparation industry, which lobbies Congress to maintain the status quo. </p>
<h2>A costly and time-consuming system</h2>
<p>Return-free filing is not difficult. </p>
<p><a href="https://www.taxpolicycenter.org/briefing-book/what-other-countries-use-return-free-filing">At least 30 countries permit return-free filing</a>, including Denmark, Sweden, Spain and the United Kingdom.</p>
<p>Furthermore, 95% of American taxpayers receive at least one of more than <a href="https://www.irs.gov/businesses/small-businesses-self-employed/a-guide-to-information-returns">30 types of information returns</a> that let the government know their exact income. These information returns give the government everything it needs to <a href="https://www.washingtonpost.com/opinions/americans-shouldnt-be-responsible-for-filing-tax-returns--the-government-should/2017/03/30/e91d8cd8-0979-11e7-93dc-00f9bdd74ed1_story.html">fill out most taxpayers’ returns</a>.</p>
<p>The U.S. system <a href="https://www.theatlantic.com/business/archive/2016/03/the-10-second-tax-return/475899/">is 10 times more expensive</a> than tax systems in 36 other countries with robust economies. <a href="https://www.theatlantic.com/ideas/archive/2019/04/american-tax-returns-dont-need-be-painful/586369/">But those costs vanish in a return-free system, as would the</a> 2.6 billion hours Americans spend on tax preparation each year.</p>
<p>Maybe you’re wondering whether Congress is just behind the times, unaware that it can release us from tax preparation? Not true.</p>
<h2>Commercial tax preparation</h2>
<p>About two decades ago, Congress directed the IRS to provide low-income taxpayers with free tax preparation. The agency responded in 2002 with “<a href="https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free">Free File</a>,” a public-private partnership between the government and the tax-preparation industry. As part of the deal, the IRS agreed not to <a href="https://www.wsj.com/articles/why-free-file-for-taxes-isnt-so-popular-1422633546">compete with the private sector</a> in the free tax preparation market. </p>
<p>In 2007, the House of Representatives rejected legislation to provide <a href="https://www.govtrack.us/congress/bills/110/hr3457/text">free government tax preparation</a> for all taxpayers. And in 2019, Congress tried to <a href="https://www.propublica.org/article/congress-scraps-provision-to-restrict-irs-from-competing-with-turbotax">legally bar the IRS</a> from ever providing free online tax preparation services. </p>
<p>Only a <a href="https://www.propublica.org/article/congress-scraps-provision-to-restrict-irs-from-competing-with-turbotax">public outcry turned the tide</a>.</p>
<p>The public part of Free File consists of the IRS herding taxpayers to commercial tax -preparation websites. The private part consists of those commercial entities <a href="https://www.propublica.org/article/turbotax-just-tricked-you-into-paying-to-file-your-taxes">diverting taxpayers</a> toward costly alternatives. </p>
<p>According to the Treasury Inspector General for Tax Administration, which oversees IRS activities, private partners use computer code to <a href="https://www.theverge.com/2020/1/1/21045779/irs-turbotax-free-file-h-r-block-tax-preparation-new-rules">hide the free websites</a> and take unsuspecting taxpayers to paid sites. </p>
<p>Should a taxpayer discover a free preparation alternative, the private preparers <a href="https://www.treasury.gov/tigta/auditreports/2020reports/202040009_oa_highlights.html">impose various restrictions</a> such as income or the use of various forms as an excuse to kick taxpayers back to paid preparation. </p>
<p>Consequently, of the more than 100 million taxpayers eligible for free help, 35% end up paying for tax preparation and <a href="https://www.treasury.gov/tigta/auditreports/2020reports/202040009fr.pdf">60% never even visit the free websites</a>. Instead of 70% of Americans receiving free tax preparation, commercial <a href="https://www.politico.com/agenda/story/2018/07/18/tax-filing-congress-irs-000683/">companies whittled that percentage down to 3%</a>. </p>
<h2>Tax savings and evasion</h2>
<p>Perhaps you are guessing that there are valid policy justifications for avoiding government and empowering the private sector. Judge those arguments yourself.</p>
<p>One argument from commercial tax preparers is that taxpayers will <a href="https://www.nbcnews.com/business/taxes/turbotax-h-r-block-spend-millions-lobbying-us-keep-doing-n736386">miss out on valuable tax savings</a> if they rely on free government preparation.</p>
<p>In fact, the government software would reflect the same laws used by the paid preparers with the same access to tax saving deductions or credits. Further, tax preparers like H&R Block promise to pay <a href="https://www.hrblock.com/guarantees/">all taxes and interest resulting from a failed audit</a>. As a result, these services have every incentive to take conservative, pro-government tax positions.</p>
<p>A second argument is that government-prepared tax returns encourage tax evasion. </p>
<p>In a no-return system, the <a href="https://www.forbes.com/sites/joshbarro/2012/04/17/why-doesnt-the-irs-do-your-taxes-for-you/?sh=8e43a542fb63">government reveals its knowledge of the taxpayer’s income</a> before the taxpayer files. Thus, the argument goes, the taxpayer knows if the government has missed something and has reason to let the mistake stand.</p>
<p>But taxpayers already know what information forms the government has because they receive duplicates of those forms. The incentive to lie does not increase because the taxpayer avoids weeks of tax preparation.</p>
<h2>Bolstering the anti-taxers</h2>
<p>Finally, there is the anti-tax argument for onerous tax preparation: Keep tax preparation unpleasant to fuel anti-tax sentiment. </p>
<p>In the past, Republicans argued against high taxes. But after decades of tax cuts, Americans are <a href="https://www.theatlantic.com/ideas/archive/2019/04/american-tax-returns-dont-need-be-painful/586369/">no longer swayed by that argument</a>.</p>
<p>Exasperating tax preparation, according to this argument, helps keep the anti-tax fever high. And that <a href="https://slate.com/business/2012/04/grover-norquist-and-h-r-block-the-unholy-alliance-of-tax-prep-firms-and-conservative-activists-to-make-your-taxes-even-more-complicated.html">fuels public hate for government</a> and the tax system.</p>
<p>Unfortunately, the anti-tax contingent’s desire to force Americans to spend time and money on tax preparation dovetails with the tax preparation industry’s <a href="https://www.nytimes.com/2015/04/16/technology/personaltech/turbotax-or-irs-as-tax-preparer-intuit-has-a-favorite.html">desire to collect billions</a> of dollars in fees. </p>
<p><a href="https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free">Tax preparation companies lobby Congress</a> to keep tax preparation costly and complicated. Indeed, Intuit, maker of TurboTax, the tax preparation software, has listed government tax preparation as a <a href="https://www.marketplace.org/2017/10/12/tax-preparation-government-free">threat to its business model</a>. ProPublica reported in 2019 on the <a href="https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free">company’s 20-year fight</a> to prevent the government from making tax filing simple and free for most citizens.</p>
<p>One example of that complexity is the <a href="https://www.nerdwallet.com/article/taxes/can-you-take-earned-income-tax-credit">earned income tax credit</a>, a government program for low-income people. The credit is so complicated that <a href="https://www.taxpolicycenter.org/briefing-book/do-all-people-eligible-eitc-participate">20% of the people who are eligible never file</a>, thus missing out on thousands of dollars in savings.</p>
<p>If the government prepared everyone’s tax returns, I believe more of that 20% would receive government support.</p>
<p>Nonetheless, H&R Block <a href="https://www.cbpp.org/blog/senate-bill-would-boost-burdens-costs-to-claim-working-family-tax-credits">reportedly</a> <a href="https://billmoyers.com/story/how-lobbying-by-tax-preparer-helps-keep-tax-day-complicated/">lobbied lawmakers</a> to make the credit more complicated, thereby <a href="https://www.vox.com/2015/8/24/9195129/h-r-block">driving more taxpayers to paid preparation services</a>.</p>
<p>I believe only public outcry can change the system. </p>
<p><em>This article was corrected to clarify how tax preparation companies have lobbied Congress and to clarify the timing of Austan Goolsbee’s service as chief economist to President Obama. It is an updated version of an <a href="https://theconversation.com/why-cant-the-irs-just-send-americans-a-refund-or-a-bill-156733">article originally published</a> on March 22, 2021.</em></p><img src="https://counter.theconversation.com/content/175777/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Beverly Moran does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A tax expert explains why the US continues to use such a complex and costly income tax system.Beverly Moran, Professor Emerita of Law, Vanderbilt UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1141752019-04-23T20:16:46Z2019-04-23T20:16:46ZHouse prices and demographics make death duties an idea whose time has come<figure><img src="https://images.theconversation.com/files/270413/original/file-20190423-175514-ulcc95.jpg?ixlib=rb-1.1.0&rect=764%2C1351%2C2905%2C1809&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">$3.5 trillion is about to be poured into a small number of hands over the next two decades.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Suddenly, death duties are part of the election campaign. </p>
<p>Not that Labor (or the Coalition) is proposing them, but photoshopped fake tweets from Labor figures saying they will introduce them <a href="https://twitter.com/Gary_Hardgrave/status/1120140542472384512">have been doing the rounds</a>, and the Coalition is using the suggestion it its advertising, parading around trucks on whose side is printed: “<a href="https://www.canberratimes.com.au/story/6086351/canberra-liberals-defend-billboard/?cs=14350">Labor will tax you to death</a>”. </p>
<p>At the risk of entering the political (non) debate, its worth drawing attention to a substantial consensus among economists that they are <a href="https://www.economist.com/leaders/2017/11/23/a-hated-tax-but-a-fair-one">something we need</a>.</p>
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<h2>What are death duties?</h2>
<p>Death duties (more formally known as inheritance taxes) are levied on the estates of dead people above a predefined tax-free threshold, prior to their distribution to the beneficiaries. </p>
<p>They have a long pedigree, being currently administered in 19 developed countries. The average rate among members of the Organisation of Economic Co-operation and Development is 15% but rates vary from 4% in Italy to 55% in Japan. </p>
<p>We had them in Australia until the late 1970’s, administered by both the Commonwealth and state governments. However in both cases the taxes were <a href="https://aibe.uq.edu.au/files/1922/AIBE_Inheritance_Tax_Paper.pdf">distinguished by the ease with which they could be avoided</a>.</p>
<h2>Without them, our rich will get richer</h2>
<p>Since death duties went, Australian income inequality has climbed, with the standard measure (known as the Gini coefficient) climbing from <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6523.0">0.27 to 0.32</a> between 1982 and 2016 on a scale where a result of zero would mean income was equally shared and a result of 1 would mean one person earned all the income.</p>
<p>It’s harder to tell what’s happening to the distribution of wealth. The figures don’t go back as far, and the global financial crisis disrupted what appears to have been a long term trend for the distribution to become less equal. The Gini coefficient for the distribution of wealth is 0.52, much worse than in is for the distribution of income. </p>
<p>The removal of death duties is far from the only potential reason. </p>
<p>Others include:</p>
<ul>
<li><p>Demographics. More Australians are older and they are more likely than younger people to own homes whose values have shot up in two waves around the turn of this century and the middle of the 2010s. Almost 90% of the gain in wealth in the past 20 years has been in households headed by someone over 45 years.</p></li>
<li><p>Income growth. Wage growth has slumped during the past decade, leaving higher housing, sharemarket and other asset prices <a href="https://www.rba.gov.au/publications/workshops/research/2017/pdf/rba-workshop-2017-stephen-machin.pdf">as the chief form of wealth growth</a>.</p></li>
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<p>Untaxed inheritance is likely to matter more. Over the next 20 years about 13% of Australia’s current population is expected to reach its life expectancy, meaning 3.18 million people are likely to die. Their net worth accounts for 27% to 37% of Australia’s total wealth.</p>
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Read more:
<a href="https://theconversation.com/why-we-should-put-an-inheritance-tax-back-into-the-spotlight-1634">Why we should put an inheritance tax back into the spotlight</a>
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<p>A study by financial planning experts at Griffith University estimates that over the next 20 years Australians over 60 will transfer A$3.5 trillion in wealth, worth about <a href="https://www.nomorepractice.com.au/wp-content/uploads/2017/09/FINAL-Gen-XY-Intergeneratonal-Wealth-Transfer-v7.pdf">$320,000 on average to each recipient</a>. </p>
<p>Around four fifths of that wealth will go to the top one fifth of recipients, pushing the Gini wealth inequality coefficient considerably higher. </p>
<p>It’s a concern because societies with bigger inequalities <a href="https://news.harvard.edu/gazette/story/2016/02/the-costs-of-inequality-increasingly-its-the-rich-and-the-rest/">have bigger social and economic problems</a>.</p>
<h2>They are better than the alternatives</h2>
<p>Death duties meet most of the basic conditions for a good tax. </p>
<p>They are fair (in that they treat people in the same situation the same and take more from those who have than those who do not) and they are easy to understand.</p>
<p>Their big advantage over ordinary income tax is that they distort economic activity less: because they are levied on unearned rather than earned income they are unlikely to prod people into earning less.</p>
<p>The Economist magazine puts it this way:</p>
<blockquote>
<p>Unlike income taxes, they do not destroy the incentive to work; whereas research suggests that a single person who inherits an amount above $150,000 is four times more likely to leave the labour force than one who inherits less than $25,000. Unlike capital-gains taxes, heavier estate taxes do not seem to dissuade saving or investment. Unlike sales taxes, they are progressive. To the extent that a higher inheritance tax can fund cuts to all other taxes, the system can be more efficient.</p>
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<p>They are points made a century earlier by US President Theodore Roosevelt <a href="https://www.infoplease.com/homework-help/us-documents/state-union-address-theodore-roosevelt-december-3-1907">who told Congress</a></p>
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<p>No advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of the enormous fortunes which would be affected by such a tax</p>
</blockquote>
<h2>Yet they’re not yet popular</h2>
<p>Inheritance taxes pit two widely held views against one another. </p>
<p>One is that governments should leave people to dispose of their wealth as they see fit. </p>
<p>The other is that a permanent, hereditary elite makes a society unhealthy (as well as unfair). The sons and daughters of people who built great companies are not necessarily the best people to run them.</p>
<p>Getting them reintroduced isn’t that unlikely. </p>
<p>The 2010 Henry Tax Review supported them. Noting that what it called a “bequests tax” would help Australia <a href="http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/pubs_reports.htm">navigate its demographic changes</a>, it said</p>
<blockquote>
<p>Over the next 20 years, the proportion of all household wealth held by older Australians is projected to increase substantially. Large asset accumulations will be passed on to a relatively small number of recipients. </p>
</blockquote>
<p>However it also noted that </p>
<blockquote>
<p>There would be a need for anti-avoidance provisions, including a tax on gifts. There would, inevitably, be significant administration and compliance costs. A tax on bequests should not be levied at very high rates. People should not be unduly deterred from saving to leave bequests. A substantial tax-free threshold combined with a low flat rate beyond that point would be an appropriate structure for a bequest tax. Bequests to spouses should be concessionally treated. </p>
</blockquote>
<p>The 2015 Treasury tax discussion paper presented to treasurer Joe Hockey also canvassed the idea, although it noted that “<a href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">such taxes can be difficult to administer effectively</a>”.</p>
<p>More recently, on taking on the job of treasurer under prime minister Malcolm Turnbull, Scott Morrision <a href="https://www.smh.com.au/politics/federal/turnbull-government-refuses-to-rule-out-return-of-death-duties-20151114-gkywn9.html">refused to rule them out</a> amid calls for a tax targeting bequests of more than $2 million. </p>
<p>The best chance of bringing an inheritance tax back would be to link to something socially worthwhile such as housing affordability, education or relief from other taxes. Ordinary bequests beneath a high threshold would be exempted, and the threshold would be indexed (it wasn’t, when Australia last had death duties, meaning that over time they became more intrusive and unpopular). Exemptions could be considered for husbands and wives and perhaps for family farms.</p>
<p>It most likely wouldn’t be a big revenue raiser, but it would make an important point: that wealth is worth taxing (at least on death) in addition to income and spending. Taxing wealth in its own right is no more double taxing than is tax on income and expenditure. And if we can do a bit to redistribute the avalanche of wealth about to hit the best off 20 per cent of beneficiaries, it would be no bad thing for the maintenance of what by international standards is still a relatively equal society.</p><img src="https://counter.theconversation.com/content/114175/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Mangan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Four fifths of the coming bonanza of bequests are set to go to the top one fifth of recipients.John Mangan, Professor and Director of the Australian Institute For Business and Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1039102018-10-01T20:09:03Z2018-10-01T20:09:03ZRelax. The divide between the taxed and the ‘taxed-nots’ isn’t new and doesn’t buy elections<figure><img src="https://images.theconversation.com/files/238634/original/file-20181001-195250-14uc5hv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's unsurprising that a large number of people pay no net tax.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/">Shutterstock</a></span></figcaption></figure><p>Might government benefits, and government employment, be a self sustaining machine – one in which those who benefit from government payments deliver the votes needed to ensure they continue?</p>
<p>It’s a proposition seriously put forward by researchers at the Centre for Independent Studies in a new paper entitled <a href="http://www.cis.org.au/publications/policy-papers/voting-for-a-living-a-shift-in-australian-%20politics-from-selling-policies-to-buying-votes/">Voting for a living: A shift in Australian politics from selling policies to buying votes?</a></p>
<p>The paper argues “there are now so many beneficiaries of government largesse that they may constitute a political force strong enough to bias policy outcomes”.</p>
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Read more:
<a href="https://theconversation.com/who-really-benefits-from-australias-tax-and-social-security-system-48808">Who really benefits from Australia's tax and social security system?</a>
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<p>It also says “when the number of public sector employees is added, there is a clear majority of voters benefiting more from government than they contribute.”</p>
<p>The authors reckon they’re on to something.</p>
<p>They use <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6537.0">Australian Bureau of Statistics data</a> to conclude that “the emergence of a large segment of the population that may in a sense ‘vote for a living’ could help explain much that has gone awry with public policy”.</p>
<p>Amplifying their argument in a column in the <a href="https://www.afr.com/opinion/columnists/when-buying-votes-replaces-selling-policies-%2020180912-h15aan">Australian Financial Review</a>, they ask whether the government’s decision to abandon raising the pension age was “an example of what may happen in a democracy when an increasing majority of its voters receive net benefits from government […] while only a diminishing minority is left to pick up the net tax burden?”</p>
<h2>A new idea it is not</h2>
<p>The argument has been around for a while. </p>
<p>In August 2016, <a href="http://www.abc.net.au/radionational/programs/drive/australias-new-divide,-the-taxed-and-%20taxed-not/7786370">then treasurer Scott Morrison</a> told us “more Australians are likely today to be net beneficiaries of the government than contributors – never paying more tax than they receive in government payments”.</p>
<p>He spoke of “a new divide”, between the taxed, and the taxed-nots.</p>
<p>The Heritage Foundation in the United States has argued there is a divide for a decade or more. And the argument goes back further, to the first half of the 19th Century and the American politician and political theorist <a href="https://www.jstor.org/stable/40751557?seq=1#metadata_info_tab_contents">John C, Calhoun</a>.</p>
<p>But it is based on a misunderstanding.</p>
<h2>In every system, everywhere, there’s zero net tax</h2>
<p>The ABS stats do indeed show that close to half of the population <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6537.0">receives more in cash benefits than it pays in income tax</a>. </p>
<p>If benefits in kind such as education and health care are included, and also indirect taxes such as the goods and services tax, the proportion climbs to 70-80%, at any point in time.</p>
<p>But it isn’t the same 70-80%, and it is unconnected to the size of government and the progressivity of the tax system.</p>
<p>To clear up some myths and misconceptions, the Tax and Transfer Policy Institute at the Crawford School at the ANU published <a href="https://taxpolicy.crawford.anu.edu.au/files/uploads/taxstudies_crawford_anu_edu_au/2016-%2011/zero_net_taxpayers_whiteford_nov_complete.pdf">a detailed policy brief</a> on the idea of “taxed-nots” in 2016.</p>
<p>Strikingly, it showed that a country’s share of “taxed-nots” was unrelated to its level of direct taxes and social security spending. </p>
<p>Australia’s 50% share of “taxed-nots” was similar to the share in the United States, and in New Zealand, and in Sweden – countries each of which have very different tax and spending systems.</p>
<h2>The tax take has little to do with it</h2>
<p>Korea and Denmark both had low shares of “taxed-nots”, at under 40%, but Denmark’s spending and tax was seven to eight times Korea’s.</p>
<p>The reason the share of “taxed-nots” has almost nothing to do with the level of spending or tax is that (as long as the budget is roughly balanced), by definition, the population on average has to pay zero net tax. </p>
<p>It makes no difference whether tax revenue is 46% of GDP as it is in Denmark or 26% of GDP as it is in Korea.</p>
<p>It is also not relevant how progressive the tax and social spending systems (that take less from low earners and give more to low earners) actually are.</p>
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<strong>
Read more:
<a href="https://theconversation.com/factcheck-qanda-does-australia-have-one-of-the-highest-progressive-tax-rates-in-the-developed-world-77785">FactCheck Q&A: does Australia have one of the highest progressive tax rates in the developed world?</a>
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<p>Imagine a country in which everyone paid a flat poll tax, and the only spending was on goods with shared benefits, such as defence and public order.</p>
<p>In such a completely non-redistributive system, 100% of the population would be zero net taxpayers.</p>
<h2>Zero net tax is hard to avoid</h2>
<p>Far from being unusual or unsustainable, a situation in which a majority of taxpayers pay no net tax is close to unavoidable.</p>
<p>And the taxed and taxed-nots change places.</p>
<p>In Australia (as in all other high income countries) about 90% of households aged 65 or over receive more in public spending than they pay in tax. Most of them paid more tax than they received in public spending when they were younger.</p>
<p>The recent <a href="https://www.pc.gov.au/research/completed/rising-%20inequality">Productivity Commission inequality report</a> found more than one third of Australians spent at least one year in the richest 10% of the population between 2001 and 2016. </p>
<p>More than half of those who were in the richest 20% in 2001 where in the bottom half by 2016.</p>
<h2>Today’s taxpayer is tommorrow’s taxed-not</h2>
<p>Almost nobody stayed in the same income group for his or her entire working life. </p>
<p>Economic status changes when people finish study and get jobs, get promoted, lose jobs, raise families, marry, become sick, and become disabled or retire.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/dont-believe-what-they-say-about-inequality-some-of-us-are-worse-off-102332">Don't believe what they say about inequality. Some of us are worse off</a>
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<p>The concept of the “taxed-nots” or “net benefit recipients” sounds scientific, but isn’t a meaningful guide to anything very much.</p>
<p>This doesn’t mean we can’t work to improve our tax and spending systems. </p>
<p>But it does suggest if we want to improve them we need to be clear about how they work.</p><img src="https://counter.theconversation.com/content/103910/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Whiteford has received funding from the Australian Research Council and the Department of Social Serivces. He is affiliated with the Centre for Policy Development. </span></em></p>Its extremely common, everywhere, for large numbers of people to pay no net tax. It tells us nothing about the size of the welfare state or about whether it bribes people to keep tax high.Peter Whiteford, Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/848672017-09-28T21:12:08Z2017-09-28T21:12:08ZTrump’s tax plan would weaken faith in fairness of US tax system<figure><img src="https://images.theconversation.com/files/188074/original/file-20170928-1460-5zew90.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Trump unveiled his tax cut in Indianapolis.</span> <span class="attribution"><span class="source">AP Photo/Michael Conroy</span></span></figcaption></figure><p>President Donald Trump and GOP leaders <a href="https://www.nytimes.com/2017/09/27/us/politics/trump-tax-cut-plan-middle-class-deficit.html?mcubz=1">just released a plan</a> to significantly change the taxation of individuals and businesses in what would be the biggest overhaul of the tax code in decades. </p>
<p>Among its many elements is a proposal to change the way the government taxes so-called pass-through entities, something <a href="https://www.wsj.com/articles/trump-tax-cut-for-pass-through-businesses-spurs-debate-1493249166?tesla=y">first suggested in April</a>. </p>
<p>In a nutshell, the Trump proposal would dramatically lower the rates this category of filers pays. While the cut would not be as large as first proposed, it would still lead to very creative tax planning at best and outright evasion at worst, while <a href="https://www.bloomberg.com/politics/articles/2017-04-28/trump-plan-seen-turning-everyone-and-their-dog-into-an-llc">prompting more companies</a> to adopt this type of business structure to gain the huge benefits. </p>
<p>More fundamentally, we argue, this would cause faith in the fairness of the tax system – a <a href="https://books.google.com/books/about/The_Economic_Psychology_of_Tax_Behaviour.html?id=dh0qhqTOtb0C">cornerstone of our voluntary method of taxation</a> – to falter. The consequences of that could be dire.</p>
<h2>Just passing through?</h2>
<p>The universe of pass-throughs is very large, including anything from freelancers and corner grocery stores to medical partnerships and hedge funds that file under legal categories like sole proprietorships, partnerships and S corporations. </p>
<p>The name “pass-through” refers to how income “passes through” to owners. Pass-throughs avoid the <a href="https://ct.wolterskluwer.com/resource-center/articles/how-are-c-corporations-taxed">double taxation</a> that hits regular C corporations. More of U.S. business income <a href="https://www.amazon.com/Pass-Through-Business-Income-Analysis-Individual-ebook/dp/B007FRFC8Q">is actually generated by pass-through entities</a> than conventional corporations like Apple and General Electric. </p>
<p>Currently, owners of pass-throughs report both compensation and business income on their personal tax returns and pay the same tax rates on both.</p>
<p>To illustrate how this works, imagine a doctor’s sole proprietorship generates US$1 million of taxable earnings. Let’s say half of that would be considered reasonable compensation for the owner’s work, while the other half would be deemed ordinary business income. On her tax return, the doctor would report an income of $1 million, all of which would be taxed at personal income tax rates, for a federal levy of <a href="https://smartasset.com/taxes/income-taxes#vx3l58rVis">$396,000</a> (assuming a flat rate of 39.6 percent). </p>
<p>Under <a href="https://www.nbcnews.com/business/economy/trump-s-tax-cuts-would-boost-wealthy-s-pass-through-n805171">Trump’s proposal</a>, the tax rates on compensation and business income would no longer be the same. A new top rate of 35 percent would apply to compensation, and a proposed rate of 25 percent would apply to business income (the original proposal targeted 15 percent). Going back to our example, the doctor’s federal tax bill would be reduced to about $300,000, assuming she followed the rules. Not bad. </p>
<p>But she now has a very strong incentive to characterize her compensation as business income. If she reported her compensation as $0 and business income as $1 million, her tax bill would be reduced still further, to $250,000. Put differently, for every dollar of compensation she reports as business income instead of compensation, she saves 10 cents in tax. </p>
<p>Clearly, the potential tax savings are huge. Many owners of pass-throughs are going to be tempted to report reasonable compensation as business income.</p>
<p>And who wouldn’t be? The reward for cheating is just too large. And the likelihood of getting away with cheating is as high as it’s ever been because of the <a href="http://www.latimes.com/politics/washington/la-na-essential-washington-updates-trump-budget-to-slash-irs-funding-1489665882-htmlstory.html">reductions in enforcement in recent years</a>, a trend Trump <a href="https://www.atr.org/trump-budget-cuts-irs-funding-239-million">has shown no intention of reversing</a>. </p>
<h2>Defining reasonable compensation</h2>
<p>The history of taxation bears this out: If taxpayers are given flexibility in how to report their income, many will do what they can to lower their tax as much as possible. </p>
<p>For example, <a href="https://www.kitces.com/blog/s-corporation-to-reduce-self-employment-taxes-and-social-security-fica/">S corporation owners</a> have long tried to reduce their Social Security and Medicare taxes by calling their compensation business income. Unlike partnership earnings, the earnings of S corporations that are not paid to shareholders as “compensation” are not subject to Social Security and Medicare taxes. </p>
<p>This clearly creates a strong incentive to characterize as much “compensation” as possible as regular business income. The challenge for the Internal Revenue Service has been defining what constitutes “reasonable compensation” for S corporation shareholders. </p>
<p>The issue has been well-litigated over the years, resulting in a 2012 circuit court ruling that was <a href="http://www.lexology.com/library/detail.aspx?g=96c08c5a-486d-4c38-b71a-0c5b04d90ba3">deemed a win</a> for tax evaders. The court’s <a href="http://media.ca8.uscourts.gov/opndir/12/02/111589P.pdf">guidance</a> boiled down to saying each case is unique and offered no ready recipe for the income allocation problem.</p>
<h2>What happened in Kansas</h2>
<p>The state of Kansas offers a ready example of what happens when you change how pass-throughs are taxed.</p>
<p>In 2012, <a href="http://www.kansascity.com/opinion/readers-opinion/guest-commentary/article156418934.html">Kansas eliminated</a> its income tax on pass-through companies, whose owners previously had to report any earnings on their personal state returns. The response to this change, which took effect in 2013, was quick and large. </p>
<p>The center-right Tax Foundation <a href="https://taxfoundation.org/testimony-reexamining-kansas-pass-through-carve-out/">estimated</a> that it caused the number of pass-through companies in the state to double and resulted in $589 million in lost revenue in 2015 alone, based on an analysis of <a href="http://www.ksrevenue.org/pdf/taxexpreport15.pdf">Kansas tax expenditure reports</a>. A <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2958353">recent paper</a> examining the impact of the change concluded it resulted in “overwhelmingly” more tax avoidance. Kansas <a href="http://www.slate.com/blogs/moneybox/2017/06/07/kansas_reverses_the_disastrous_tax_cuts_donald_trump_wants_to_imitate.html">abandoned this experiment</a> earlier this year. </p>
<p>The reasonable inference from the S corporation history and Kansas’ experiment is what everyone is taught in their first economics class: People are rational and self-interested. They recognize and exploit opportunities to enrich themselves. </p>
<p>And the Trump administration’s proposed changes to pass-through rules would create a huge opportunity and greater incentives to recharacterize income. </p>
<h2>A blow against fairness</h2>
<p>Just as worrisome as the significant loss in revenue, however, is that Trump’s proposed change and the potential evasion could undermine the perceived fairness of the tax system. </p>
<p>The effectiveness of the U.S. system depends on voluntary compliance, and voluntary compliance, in part, depends on the belief by taxpayers that they’re not being treated like chumps. That belief is already being strained. </p>
<p>An <a href="http://www.cbsnews.com/news/poll-do-americans-think-their-tax-system-is-fair/">April CBS News poll</a> found that 56 percent of Americans think the income tax system is “somewhat” or “quite” unfair. And a 2011 Pew survey noted that 57 percent of respondents said their biggest complaint about the system is that the wealthy don’t pay their fair share. </p>
<p>Trump’s tax proposal would likely worsen the problem as more people try to game the system. <a href="http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.474.4504&rep=rep1&type=pdf">Research suggests</a> that this would create a growing perception of structural unfairness and lead more taxpayers to collectively challenge the system. If that happens, our tax system’s effectiveness would decline, and the consequences of that could be devastating.</p>
<p>Back in 2016, <a href="http://www.reuters.com/article/us-election-trump-hedgefunds-idUSKCN0QS0P120150823">Trump said</a> “hedge fund guys are getting away with murder” because of their use of the “carried interest loophole,” which allows them to significantly lower the taxes they pay.</p>
<p>Trump’s pass-through proposal amounts to encouraging more companies to do exactly the same thing. In our view, this is the manifestation of unfairness. </p>
<p><em>This is an updated version of an article originally published on May 1, 2017. Tim Gray, a freelance business writer and editor, co-authored the original piece.</em></p><img src="https://counter.theconversation.com/content/84867/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gil B. Manzon Jr. does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The administration wants to cut the tax rate on so-called pass-through entities, which is likely to lead to creative tax planning and outright evasion, damaging faith in the system.Gil B. Manzon Jr., Associate Professor of Accounting, Boston CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/682392016-11-14T19:10:19Z2016-11-14T19:10:19ZTax systems are inhumane. It’s time this changed<figure><img src="https://images.theconversation.com/files/144883/original/image-20161107-4711-xq9ue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">They might be certain, but they don't have to be brutal.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>American statesman and inventor Benjamin Franklin famously <a href="http://oll.libertyfund.org/titles/franklin-the-works-of-benjamin-franklin-vol-v-letters-and-misc-writings-1768-1772">said</a>:</p>
<blockquote>
<p>In this world nothing can be said to be certain, except death and taxes.</p>
</blockquote>
<p>This sombre adage seems to ring truer than ever as millions of South Africans file their <a href="http://www.sars.gov.za/TaxTypes/PIT/Tax-Season/Pages/default.aspx">annual tax returns</a> online. At the same time, the <a href="http://www.taxcom.org.za/">Davis Tax Committee</a> – set up to review the country’s tax system – is quietly continuing its work. The committee’s focus has been on two major issues: how to increase tax on individuals without damaging the economy and how to stop the wealthy shifting profit to offshore havens.</p>
<p>Anyone who is currently neck-deep in tax forms will realise that the system needs far more reform than is currently being pursued. The tax system is still unimaginative, ungendered, ahistorical and neoliberal. </p>
<p>Millions of South Africans – rich and poor – pay “<a href="http://mg.co.za/article/2015-10-29-how-black-tax-cripples-our-youths-aspirations">black tax</a>”. They support extended families caught up in a cycle of poverty caused by apartheid. </p>
<p>Second, the tax system is colonial and punitive. Individuals are not rewarded for engaging in profoundly developmental work. While companies and individuals are given tax breaks for donations to not-for-profit organisations, citizens aren’t rewarded for being law abiding, nor for advancing equality and respect for diversity in a fragile young democracy. </p>
<p>Tax regimes also have a dubious colonial past.</p>
<h2>Colonisation and tax</h2>
<p>In Africa and under colonial rule, Africans were forced to pay a “hut tax” for the “privilege” of British administration. Hut taxes had devastating consequences. Paid in cash, the taxes forced people into wage labour. </p>
<p>In Sierra Leone, the <a href="http://www.bbc.co.uk/worldservice/africa/features/storyofafrica/11chapter10.shtml">Hut Tax War</a> of 1898 led to a bloody rebellion. Tax – and colonialism – did not bring order, instead it left <a href="http://www.historyworld.net/wrldhis/PlainTextHistories.asp?historyid=ad45">a legacy</a> of repression, anarchy and poverty. Some experts <a href="http://www.medicalpeacework.org/fileadmin/user_upload/Case_Studies/MPW3_15_06.pdf">have even suggested</a> that this deep legacy exacerbated an outbreak of Ebola in the country between 2013 and 2015.</p>
<p>Tax regimes have been reformed dramatically since the dark days of colonialism. But many remain rooted in patriarchal ways of organising society. The effects, I believe, are inherently negative.</p>
<p>One example of a “big man” approach to tax comes from the highlands of Papua New Guinea. Anthropologists began studying these men from the mid 1950s, exploring how they use the distribution of pigs and yams to obtain power and manage resources. And this isn’t an outdated example: the “big man” system was <a href="http://www.un.org/press/en/2010/wom1815.doc.htm">still in place</a> a few years ago.</p>
<p>Women, surviving in the unequal and often <a href="http://www.huffingtonpost.com/entry/papua-new-guinea-sexual-violence_us_56d9fca1e4b0ffe6f8e974f2">sexually violent</a> highlands, do the critical work of <a href="http://www.worldbank.org/en/news/feature/2013/09/16/women-in-papua-new-guinea-to-play-stronger-role-in-agriculture">agriculture</a>, child and pig raising. Men “control” women and the less powerful, bartering and getting pigs for a range of favours and goods.</p>
<p>The ambitious and charismatic “<a href="https://www.zegrahm.com/blog/big-men-papua-new-guinea-their-western-counterpart">Big Man</a>”, uses eloquent speech and politicking to get people to give their beautiful pigs for the ritual feasts of redistribution or “<a href="https://www.therai.org.uk/film/the-series-of-disappearing-world/the-kawelka-ongkas-big-moka">Moka</a>”. The lavish feasts encourage men to symbolise their power by styling their hair with the feathers of the elusive <a href="http://animals.sandiegozoo.org/animals/cassowary">cassowary</a> and performing elaborate speeches. </p>
<p>Invariably, the Big Man runs into problems. People refuse to give up their pigs. Those who have many, lie about how many they have and question the authority of the Big Man to ask for pigs. Those with a few are compelled to give up what they have. <a href="http://www.abc.net.au/news/2015-04-22/tribal-fight-in-papua-new-guinea-leaves-10-people-dead/6412662">Pig theft</a> has led to murder and war.</p>
<p>These patterns of resistance to patriarchal tax regimes can be found across the world, from <a href="http://www.spanishwars.net/16th-century-revolt-of-the-comuneros.html">centuries ago</a> to <a href="https://www.ft.com/content/b47c6d76-a320-11e4-bbef-00144feab7de">very recent times</a>.</p>
<p>Some societies have tried different approaches. In North America, especially in historical <a href="http://what-when-how.com/social-and-cultural-anthropology/potlatch-anthropology/">Kwakiutl</a> society, the redistribution of blankets, food and other goods in a “feast” of gift giving, known as the Potlatch, assisted the poor and the restoration of dignity. </p>
<p>The Potlatch was not perfect, since a point came when chiefs tried to outdo one another by hosting massive and wasteful feasts. Even so, the historical Kwakiutl were already thinking about what the <a href="http://www.financialmail.co.za/features/2014/12/11/davis-tax-committee-finding-the-lesser-evil">Davis Tax Committee</a> calls the “social wage”. </p>
<p>So what might a more humane tax system look like?</p>
<h2>Activating “Ubuntu”</h2>
<p>South Africans could “activate” their philosophy of <a href="http://www.humanitysteamsa.org/ubuntu/">Ubuntu</a> at the state level, to infuse a new tax system with humanity. The “new” tax could be historically conscious. It could, as the Davis Tax Committee has proposed, engage tax administration in various (international) jurisdictions to obtain national “rebates” for slavery and colonialism. One might say that <a href="https://www.rt.com/usa/330934-un-recommends-usa-reparations-slavery/">reparations</a> remain a rather large “tax” loophole to be investigated by an international chapter of the committee. </p>
<p>Nationally, we could expand the rebate criteria. Women could be rewarded for still spending <a href="https://hbr.org/2009/09/the-female-economy">more on their families</a>. Our tax could be culturally attuned, rewarding expressions of diversity leading to creative industry. We could reward individual volunteer work and the <a href="https://www.ukessays.com/essays/psychology/emotional-labour-put-forward-by-sociologist-arlie-hochschild-psychology-essay.php">emotional labour</a> of essential service providers. </p>
<p>Timeously paying fines, including child maintenance claims would lead to a reduction in tax. The rebates could be in the form of money, goods or services, expanding the concept of <a href="http://money.cnn.com/infographic/technology/what-is-bitcoin/">the Bitcoin</a> to enable varied redistribution. Fraud, corruption and crime would attract higher taxes.</p>
<p>In brief, tax reforms in South Africa could be more humane, because even if (as Franklin says) death is certain, no-one aspires to taxes that make for a “<a href="http://yalebooksblog.co.uk/2013/04/05/thomas-hobbes-solitary-poor-nasty-brutish-and-short/">nasty (and) brutish</a>” life.</p><img src="https://counter.theconversation.com/content/68239/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rosabelle Boswell receives funding from the South African National Research Foundation. </span></em></p>Tax systems in post-colonial Africa need to be reformed. For instance, there ought to be rebates for advancing moral good or educating future taxpayers.Rosabelle Boswell, Professor of Anthropology and Executive Dean of Arts, Nelson Mandela UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/419662015-05-25T20:07:10Z2015-05-25T20:07:10ZFactCheck: is tax up every year under the Abbott government?<blockquote>
<p>Tax is up every year under this government and tax as a percentage of the economy is higher under Tony Abbott and Joe Hockey than it ever was under the previous Labor government despite all of their huffing and puffing about tax. – Chris Bowen, Shadow Treasurer, <a href="http://www.chrisbowen.net/media-centre/transcripts.do?newsId=6991">interview</a> with Hugh Rimington on Channel 10 Eyewitness News, May 12, 2015. </p>
</blockquote>
<p>The $A5 billion worth of tax breaks for small business were a centrepiece of the federal budget this year and something the Opposition was <a href="http://www.chrisbowen.net/media-centre/transcripts.do?newsId=6991">keen</a> to frame as a return to Labor policy.</p>
<p>In a post-budget interview, the Shadow Treasurer described corporate tax cuts and lower tax on small business as a good thing, adding that tax as a percentage of the economy is higher now than it was under the previous government. </p>
<p>Is that right?</p>
<h2>The available data</h2>
<p>According to data in the federal budget papers, Chris Bowen’s statement is correct. </p>
<p>He refers to “tax as a percentage of the economy”, which I take to refer to tax receipts as a percentage of GDP. This is indeed a standard measure used in economics to summarise the effective tax burden.</p>
<p>Ideally, Mr Bowen’s statement should be checked against independent data sources like the World Bank and Organisation for Economic Cooperation and Development (OECD). But unfortunately, international organisations update their databases with a lag of up to two years. (The World Economic Outlook Database of the International Monetary Fund has revenue data up to 2014, plus estimates and projections until 2019 but doesn’t distinguish between different levels of government or between tax and non-tax revenues.)</p>
<p>When asked for a data source to substantiate his statement, a spokesman for Mr Bowen directed The Conversation to the 2015 budget <a href="http://www.budget.gov.au/2015-16/content/bp1/download/bp1_bs10.pdf">papers</a>.</p>
<p><a href="http://budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">Supplementary Tables 1 and 2 in Statement 4 of Budget Paper 1 of the Federal Budget 2015</a> report Australian Government receipts in millions of dollars and in percent of GDP. The figures in millions of dollars are comparable to those published by the <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5506.02013-14?OpenDocument">Australian Bureau of Statistics (ABS)</a>.</p>
<h2>Tax on the rise</h2>
<p>The bar chart below, Chart 1, reports the annual tax to GDP ratio from 2008-09 (the first Labor budget) to 2018-19 (last available projection). It must be noted upfront that data for 2014-15 and the two subsequent years are estimates, while data for 2017-18 and 2018-19 are projections.</p>
<p>If one takes 2014-15 as the reference for the first budget year of the Coalition government, then the evidence indicates that tax revenues in proportion of GDP are higher under the Abbott government than under the two previous Labor governments. </p>
<p>Furthermore, the tax-to-GDP ratio is expected to increase steadily over the next four years.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=356&fit=crop&dpr=1 600w, https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=356&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=356&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=447&fit=crop&dpr=1 754w, https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=447&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=447&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Notes: Bars in red refer to actual data; bars in blue refer to estimates, bars in green refer to projections.</span>
<span class="attribution"><a class="source" href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">Supplementary Table 2, Statement 4, Budget Paper 1, Federal Budget 2015.</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The table below provides some more detailed information on the structure of the tax system. The data are again taken from <a href="http://budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">Supplementary Table 2 of Budget Paper 1.</a></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=257&fit=crop&dpr=1 600w, https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=257&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=257&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=324&fit=crop&dpr=1 754w, https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=324&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=324&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Note: Indirect includes sales taxes, excise duties, customs duties, and other forms of indirect taxation, Income includes all individuals and other withholding taxes, fringe benefits tax, company tax, superannuation fund taxes, and resource rent taxes; Individual is the total of individuals and other withholding taxes, Company is the company tax.</span>
<span class="attribution"><a class="source" href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">Supplementary Table 2, Statement 4, Budget Paper 1, Federal Budget 2015.</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The most evident change that has occurred between the Labor and Coalition budget periods is the increase in income taxation receipts, while indirect taxes have remained fairly constant.</p>
<p>Within the income taxation category, individual taxes have increased, while receipts from the company tax have been substantially stable. Therefore, it appears that there has been a shift in tax burden to the disadvantage of households.</p>
<p>A few qualifications are necessary. First, being estimates, the data for 2014-15 and subsequent might be revised in the future (but I don’t expect these revisions to be significant, at least for 2014-15).</p>
<p>Second, the tax-to-GDP ratio of 21.9% observed in 2014-15 is not the highest ever. Supplementary Table 2 in the budget papers <a href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">shows</a> that in 2007-08 the ratio was 23.6%. The peak was reached under the Howard government in 2000-01, 2004-05 and 2005-06, when the ratio reached 24.2%. Over the period 1970-71/2014-15 the average ratio was 21.5%. </p>
<p>Third, the data above refer to cash receipts. Accrual receipts in 2014-15 amount to 23.9% of GDP, as shown Supplmentary Table 4 in the budget papers <a href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">here</a> shows. This is only slightly higher than the accrual receipts to GDP ratio in 2013-14 and 2012-13 (23.7% and 23.6% respectively), but still one to two percentage points higher than the ratio in the earlier years of the Labor governments.</p>
<p>Accrual data also show that tax receipts are expected to increase in the next four years. Therefore, the general picture is qualitatively similar to the one produced from cash basis data.</p>
<h2>Verdict</h2>
<p>Mr Bowen’s statement is correct. Based on available Treasury data, the estimated tax-to-GDP ratio in 2014-15 is the highest since 2008-09. The ratio is also expected to increase further over the next four years. Therefore, the statement of the Shadow Treasurer is true.</p>
<p>Data for 2014-15 and subsequent years are estimates and projections and may be revised in future.</p>
<p>Lastly, it is worth stressing that this verdict does not establish what level of the tax-to-GDP ratio is most appropriate or desirable for the Australian economy. </p>
<p>In fact, lower taxes do not necessarily lead to superior socioeconomic outcomes, essentially because a government that raises little revenue is also a government that can supply little in the way of public goods, services and social welfare. </p>
<p>For this reason, rather than just focusing on how to reduce the tax burden, the policy debate around taxes should be concerned with finding the tax level and structures that best meet the needs of Australian citizens.</p>
<hr>
<h2>Review</h2>
<p>I agree with the data reported and its interpretation. The underlying data of Chart 1 and Table 2 is official Australian Treasury data; with important notes that numbers for 2014-15 through 2016-17 are estimates, which will be revised in the future. </p>
<p>It’s also noted that data for 2017-18 and 2018-19 are projections which assume no policy changes and a return to long-run economic growth.</p>
<p>The principal reason for the growth of Commonwealth taxation receipts as a share of GDP under the Coalition government is the growth of personal income tax. Every individual whose income in nominal dollars increases faces a higher average tax rate as a result of government failure to index, or to change, the brackets of the personal income tax rate schedule. This effect of so called “fiscal creep” is in addition to the effect of some people facing higher marginal income tax rates. – <strong>John Freebairn</strong></p>
<hr>
<p><div class="callout"> Have you ever seen a “fact” that doesn’t look quite right? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.</div></p><img src="https://counter.theconversation.com/content/41966/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Fabrizio Carmignani receives funding from the Australian Research Council for a project on the estimation of the piecewise linear continuous model and its applications in macroeconomics.</span></em></p><p class="fine-print"><em><span>John Freebairn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Shadow Treasurer, Chris Bowen, has said that tax as a percentage of the economy is higher now than it was under the previous government. Is that right?Fabrizio Carmignani, Professor, Griffith Business School , Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/408742015-04-28T12:45:15Z2015-04-28T12:45:15ZCelebrity twat or man of the people? Russell Brand is both in The Emperor’s New Clothes<figure><img src="https://images.theconversation.com/files/79579/original/image-20150428-3067-bmcl5p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">An interview sparked rumours that he may be about to endorse Ed Miliband.</span> <span class="attribution"><span class="source">STUDIOCANAL</span></span></figcaption></figure><p>A few moments from the end of <a href="http://www.theemperorsnewclothesfilm.co.uk/">The Emperor’s New Clothes</a>, the new documentary made by the prolific <a href="http://www.imdb.com/name/nm0935863/">Michael Winterbottom</a> in collaboration with Russell Brand, the celebrity anarchist pretends to receive a phone call as he puts forward a proposal that the top 1% of the UK’s population should be more greatly taxed.</p>
<p>Yes, the top 1% would include him, Brand says, as if repeating the words of some invisible agent at the other end of the line. He then turns to the camera/audience and jests that perhaps this is one policy that might not be rushed into.</p>
<p>The moment, I assume, is a joke – although I am not apprised of Brand’s earnings such that I could know whether he is in the top 1% of UK earners or not. Either way, the moment for me deflated much of what had preceded it. Suddenly, I was faced with the possibility that the whole of the film is equally a joke – and that Brand, who had been riffing for the previous 90+ minutes about the institutionalised theft that is the contemporary banking system and about the need for citizens to take control of their lives by getting involved in politics, did not mean any of it.</p>
<p>In some senses, this is an interesting editorial trick for Winterbottom to pull off. It is a sleight of hand that finally distances him somewhat from Brand, who otherwise is the mouthpiece of the film.</p>
<figure>
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</figure>
<h2>Celebrity twats</h2>
<p>Winterbottom’s penchant for looking at length at celebrity twats is well known, as is made clear by one of the <a href="http://www.jigsawlounge.co.uk/film/wp-content/uploads/2004/03/24HPP.jpg">posters</a> for his film <a href="http://www.imdb.com/title/tt0274309/">24 Hour Party People</a>, in which Tony Wilson (Steve Coogan) is described using precisely that term. And so that Winterbottom would work with Brand, who is perceived as just such a celebrity twat by various circles of genteel (bourgeois) British society, is perhaps unsurprising.</p>
<p>It’s also unsurprising that in Winterbottom’s hands, Brand actually comes across very well, much as Wilson becomes a heroic – if comic – figure in 24 Hour Party People and much as the equally troubled Steve Coogan acquits himself beautifully in <a href="http://www.imdb.com/title/tt0423409/">A Cock And Bull Story</a> and <a href="http://www.imdb.com/title/tt1740047/">The Trip</a>.</p>
<p>This isn’t to say that Brand will be to everyone’s tastes as he marches into HSBC demanding a meeting with chief executive Stuart Gulliver in order to explain his salary, or as he manipulatively asks a bunch of eight-year olds whether it’s fair that one person gets paid dozens of times more money than someone else.</p>
<p>Indeed, these <a href="http://www.theguardian.com/film/2015/apr/27/tribeca-political-films-russell-brand-roseanne-barr">sub-Michael Moore stunts</a> come across both as a bit laboured and a bit borrowed. Equally an issue is the sound of Brand’s voice as he gets excited – he knows he is about to say something clever, funny (or a combination of the two) but telegraphs it through a quickening of tempo and a slight raising of tone, which in turn undermines the power of what he is about to say.</p>
<p>However, Brand is also clearly a popular man. It’s fascinating to watch him wander around his hometown of Grays in Essex, explaining how it has gone from being quite an interesting place to a bookie-filled crap town overrun with pound shops. People approach him and chat, take selfies and basically love him.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/79582/original/image-20150428-3048-1kw1c4s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/79582/original/image-20150428-3048-1kw1c4s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=252&fit=crop&dpr=1 600w, https://images.theconversation.com/files/79582/original/image-20150428-3048-1kw1c4s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=252&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/79582/original/image-20150428-3048-1kw1c4s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=252&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/79582/original/image-20150428-3048-1kw1c4s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=316&fit=crop&dpr=1 754w, https://images.theconversation.com/files/79582/original/image-20150428-3048-1kw1c4s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=316&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/79582/original/image-20150428-3048-1kw1c4s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=316&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">On the campaign trail.</span>
<span class="attribution"><span class="source">STUDIOCANAL</span></span>
</figcaption>
</figure>
<h2>Man of the people?</h2>
<p>In other words, Brand clearly has what I guess is called the common touch – and it’s admirable to behold. What’s more, it surely is a worthy tool for getting people engaged in the political fate of this country. You have to organise and you have to protest, he tells us. Coming from anyone too clever, this might just seem insincere.</p>
<p>Coming from Brand, one wonders that people might well be mobilised to vote on May 7 in greater numbers, and more generally become engaged in political debate than would were this film not in existence – despite Brand’s own <a href="http://www.bbc.co.uk/news/uk-24648651">widely publicised calls</a> for people to register their protest by not voting. And if we are to believe the <a href="http://www.theguardian.com/politics/2015/apr/28/ed-miliband-spotted-leaving-russell-brand-london-home">rumours</a> of Brand endorsing Ed Miliband after the Labour leader was spotted leaving his house, perhaps this is all to change.</p>
<p>The Emperor’s New Clothes bombards us with archive footage (often framed within glitch art-style graphics to convey that this is the age of YouTube), with stunts, with interviews (such as with Channel 4 economics editor Paul Mason) and with direct address. In this way it involves a panoply of techniques that aims to recall the political cinema of something like Fernando Solanas and Octavio Getino’s masterpiece, the Latin American 1960s activist film <a href="http://www.bfi.org.uk/news-opinion/sight-sound-magazine/features/greatest-films-all-time-essays/light-my-fire-hour-furnaces">The Hour of the Furnaces</a>.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/vbLGG5UGEKw?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>As such, it’s a timely and vibrant film, with a fantastic sequence about the history of the Cadbury factory in Bourneville. It’s also funny at times, with a hilarious final montage-rap by Cassetteboy.</p>
<p>But Winterbottom, his cards as ever close to his chest, just finally nudges some distance between himself and Brand with the 1% joke. Is it Brand who stands naked before us, in addition to the banks that have fuelled his ire for the duration of the film? It’s a very Winterbottom trait to float this as a final possibility, thereby folding the viewer’s thought in on itself.</p>
<p>This film won’t tell you anything you don’t already know, says Brand at the film’s outset. True. But then it’s always good to keep mulling over what we believe we know, including about the film’s star. It’s only in reconsidering and ever-more-deeply comprehending (rather than blindly accepting) that we might find ourselves drawn into action.</p><img src="https://counter.theconversation.com/content/40874/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William Brown does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>This is a timely and vibrant film, funny at times – and not without a hint of editorial distance from director Winterbottom.William Brown, Senior Lecturer in Film, University of RoehamptonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/374742015-04-08T00:41:46Z2015-04-08T00:41:46ZAustralian politics’ Kodak moment spells trouble for the major parties<p>When people talk about disruption, they mostly tell the stories of what has happened to big businesses such as Kodak, Blockbuster, Barnes and Noble, and most of the world’s newspapers.</p>
<p>Consumers have stood by and watched the near destruction of the company that created Kodak moments. As I saw as a newspaper editor, people have also increasingly stopped picking up the newspapers that once recorded their own births and marriages, instead gleaning their news from digital and social media. Jobs have vanished with the businesses that funded them; jobs have changed or been created in ways we might not have imagined.</p>
<p>Senior Australian politicians are increasingly recognising those <a href="http://www.joehockey.com/media/speeches/details.aspx?s=164">disruptive forces</a> and the need to adapt by rethinking everything from <a href="http://theconversation.com/government-calls-for-tax-rethink-but-reform-answers-abound-39436">the way we’re taxed</a> to how <a href="http://theconversation.com/harper-makes-case-for-competition-overhaul-experts-react-39582">businesses compete</a> in a fast-changing global economy.</p>
<p>The same forces of disruption that are shaking up industries and economies around the world are now having a discernible effect on another area of established power: Australia’s major political parties. That means politicians and political activists alike should be rethinking how they work too.</p>
<h2>Snapshots of change</h2>
<p>Exhibit A of the rapidly changing political landscape was January’s Queensland election. A government that had been elected with Australia’s largest majority three years ago was voted out of office. </p>
<p>Exhibit B is Tony Abbott, leading a Coalition government with a near-record majority, who is still fighting for <a href="http://www.abc.net.au/news/2015-04-06/newpoll-shows-coalition-support-dips-west-australian-stronghold/6372240">his political life</a> ahead of next month’s crucial federal budget,</p>
<p>Whether in Queensland or in Canberra, each of those governments has lost favour more quickly than the Instamatic camera and film. Their time in the sun has proven to be as fleeting as a Kodak moment.</p>
<p>Exhibit C, perhaps surprisingly to some, is the March 28 New South Wales election. While popular Premier Mike Baird and his Liberal National government were re-elected, there were some extraordinary swings across the state, particularly in regional areas. As Sydney Morning Herald columnist <a href="http://www.smh.com.au/comment/violent-mood-swings-masked-in-the-nsw-election-result-20150401-1mcq9z.html">Paul Sheehan described it</a>:</p>
<blockquote>
<p>subsumed within the relatively bland overall numbers was a wave of violent voting shifts across the electorate.</p>
</blockquote>
<p>But this political shift didn’t just begin this year.</p>
<p>For Exhibit D, take a closer look at the 2013 federal election results. As ABC election analyst <a href="http://blogs.abc.net.au/antonygreen/2013/11/record-vote-for-minor-parties-at-2013-federal-election.html#more">Antony Green has shown</a>, there was record support for minor parties and independents in both the lower and upper houses of federal parliament. More than one in five (21.1%) votes in the House of Representatives and nearly a third (32.2%) of Senate votes were directed away from the major parties.</p>
<p>Yet just like many of the business leaders who didn’t want to admit the world was shifting beneath their feet, many in the political class appear to be deluded about the disruption they’re now experiencing. </p>
<p>It’s easier to blame your problems on an inattentive media and electorate, unable to digest complex issues, than admit that perhaps it’s time to rethink the political product you’re selling. This is the same mistake the victims of business disruption have made.</p>
<h2>Lessons from business for politicians</h2>
<p>Just consider what disruption has done to business. Kodak didn’t <a href="http://www.bloomberg.com/news/articles/2012-01-19/kodak-photography-pioneer-files-for-bankruptcy-protection-1-">go bankrupt in 2012</a> and <a href="http://blogs.ft.com/the-world/2015/01/uber-and-kodak-ghosts-at-disruption-feast/">lose its place</a> as a dominant global consumer brand because people lost interest in taking photographs; there have never been more photographs taken than today. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/72847/original/image-20150224-32235-10o85na.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/72847/original/image-20150224-32235-10o85na.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/72847/original/image-20150224-32235-10o85na.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=778&fit=crop&dpr=1 600w, https://images.theconversation.com/files/72847/original/image-20150224-32235-10o85na.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=778&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/72847/original/image-20150224-32235-10o85na.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=778&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/72847/original/image-20150224-32235-10o85na.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=978&fit=crop&dpr=1 754w, https://images.theconversation.com/files/72847/original/image-20150224-32235-10o85na.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=978&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/72847/original/image-20150224-32235-10o85na.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=978&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">When Kodak was still king: a Kodak Instamatic camera advertisement, published in Ebony, August 1964.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/29069717@N02/14204084700/in/photolist-nDaDw5-9vwrK4-6KYxzd-9uj6kZ-yLEu3-37PXD7-4q7Ltr-mL9kLs-9j5AZz-bQeAVk-pRoRyR-cHG713-NrmAs-gmRHJ-67azCC-jQv8f-ppKWQB-nneoLi-64ndVm-e9Fmq5-9wZHrs-37Kqg2-37Q1MY-37KoyZ-37PZ7h-5NWNsc-6PTh13-56twgm-4pZ4Xz-cUaAsJ-cUaAo5-cUayFj-cUayCq-cUayyE-cUaAeL-cUaAim-bvWCG1-E8ch7-i2B3cD-fqsQLn-58ypR4-q2u74-J1krn-kmue6W-e6EBnH-jQv8h-kmrLuK-juPFMJ-dXeCKG-82mvgJ">Classic Film/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>Instead, consumers simply moved on, adopting new technologies, brands and devices. That left Kodak as a shadow of its old self, forced to <a href="http://www.forbes.com/sites/maggiemcgrath/2013/11/01/there-and-back-again-10-companies-that-returned-to-the-market-after-bankruptcy/">reinvent itself</a> mainly in <a href="http://www.kodak.com/ek/US/en/Our_Company/History_of_Kodak/Imaging-_the_basics.htm">corporate</a> rather than consumer markets.</p>
<p>Similarly, more news is being read and talked about than ever – but the source is increasingly not a newspaper. Again, changing technology has driven a shift to new devices and brands, and sparked a revolution in consumer behaviour that has left many established media businesses struggling to find <a href="http://www.forbes.com/sites/gregsatell/2014/01/10/old-media-can-still-thrive-but-business-models-need-to-adapt/">new business models</a>.</p>
<h2>Big political brands on the wane</h2>
<p>The story of politics over recent decades has been the story of greater and greater alignment to brands in the commercial sense, and less alignment to dogmatic positions that defined politics in the cold war era. This has practical and measurable benefits for the politicians, their party organisations and the industry of market researchers and advertising agencies that hang off them.</p>
<p>It made voting a similar decision to consumer choice. While the big brands are strong, the loyalty sticks. But it’s a very different story when the brand weakens and the loyalty loosens.</p>
<p>That’s what has happened to politics. Swings of <a href="https://theconversation.com/final-queensland-election-results-labors-stunning-revival-37616">10% or more</a> between elections are now frequent, as are one-term governments and leaders who struggle to make it halfway through an elected term, as the prime minister has discovered. None of this helps the brand, which only adds to the lack of loyalty (or promiscuity) of the voter.</p>
<p>So if we follow the patterns of digital disruption in business, where could this lead us in politics?</p>
<h2>New political solutions</h2>
<p>We can be confident that the business of government and politics will continue. After all, its survival is legislated. And the public kind of likes democracy.</p>
<p>So far, the politicians and party organisations have dabbled with some of the tools of disruption to protect their positions. Most politicians tweet, share stories on Facebook and line up for selfies with their true believers. But this is at the margins rather than the core of political practice. </p>
<p>Fundamentally, politics is still built around internal loyalties and a win-at-all-costs approach to a range of complex issues. Yet most of the choices they face involve the decisions we must make to share the available resources among a growing population on a finite planet. If the tensions those choices create isn’t disruptive, I don’t know what is.</p>
<p>The changed consumer needs, aligned with technology, must change the practice of politics; the only question is how.</p>
<p>One answer might lie in the latest manifestation of disruption, the evolution of the <a href="https://theconversation.com/search?q=sharing+economy">sharing economy</a>. This involves the use of digital tools to harness unused capacity and put it to productive use: for example, <a href="http://blogs.ft.com/the-world/2015/01/uber-and-kodak-ghosts-at-disruption-feast/">Uber</a> as a ride-sharing app and <a href="http://journalistsresource.org/studies/economics/business/airbnb-lyft-uber-bike-share-sharing-economy-research-roundup">AirBnB</a> as an accommodation service.</p>
<p>What might this look like in politics? Imagine a mobile app where a third-party provider can harness support for an issue and deliver it as a bloc to a group of politicians willing to make available their legislative capacity. </p>
<p>Fanciful? Well, in effect, that’s what has already happened to the transport industry and the accommodation industry. It will take just one balance-of-power crossbencher in an Australian parliament to take up the idea to give it traction. And isn’t the basis of politics to understand what the public wants and to deliver it efficiently?</p>
<p>If politics follows the pattern of disruption, it will do just that. But the old brands risk falling by the wayside unless they face the reality that hanging on to the old ways almost certainly guarantees oblivion. Just ask Kodak.</p><img src="https://counter.theconversation.com/content/37474/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Fagan was editor and editor-in-chief of Queensland’s major newspaper The Courier-Mail for a decade and was News Corp's editorial director in Queensland before joining QUT.</span></em></p>The same forces of disruption that are changing industries and economies around the world are now having a discernible effect on Australian politics – and that’s bad news for the major parties.David Fagan, Adjunct Professor, QUT Business School, and Director of Corporate Transition, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/328532014-10-28T09:35:51Z2014-10-28T09:35:51ZNeed to access cash is driving surge of corporate inversions, not the high US tax rate<p>Corporate inversions have been front page news in the US for months with everyone from President Barack Obama to the man on the street expressing a view as their usage has surged. Unfortunately, many of these views are not well informed.</p>
<p>For example, most <a href="http://www.bloombergview.com/quicktake/tax-inversion">news reports</a> cite the 35% US corporate tax rate as a major cause of inversions. While it is true the US has the highest corporate tax rate in the developed world, it is not causing inversions. </p>
<h2>What is an inversion?</h2>
<p>Although corporate inversions can take many forms, the end result is that a business previously owned by a US parent corporation is now owned by a foreign parent, as the chart below shows. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/62679/original/7dcdmznv-1414100678.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/62679/original/7dcdmznv-1414100678.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/62679/original/7dcdmznv-1414100678.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=486&fit=crop&dpr=1 600w, https://images.theconversation.com/files/62679/original/7dcdmznv-1414100678.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=486&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/62679/original/7dcdmznv-1414100678.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=486&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/62679/original/7dcdmznv-1414100678.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=611&fit=crop&dpr=1 754w, https://images.theconversation.com/files/62679/original/7dcdmznv-1414100678.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=611&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/62679/original/7dcdmznv-1414100678.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=611&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">J Richard Harvey</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>In most cases, the foreign parent is an entity with few employees. Thus, an inversion is effectively a legal change of ownership. </p>
<p>It does not mean a business will move its headquarters and employees out of the US – though there is justifiable concern that over time jobs could leave the US.</p>
<p>At least 13 companies that used to be based in the US <a href="http://www.bloombergview.com/quicktake/tax-inversion">have completed</a> inversions since the beginning of 2012, compared with six in the previous three years, according to Bloomberg. Six more inversions are pending. </p>
<h2>Why companies are inverting</h2>
<p>Many have argued companies are pursuing inversions to avoid the bite of the US’s 35% corporate rate, but international tax planners know better. Even if it were miraculously reduced to 15%, US corporations would still invert.</p>
<p>The real reason is that they need access to their cash. Specifically, companies have shifted so much income to offshore tax havens that the US parent needs the cash from foreign earnings to pay dividends and buy back stock. </p>
<p>But there is a major problem: the US parent cannot access the foreign earnings without incurring domestic tax. Tax planners and Washington politicians <a href="http://cber.utk.edu/confpapers/Gra_Han_She.pdf">refer to this</a> as the “lock-out effect.” </p>
<p>Some believe corporations have been hoisted on their own petards because they have shifted so much income overseas. Others argue that they need to do so to remain competitive with foreign corporations. Both views have merit.</p>
<p>Regardless, the bottom line for US corporations is that foreign earnings are needed back at the US parent and they don’t want to pay any meaningful domestic tax on such earnings. Thus, it is the lock-out effect that is driving corporate inversions, not the high US corporate tax rate.</p>
<h2>Territorial tax systems</h2>
<p>In order to eliminate the lock-out effect, US companies have vigorously <a href="http://www.politico.com/story/2013/03/group-wants-to-limit-tax-bite-on-overseas-profits-88470.html">lobbied</a> for a “territorial” tax system so that dividends from foreign corporations are not taxed in the US. Since the US is the only major country that has not adopted such a system, companies were initially optimistic their lobbying efforts would be successful. </p>
<p>However, many politicians have been unwilling to adopt a territorial tax system unless there are significant safeguards against shifting their income to other countries. Their fear is that without such safeguards the US corporate income tax could effectively become optional. </p>
<p>The end result is the lock-out effect will not be addressed until there is major corporate tax reform. Such reform could be many years away, assuming it ever takes place.</p>
<h2>The lock-out effect?</h2>
<p>Inversions are effectively a self-help measure for US corporations to obtain a territorial tax system. Instead of waiting for the US tax law to change, they can invert and access their foreign cash. </p>
<p>For example, assume a US corporation has a foreign subsidiary with US$1 billion of previously accumulated earnings and $2 billion of projected earnings over the next ten years. </p>
<p>First, immediately after the inversion, the new foreign parent could borrow US$1 billion from the foreign subsidiary and incur no US tax. The foreign parent could then use the US$1 billion as it wished.</p>
<p>Second, the new foreign parent could also access the US$2 billion of future earnings without US tax cost. Absent an inversion, the US parent would not be able to access either the US$1 billion of accumulated earnings or the US$2 billion of future earnings without incurring US tax.</p>
<p>The US Treasury, however, stepped into the fray in September and issued new rules intended to give pause to corporations contemplating an inversion. The regulations make it substantially more difficult for the new foreign parent to immediately borrow that US$1 billion from the foreign unit without incurring US taxes. </p>
<p>And in at least one case it succeeded. The US drug company AbbVie, for example, last week <a href="http://dealbook.nytimes.com/2014/10/20/abbvie-and-shire-agree-to-terminate-their-deal/">canceled</a> its US$54 billion acquisition of Irish-based Shire in what would have been the biggest ever inversion. </p>
<h2>Treasury rules will not stop the flow</h2>
<p>Although the Treasury rules may stop companies from immediately borrowing the $1 billion in the above example, the potential long-term benefits of exempting $2 billion of future earnings from US taxation are significant.</p>
<p>The bottom line is that as long as a US corporation can materially benefit by inverting, we should expect them to continue. Admittedly the Treasury’s intervention will slow the pace of inversions, but assuming the US does not take any other action, it is reasonable to predict that after 10 to 20 years a substantial number of US corporations will have inverted by one method or another.</p><img src="https://counter.theconversation.com/content/32853/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>J Richard (Dick) Harvey Jr. does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Corporate inversions have been front page news in the US for months with everyone from President Barack Obama to the man on the street expressing a view as their usage has surged. Unfortunately, many of…J Richard (Dick) Harvey Jr., Distinguished Professor of Practice, Villanova School of LawLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/324022014-10-01T15:16:40Z2014-10-01T15:16:40ZCameron middle-class tax cut: someone will have to pay for it<p>In his <a href="http://press.conservatives.com/">speech</a> to the Conservative Party conference, David Cameron promised to give voters “something for something”. And while he said he believed the savings that need to be made can be achieved through spending cuts, he also promised “tax cuts for hardworking people”.</p>
<p>There are deals on offer for low-wage workers if they vote Conservative and an ambitious plan for <a href="http://www.theguardian.com/politics/2014/oct/01/david-cameron-promises-tax-cuts-human-rights-act">higher earners</a> too. As is so often the case, though, it is very unclear how these measures are to be paid for. <a href="http://www.bbc.co.uk/news/business-29439615">Early estimates suggest they could cost billions</a>.</p>
<p>Cameron was highlighting in no uncertain terms the stark economic choices that many voters face with regards to their own incomes during his appearance in Birmingham. His first announcement to address their concerns was not a particular surprise. If the Conservative party is elected into government at the next election, it will increase the tax-free threshold from £10,500 to £12,500. This fits with a general trend for removing the lowest-paid people from taxation. Those earning minimum wage and working 30 hours a week will pay no income tax either.</p>
<p>But the rabbit Cameron pulled from his hat was the announcement that workers will only start to pay 40% tax on their income once they earn £50,000 or more. This is a huge shift. The threshold has been falling for a number of years, bringing more and more people into the 40% tax bracket. At the moment, earners who make £41,865 a year pay this higher rate.</p>
<p>It has been described as a tax on the middle classes and Cameron is evidently appealing to this group with his promise. It’s an economic policy to appeal to the core vote of middle England. And, as a move to gain momentum in the run-up to the election, it is a serious play.</p>
<p>It’s often the case that politicians don’t readily offer explanations for how they will afford their lofty ambitions and that is of course true here. In his speech, Cameron did not offer an estimate for how many people would be paying less tax if the scheme goes ahead but it will be a significant number. This will leave a large hole in the Treasury’s coffers.</p>
<p>Earlier in the week the chancellor, <a href="https://theconversation.com/osbornes-four-myths-mean-he-hits-the-poor-and-helps-the-rich-32286">George Osborne</a>, confirmed that benefits would be frozen for two years. But if a Conservative government were looking to use savings there to make up tax cuts for earners, it may well fall short. The Institute for Fiscal Studies suggests that freezing working-age benefits would only cover half the cost of increasing the tax-free threshold.</p>
<p>As a political move, offering major tax breaks has clearly given David Cameron momentum but economically he has left many questions unanswered. One thing is almost always true though – as one group wins, another has to lose.</p><img src="https://counter.theconversation.com/content/32402/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iain Clacher does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In his speech to the Conservative Party conference, David Cameron promised to give voters “something for something”. And while he said he believed the savings that need to be made can be achieved through…Iain Clacher, Associate Professor in Accounting and Finance, University of LeedsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/179532013-09-10T20:37:36Z2013-09-10T20:37:36ZAgeing population and mining: a tale of two booms<figure><img src="https://images.theconversation.com/files/30953/original/7cmpvf6c-1378686641.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Resource tax reform could solve the problem of an ageing population. But is the current government brave enough to do it?</span> <span class="attribution"><span class="source">Sourced from www.shutterstock.com</span></span></figcaption></figure><p>In an unusual move, Mission Australia and the Business Council of Australia recently <a href="http://www.theage.com.au/comment/are-we-mature-enough-for-a-genuine-tax-debate-20130825-2sjo9.html">co-authored a piece</a> calling for a mature and open conversation about tax reform. They join a chorus of voices, from the <a href="http://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CCwQFjAA&url=http%3A%2F%2Fgrattan.edu.au%2Fstatic%2Ffiles%2Fassets%2Fff6f7fe2%2F187_budget_pressures_report.pdf&ei=RzMdUrPKCsyfiAfN4oCwDw&usg=AFQjCNHinxucpcUF2nYOLPqyHAyZXTAxMA&sig2=j4rxRSdFQWC6xSixmxPS1A&bvm=bv.51156542,d.aGc">Grattan Institute</a>, to the <a href="http://www.pwc.com.au/media-centre/2013/tax-reform-jul13.htm">CEO of PwC</a>, to <a href="http://www.theage.com.au/comment/full-transcript-saul-eslake-20130812-2rsnr.html">Saul Eslake</a>, all concerned about structural problems with our taxation system. Government revenues are in trouble, in part, because of the looming end of two great economic booms.</p>
<p>We’re all familiar with the tale of the squandered mining boom but a less familiar narrative is that of the squandered baby boom. Baby boomers are now starting to hit retirement age, striking fear into treasury and health bureaucrats worried about the spiralling costs of health-care and age pensions combined with falling tax receipts.</p>
<p>While increased life expectancy contributes to population ageing, the primary cause in the 20th century was falling fertility rates (number of births per woman). This is important in understanding the boom. An increase in the proportion of the population that is retired (old-age dependents) occurs as a result of a decrease in the proportion of the population that are under working age (child dependents). However, there is a lag between the two which means we have an economic sweet spot that is referred to as the “demographic dividend”, where there are fewer total dependents as a proportion of the population (see the area between the dashed lines in Figure 1).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/30865/original/ttfgt9bf-1378447095.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/30865/original/ttfgt9bf-1378447095.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/30865/original/ttfgt9bf-1378447095.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=383&fit=crop&dpr=1 600w, https://images.theconversation.com/files/30865/original/ttfgt9bf-1378447095.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=383&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/30865/original/ttfgt9bf-1378447095.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=383&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/30865/original/ttfgt9bf-1378447095.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=482&fit=crop&dpr=1 754w, https://images.theconversation.com/files/30865/original/ttfgt9bf-1378447095.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=482&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/30865/original/ttfgt9bf-1378447095.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=482&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figure 1: Dependency ratios in Australia 1950-2050. Data points after 2010 are projections based on an intermediate birth rate scenario.</span>
<span class="attribution"><span class="source">Data compiled from http://esa.un.org/wpp/</span></span>
</figcaption>
</figure>
<p>This is the economic boom provided by the baby boom generation. The historically low total dependency ratio shown in Figure 1 meant that, for a 25 year period, more money was free to be used for discretionary spending and investment. This helped to propel economic growth and drove up incomes – and the effect was even more pronounced because it happened to coincide with major economic reforms. It also helped set high expectations on what the average Australian could afford to buy and the lifestyle they could afford to lead.</p>
<p>Instead of seeing the coincidence of the height of the mining boom and the baby boom as an opportunity to save for the retirement of the baby boomers and to foster industries to shoulder the burden after the inevitable decline of the mining sector, the Howard government put in place permanent income tax cuts. These were extended under the Rudd government. Now that these temporary booms are both coming to an end, those tax cuts are really starting to bite and it is becoming increasingly difficult to adequately fund the services we’ve come to expect from a modern western economy.</p>
<p>We are not yet entering an unprecedented level of dependency. It will take until about 2035 before we return to the dependency levels seen in the 1960s. However, there is clearly a major shift from young dependents to old-age dependents. If the costs were the same and borne by the same people, there would be no problem. But many changes have occurred. The savings from the reduction in family size have been applied to discretionary consumption, including much higher expenditure per child, so the total cost of raising children has actually increased. Little is left for transfer to expenditure on aged dependents.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/30990/original/sqd394f9-1378705368.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/30990/original/sqd394f9-1378705368.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=899&fit=crop&dpr=1 600w, https://images.theconversation.com/files/30990/original/sqd394f9-1378705368.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=899&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/30990/original/sqd394f9-1378705368.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=899&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/30990/original/sqd394f9-1378705368.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1130&fit=crop&dpr=1 754w, https://images.theconversation.com/files/30990/original/sqd394f9-1378705368.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1130&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/30990/original/sqd394f9-1378705368.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1130&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Resource taxation revenue could be used to fund future pensions.</span>
<span class="attribution"><span class="source">Sourced from www.shutterstock.com</span></span>
</figcaption>
</figure>
<p>How will we face this challenge? Will we keep the age pension down near the poverty line and continue to cut other government services in order to pay the rising total pension and healthcare costs as more and more baby boomers retire? Or will we take account of the shift in dependence we see in Figure 1, acknowledge the role that the baby boomers have played in the country’s economic prosperity over the last 50 years and provide them with a retirement income that allows them to live in dignity and with access to a few of the luxuries available to a modern developed country?</p>
<p>Australia is a low tax country by OECD standards. We can well afford to provide the baby boomers with a decent standard of living during their old age. But just how would we find the revenue? The possibility exists to use the end of the mining investment boom to finance the retirement of the baby boomers.</p>
<p>The distinction between mining investment and mining production is important here. It’s not the boom in mining itself which is slowing down; it’s the mining investment boom. Many more people are employed during the establishment of new mines than are employed running the mines once they are in production phase. </p>
<p>With the mining investment boom coming to an end, a mining production boom will follow. Most of the proceeds of the mining production phase will be exported as profits by largely foreign-owned mining companies or pocketed by the likes of Gina Rinehart and Andrew Forrest.</p>
<p>The Australian public owns the resources in the ground that the miners dig up and sell. When we talk about mining income, what we’re mostly referring to is asset sales, not real income. You don’t sell your car and call that money income. The mining companies add value to the resources by digging them up and putting them on a ship in an accessible form but they do not create the value of the resources themselves. Yet it is primarily the mining companies that benefit from high resource prices, rather than those who own the resources (Australian citizens). This is the very definition of economic rent; it is profit that the companies do nothing to earn which is in excess of industry expectations.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/31000/original/wjv6mchf-1378710446.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/31000/original/wjv6mchf-1378710446.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/31000/original/wjv6mchf-1378710446.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/31000/original/wjv6mchf-1378710446.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/31000/original/wjv6mchf-1378710446.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/31000/original/wjv6mchf-1378710446.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/31000/original/wjv6mchf-1378710446.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Looking forward, the current government has to be willing to back potentially unpopular taxation schemes.</span>
<span class="attribution"><span class="source">Sourced from www.shutterstock.com</span></span>
</figcaption>
</figure>
<p>Australian citizens deserve a reasonable return for selling their assets to the mining companies and a well-designed resource rent tax would deliver that return. This revenue could be placed in a sovereign wealth fund, <a href="http://www.abc.net.au/lateline/content/2013/s3736272.htm">similar to Norway’s</a>, the proceeds of which could assist with paying pensions or be used to maintain and improve public services such as education and health. The one-off sale of assets should be invested in the future in some way, rather than just be used to plug holes in the budget of the present day.</p>
<p>Of course, resource taxation is just one of the many possibilities for increasing tax revenue. The <a href="http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm">Henry Tax Review</a>, completed in 2009, is full of very sound recommendations, 95% of which have been completely ignored by both Labor and the Coalition. <a href="http://theconversation.com/bca-wants-your-home-taxed-and-its-actually-a-good-idea-16630">Land taxes</a> are another good option, as is a <a href="http://ec.europa.eu/taxation_customs/taxation/other_taxes/financial_sector/">financial transaction tax</a>. Even increasing the GST is a viable option assuming adequate compensation for low income earners is included as part of the package.</p>
<p>Tax reform is difficult. It takes leadership because there are always losers and losers shout louder than winners – who tend to slink away with their proceeds and quietly hope nobody notices. Is there a major party political leader on the horizon with the sort of courage, honesty and charisma necessary to convince us of the need for tax increases and to resist the inevitable, well-funded backlash? Not that I’ve seen. But for the sake of those baby boomers facing decades of retirement spent in poverty, I hope that one emerges soon.</p><img src="https://counter.theconversation.com/content/17953/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Warwick Smith does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In an unusual move, Mission Australia and the Business Council of Australia recently co-authored a piece calling for a mature and open conversation about tax reform. They join a chorus of voices, from…Warwick Smith, Postdoctoral research fellow in Environmental Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/151582013-07-10T20:45:08Z2013-07-10T20:45:08ZWant to solve global tax problems? Stop taxing corporations<figure><img src="https://images.theconversation.com/files/26030/original/3d5zkryt-1372033064.jpg?ixlib=rb-1.1.0&rect=1%2C1%2C998%2C669&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In the dock - Apple Chief Executive Tim Cook faces questions by a US Senate committee investigating tax avoidance.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>As governments across the globe have struggled with growing government debt, the pressures of austerity and stagnant economic systems, ire has been thrown at the corporate fat cats who - according to the court of political opinion - have avoided paying their fair share of taxes. </p>
<p>However, the battle over taxation is an old one. The political authority of the day — King, Church, Congress, Parliament, etc — invariably scrapes and pillages to fund noble and ignoble activities while rich and poor alike bury their silver in trenches, barns and corporate tax havens. </p>
<p>The <a href="http://www.theaustralian.com.au/business/wall-street-journal/apple-ceo-tim-cook-faces-questions-from-congress-on-tax-avoidance/story-fnay3ubk-1226647672823">modern variant </a>of these dramas have been most recently played out in the British Parliament and US Congress. Chief executive officers of various multinationals have been brought into the dock to explain their nefarious attempts to keep corporate cash out of the hands of taxman.</p>
<p>The circus that has surrounded these discussions is mainly emotional and devoid of a real understanding of the complexity of taxing multinational corporations. </p>
<p>To the layperson the debate is simple: if they pay their share of taxes on the income they earn, why is it not fair that “rich” corporations do the same? However, such a viewpoint is a naive personification of the corporation. As too is the logic of those like <a href="http://www.guardian.co.uk/commentisfree/2013/may/27/globalisation-is-about-taxes-too">Joseph Stiglitz</a>, who argue that corporations should pay their fair share of taxes because they utilise societal infrastructure. </p>
<p>While Stiglitz acknowledges the complexity of figuring out how much to tax a corporation in a specific jurisdiction, he fails to understand that the point of a tax system is not to generate a pay-as-you-go system but to ensure that a society shares in the wealth created by economic activities generated within that society.</p>
<p>It is clear to nearly anyone following this debate that the current global tax system is dysfunctional. However, that dysfunctionality is not new, nor is it, like Stiglitz’s argument, fundamentally the result of private interests. Politicians ultimately decide on the tax system structure, and its failure to account for the activities of multinational corporations reflects: (a) the failure of politicians to understand the management of multinational corporate and economic networks (b) the naive attempt to develop quick-fix domestic tax solutions to global problems and (c) the lifeblood on which politicians trade off legislation and political favours for votes, money, influence and their legacy. </p>
<p>The result has been a hodgepodge of tax rules and rates in different jurisdictions, which are completely at odds with modern economic structures and increasingly incapable of funding societies’ basic needs.</p>
<p>For many the solution is yet more rules and regulations that will “force” corporations to pay more of their “fair share”. However, this is an impossible endeavour and one likely to do more harm than good - any one solution will, by definition, simply preference one jurisdiction over another. </p>
<p>If we decided to force corporations to pay income taxes based on where they sold their products, we effectively would dissuade demand and tax individuals/workers in the jurisdictions in which the product is produced. Similarly, if the producing nations decided they were going to tax corporate profits based on the level of production, they would dissuade production and it would amount to a partial tax grab from the consuming nations customers. In the end someone pays and it is not really the corporations.</p>
<p>Any such system would be both overly complex and lead to tax systems operating as little more than cash grabs, with countries attempting to figure out what they could tax that would keep tax revenues local. The only thing more regulation like this would ensure would be a boom in the tax advisory business, more government employment and the potential of a global tax war.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/26047/original/bmrgbqm6-1372039061.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/26047/original/bmrgbqm6-1372039061.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/26047/original/bmrgbqm6-1372039061.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/26047/original/bmrgbqm6-1372039061.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/26047/original/bmrgbqm6-1372039061.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/26047/original/bmrgbqm6-1372039061.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/26047/original/bmrgbqm6-1372039061.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Doesn’t add up - it is clear to nearly anyone following this debate that the current global tax system is dysfunctional.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>An alternative is to recognise that corporations are not people (in spite of the <a href="http://en.wikipedia.org/wiki/Citizens_United_v._Federal_Election_Commission">Citizens United</a> ruling in the US Supreme Court) and that what needs to be taxed are the components of the process that lead to production of goods and services. This implies that the corporate tax rate would be reduced to zero and that any income generated by any component would be taxed equally (no capital gains taxes, just one simple tax rate structure). What would such a system look like? It would be quite simple. </p>
<p>Companies would bear no taxes and hence need to account for nothing from a tax point of view. Workers would be taxed on their income and all benefits. Executives would also be taxed at the relevant tax rate on all monetary and non-monetary compensation. Investors would be taxed based on the capital gains of any shares sold (again at the rate at which any income would be taxed without any preference) and all dividends would be taxed as income. If a company chose to pay fewer dividends and invest the money in new corporate ventures, it simply would not be taxed until it was released to the owners/shareholders as future dividends or employees as future pay and compensation. </p>
<p>Such a system has many benefits. First, it would not matter about the jurisdictional structure. If one country wanted to tax consumption via a <a href="http://en.wikipedia.org/wiki/Value_added_tax">VAT</a> or <a href="http://en.wikipedia.org/wiki/Ad_valorem_tax">ad valorem</a> tax, this would be a separate decision. However, the taxes accruing to a country from any company would be driven by whether or not there were workers and owners/shareholders in the jurisdiction. </p>
<p>Second, the “infrastructure” usage argument would also be a separate decision. If political institutions wanted to charge companies for infrastructure, this would be a separate decision that would have nothing to do with “potential” real or actual economic gains. If there were actual gains, these would show up in revenue through the consumption taxes or the value generated via employment and dividends from the company directly or via the network of economic activities it generates. </p>
<p>Third, there would be no gaming of this system. All benefits and income would be taxed with a single set of tax formulas for money earned. Fourth, if the government was worried about power being concentrated in the hands of a corporate elite, a simple solution would be to require minimum dividend payouts, which would ensure that capital owners were always taxed and hence corporate profits taxed.</p>
<p>This idea is not new. Many <a href="http://www.businessweek.com/articles/2012-02-26/should-we-abolish-the-corporate-income-tax">others</a> have outlined variations of this logic. However, the point I am emphasising is that a counter-intuitive solution may be the best solution. In many ways the politicians and various informed pundits are falling into the fallacy of expertise acknowledge by Sherlock Holmes in <em>The Adventure of the Abbey Grange</em>: “Perhaps, when a man has special knowledge and special powers like my own, it rather encourages him to seek a complex explanation when a simpler one is at hand.” </p>
<p>This solution may be politically impossible to implement, despite its simplicity, logic and value. It addresses the direct problem of where it is fair to impose taxes. However, it also removes, in one fell swoop, one of the most powerful and popular tools in the political toolkit — the ability to hand out economic goodies to politically supportive clienteles that are paid for by political opponents and those lacking in political power and influence.</p><img src="https://counter.theconversation.com/content/15158/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Timothy Devinney receives funding from The Australia Research Council.</span></em></p>As governments across the globe have struggled with growing government debt, the pressures of austerity and stagnant economic systems, ire has been thrown at the corporate fat cats who - according to the…Timothy Devinney, Professor of Strategy, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.