tag:theconversation.com,2011:/us/topics/tax-revenues-15494/articlesTax revenues – The Conversation2024-03-22T12:31:14Ztag:theconversation.com,2011:article/2260922024-03-22T12:31:14Z2024-03-22T12:31:14ZWhy March Madness is a special time of year for state budgets<figure><img src="https://images.theconversation.com/files/582647/original/file-20240318-24-4tudw6.jpg?ixlib=rb-1.1.0&rect=6%2C6%2C4390%2C3045&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Feeling lucky?</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/SportsBetting-ThingstoKnow/d07b68af393548588b8a646d5cdd79e9/photo?Query=sports%20betting&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=1985&currentItemNo=2">Wayne Parry/AP Photo</a></span></figcaption></figure><p>March Madness – the time when the <a href="https://www.ncaa.com/march-madness-live/watch?cid=ncaa_mml_nav_men">best men’s</a> and <a href="https://www.ncaa.com/womens-di-championship?mml=1&cid=ncaa_mml_nav_women">women’s college</a> basketball teams challenge each other – is a made-for-television spectacle <a href="https://www.sportsmediawatch.com/2023/04/ncaa-national-championship-ratings-record-low-uconn-sdsu-cbs-mens/">watched by millions</a>. While <a href="https://www.ncaa.com/news/basketball-men/article/2023-03-08/march-madness-history-comprehensive-guide-mens-tournament">March Madness has been around for decades</a>, one of the tournament’s biggest changes happened in 2018, when the <a href="https://www.archerlaw.com/en/news-resources/client-advisories/landmark-u-s-supreme-court-decision-paves-the-way-for-legalized-sports-betting">Supreme Court struck down the ban on sports betting</a>. </p>
<p>Since then, legal sports betting has skyrocketed. Americans <a href="https://www.americangaming.org/resources/aga-commercial-gaming-revenue-tracker/">made US$120 billion of legal sports bets</a> in 2023, according to the American Gaming Association, which promotes gambling. In 2024, <a href="https://www.espn.com/espn/betting/story/_/id/39730969/estimate-projects-272b-wagers-ncaa-basketball-tournaments">the group predicts</a> Americans will place <a href="https://www.vox.com/2024/3/18/24102300/march-madness-sports-betting">$2.7 billion of legal bets</a> on March Madness alone.</p>
<p><a href="https://www.bu.edu/questrom/profile/jay-zagorsky/">I am</a> a <a href="https://www.bu.edu/questrom/">business school</a> professor fascinated by <a href="https://theconversation.com/what-is-march-madness-and-the-nonprofit-that-manages-the-mayhem-93202">March Madness</a> and <a href="https://theconversation.com/market-for-illegal-sports-betting-in-us-is-not-really-a-150-billion-business-96618">sports betting</a>. Studying sports betting has shown me <a href="https://theconversation.com/could-gambling-be-the-secret-to-saving-when-rates-are-so-low-57961">how valuable it is</a> for states short on cash. Unfortunately, it also has significant drawbacks, especially for <a href="https://www.ncpgambling.org/help-treatment/help-by-state/">gambling addicts</a> and their families. </p>
<h2>Why lawmakers love sports betting</h2>
<p>As of March 2024, <a href="https://www.americangaming.org/research/state-gaming-map/">38 states allow</a> some form of sports gambling, and six more are debating the issue. State lawmakers are interested in sports gambling because they have a fiscal problem. State spending over time has <a href="https://www.taxpolicycenter.org/statistics/state-and-local-direct-general-expenditures">increased in both absolute</a> and <a href="https://www.taxpolicycenter.org/statistics/state-and-local-direct-general-expenditures-capita">per-person terms</a> after <a href="http://businessmacroeconomics.com">adjusting for inflation</a>.</p>
<p>While state spending is increasing, state revenue from so-called “sin taxes” has flatlined after adjusting for inflation. <a href="https://www.lung.org/research/trends-in-lung-disease/tobacco-trends-brief/overall-tobacco-trends">People are smoking</a> and <a href="https://news.gallup.com/poll/353858/alcohol-consumption-low-end-recent-readings.aspx">drinking less</a>, reducing <a href="https://www.taxpolicycenter.org/statistics/state-and-local-tobacco-tax-revenue">revenue from cigarette</a> and <a href="https://www.taxpolicycenter.org/statistics/state-and-local-alcohol-tax-revenue">alcohol taxes</a>. Even <a href="https://www.taxpolicycenter.org/statistics/lottery-revenue">lottery revenue has flattened out</a> after growing strongly for decades.</p>
<p>Increased spending combined with a reluctance to raise taxes has led to a push to find new sources of revenue. That <a href="https://www.taxpolicycenter.org/publications/are-states-betting-sin-murky-future-state-taxation">makes sports betting an appealing</a> option to politicians.</p>
<h2>The statehouse always wins</h2>
<p><a href="https://www.nbcnews.com/news/sports/march-madness-basketball-sports-betting-rcna143773">Billions of dollars are wagered</a> on sports each year. More than 90% of the money bet goes to paying out winning gamblers. Gambling operators keep the rest, which they share with the states. The percentage kept, called the hold rate, has been <a href="https://www.legalsportsreport.com/111012/analysis-2023-us-sports-betting-hold-trend/">steadily climbing over time</a>, with 2023’s <a href="https://www.americangaming.org/wp-content/uploads/2024/01/CY-2024_CGRT_v2.pdf">national average at 9.1%</a> of the money bet.</p>
<p>State governments now collect <a href="https://www.census.gov/library/stories/2024/02/legal-sports-betting.html">about half a billion dollars each quarter</a>, or about $2 billion a year, from sports gambling. That’s roughly one-fifth of that 9.1%.</p>
<p>If gamblers bet around $3 billion on March Madness, then states will pocket over $50 million dollars in extra revenue just from a three-week basketball tournament.</p>
<h2>The ugly side of sports betting</h2>
<p>Gambling is wonderful for state revenues and <a href="https://www.espn.com/espn/betting/story/_/id/39563784/sports-betting-industry-posts-record-11b-2023-revenue">gaming-company profits</a>. However, it has <a href="https://www.independent.co.uk/news/uk/home-news/gambling-addiction-million-white-paper-b2322452.html">a dark side</a>: While many people enjoy gambling, <a href="https://theconversation.com/millions-of-americans-are-problem-gamblers-so-why-do-so-few-people-ever-seek-treatment-197861">millions of Americans have a gambling problem</a>. </p>
<p>Studies suggest <a href="https://link.springer.com/article/10.1007/s10899-014-9471-4">between 1% and 2%</a> of adults fall into this category. In Massachusetts, where I teach, a 2018 survey found that about 2% of adults were already problem gamblers, and <a href="https://www.umass.edu/seigma/sites/default/files/Seigma-GamblingHarm-Fact-Sheet-F2-2018%20copy.pdf">a further 8% were at risk</a>.</p>
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<p>Meanwhile, the number of calls to the <a href="https://www.ncpgambling.org/help-treatment/about-the-national-problem-gambling-helpline/">National Problem Gambling Helpline</a> lasting more than a minute <a href="https://public.tableau.com/app/profile/national.council.on.problem.gambling.ncpg/viz/NationalProblemGamblingHelplineDashboard-IncomingTraffic/IncomingTraffic">has increased sharply in recent years</a>. While this doesn’t mean that problem gambling has become more common – among other issues, correlation isn’t causation – the increase very closely matches the <a href="https://www.cbssports.com/general/news/u-s-sports-betting-here-is-where-all-50-states-currently-stand-on-legalizing-online-sports-betting-sites/">steady rollout of online sports betting</a> across the U.S.</p>
<h2>Two possible policy solutions</h2>
<p>Betting on sports was illegal before 2018. <a href="https://www.americangaming.org/illegal-sports-betting/">This forced gamblers</a> to either bet with a bookie or an offshore site. Betting with a bookie before 2018 was a relatively slow process. Gamblers typically needed to pay for their bets upfront with cash and ran the risk their bookie would be arrested or shut down.</p>
<p>Today, <a href="https://theconversation.com/sports-betting-how-in-play-betting-features-could-be-leading-to-harmful-gambling-new-research-177872">in-play or live betting</a> is legal and almost instantaneous. Bettors sitting on their couches at home can make multiple types of bets, such as which <a href="https://www.si.com/nba/mavericks/news/bad-beat-kristap-porzingis-missed-layup-cost-a-man-76000-dallas-mavericks">player will make the first shot</a> in a basketball game. In business terms, sports gambling went from extreme friction to a completely <a href="https://www.forbes.com/sites/shephyken/2019/06/09/are-you-providing-a-frictionless-customer-experience">frictionless experience</a>.</p>
<p>To reduce the harms of sports betting, I propose two ways to reinject friction into the system. The first is to prevent <a href="https://www.forbes.com/advisor/credit-cards/sports-betting/">credit cards from being used for online gambling</a>. While not every state and bank allows credit cards to fund a sports betting account, many do. Those credit cards that allow it often treat gambling payments as a <a href="https://www.citizensbank.com/learning/what-is-a-cash-advance.aspx">cash advance, which is very costly</a>.</p>
<p>The <a href="https://www.gamblingcommission.gov.uk/news/article/gambling-on-credit-cards-to-be-banned-from-april-2020">U.K. banned credit cards for remote gambling</a> in 2020, noting that people who used credit cards to gamble were <a href="https://consult.gamblingcommission.gov.uk/author/consultation-on-gambling-with-credit-cards/supporting_documents/Print%25252520the%25252520whole%25252520consultation%25252520%25252520gambling%25252520with%25252520credit%25252520cards.pdf">disproportionately likely to be problem gamblers</a>. <a href="https://ministers.dss.gov.au/media-releases/13411">Australia has also banned</a> online bets made with credit cards. A few U.S. states, <a href="https://www.wfmj.com/story/50551277/pa-lawmakers-introduce-bill-limiting-payment-options-for-online-gambling">such as Massachusetts and Tennessee</a>, have also instituted these sorts of bans, but most have not.</p>
<p>The second idea, which I prefer, is to <a href="https://podcasts.apple.com/au/podcast/the-case-for-cash-a-counterpoint-to-cashless/id1464022779?i=1000634760222">revert to common practice before 2018</a> of using cash to bet. The idea is simple. Anyone with an online gambling account would need to prefund their account with cash. Winners would never have to stop gambling.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Bags of cash and printout of a March Madness schedule are seen on a police evidence table." src="https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=491&fit=crop&dpr=1 754w, https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=491&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=491&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">In this 2006 file photo, the Brooklyn district attorney’s office presents evidence used to arrest 10 men in a sports betting ring. New Yorkers can now legally bet on March Madness.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/the-brooklyn-district-attorneys-office-presents-evidence-news-photo/526086920">Ramin Talaie/Corbis via Getty Images</a></span>
</figcaption>
</figure>
<p>Losers, however, would be forced to temporarily stop betting when their account runs out of money. Needing to take a break to go to a bank or simply pull money out of your wallet and hand it to someone would give people a chance to think about what they’re doing instead of being stuck in the <a href="https://dolby.io/blog/revolutionizing-microbetting-in-sports-with-real-time-streaming/">moment of a bet-bet-bet mindset</a>.</p>
<p>In theory, people could deposit cash into their accounts at any of the <a href="https://www.naspl.org/faq">roughly 223,000 locations across the country that sell lottery tickets</a>. To implement this idea, however, the federal government would need to change a law. <a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-44">Since 1955</a>, it has imposed a <a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-44/subpart-C/section-44.4411-1">special yearly tax of $50 on each person</a> who accepts bets for profit. </p>
<p><a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-44/subpart-B/section-44.4402-1">The law</a> <a href="https://www.irs.gov/pub/irs-tege/eotopice99.pdf">exempts charities and state lotteries</a>. This tax doesn’t raise much revenue already, <a href="https://www.bls.gov/oes/current/oes393019.htm">since so few people are subject</a> to it. It also reduces employment, as well as gambling companies’ interest in allowing in-person prefunding of accounts.</p>
<p>If you’re watching March Madness and betting on the tournament, I hope you win. But even if you don’t, at least your state government will.</p><img src="https://counter.theconversation.com/content/226092/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky 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>When the US Supreme Court legalized sports betting, states were quick to get in on the action. But as lawmakers grow reliant on taxes from betting, what do they owe problem gamblers?Jay L. Zagorsky, Associate Professor of Markets, Public Policy and Law, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1797972022-04-05T14:24:25Z2022-04-05T14:24:25ZHow multinationals avoid taxes in Africa and what should change<figure><img src="https://images.theconversation.com/files/455537/original/file-20220331-21-fgqb71.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There is an urgent need to clamp down on tax evasion in Africa.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/papers-about-tax-evasion-on-a-desk-tax-avoidance-royalty-free-image/868676654?adppopup=true">Getty Images </a></span></figcaption></figure><p>In developing countries, and the sub-Saharan region especially, the scale of unmet basic needs is enormous. It is <a href="https://www.ilo.org/wcmsp5/groups/public/---dgreports/---inst/documents/publication/wcms_216451.pdf">estimated</a> that 3 billion people in the developing world subsist on less than US$2 a day per person.</p>
<p>About <a href="https://sdgs.un.org/goals/goal2">2.37 billion people</a> are without food or unable to eat a balanced diet on a regular basis. The prevalence of undernourishment is highest in sub-Saharan Africa: <a href="https://www.actionagainsthunger.org/africa-hunger-relief-facts-charity-aid#:%7E:text=24.1%25%20of%20the%20population%20of,all%20regions%20in%20the%20world.">24.1%</a>. Out of the almost 60 million children not in school, <a href="https://ourworldindata.org/children-not-in-school">33.8 million are in this region</a>. </p>
<p>Revenues from taxation are fundamental to changing this dire situation. Taxes enable the state to redistribute wealth to alleviate poverty. They also provide education, healthcare, social security, pensions, efficient public transport, clean water and other public services taken for granted in developed economies. </p>
<p>But in both developed and developing countries, tax revenues are being undermined by the ability of some of the wealthiest taxpayers – including many transnational companies – to effectively opt out of the corporate tax system. They do this through a combination of ingenious (and lawful) tax haven transactions, and huge tax concessions awarded by governments. </p>
<p>These practices have received plenty of attention from scholars. Broader accounts of their impact on developing countries are relatively scarce, though. In a recently published <a href="https://www.emerald.com/insight/content/doi/10.1108/JFC-01-2022-0012/full/pdf?casa_token=IEAQMCWEnUAAAAAA:_uRWsIbIpuSqFJnNqGid0bZB3PRgJZstAtVqAbx9nYyvLGx1GNTmMUikRLcIuI2euyO6O-49_OK5-ULSKOWWQiutcdkt8Vli8TmijFkT5D1x5j1eMdhekg">paper</a> we therefore aimed to investigate the effect of tax dodging on development in Africa, with a focus on Nigeria and Zambia.</p>
<p>Using publicly available evidence, we show that tax havens and offshore financial centres, shaped by globalisation, facilitate the sophisticated tax schemes of highly mobile transnational corporations. The effect of low-tax jurisdictions (“tax havens”) hampers the social and economic development of poorer states. </p>
<p>We advocate radical reform. This should close the gaps that allow tax evasion and avoidance by transnational corporations. It calls for legislation and stronger institutional structures. </p>
<h2>Forms of tax dodging</h2>
<p>Tax dodging is used to describe all of the ways – tax avoidance, tax evasion, corruption and offshore accounts – that companies and rich individuals employ to reduce their tax bills. They lobby governments for tax breaks and lower corporate tax rates, exploit obscure loopholes in tax laws or shift profits into tax havens.</p>
<p>Globalisation has created new transnational spaces where economic actions take place without much regulation, taxation or surveillance. Behind a wall of secrecy, corporations can devise complex schemes to boost their profits. The activity of offshore companies and tax havens is therefore central to the antisocial tax practices of corporations and elites.</p>
<p>A <a href="https://www.theguardian.com/global-development/2015/jun/02/tax-dodging-big-companies-costs-poor-countries-billions-dollars">2015 report</a> by the UN Conference on Trade and Development estimated that profit-shifting by multinational companies costs developing countries US$100bn a year in lost corporate income tax. <a href="https://www.imf.org/external/pubs/ft/wp/2015/wp15118.pdf">Another report</a>, by International Monetary Fund researchers, estimated that developing countries may be losing as much as US$213bn a year to tax avoidance. In addition, Oxfam <a href="https://www.oxfam.org/en/press-releases/tax-evasion-damaging-poor-country-economies">estimated</a> that developing countries lose between US$100 billion to US$160 billion annually to corporate tax dodging.</p>
<p>African countries, rich in resources, easily fall prey to aggressive tax planning and tax evasion enabled by offshore companies. As the UN Conference on Trade and Development <a href="https://unctad.org/system/files/official-document/aldcafrica2020_en.pdf">reported in 2020</a>, high volumes of intra-company trading, the secrecy cloaking foreign investment activities, and loopholes in treaties leave countries in Africa vulnerable to tax avoidance. Governments in sub-Saharan Africa lack the human, financial, and technical resources to stem this outflow of wealth.</p>
<h2>Zambia and Nigeria</h2>
<p>Zambia and Nigeria provide examples of tax dodging practices among transnational corporations, enabled by tax havens. </p>
<p>Zambia, a country <a href="https://www.worldatlas.com/articles/what-are-the-major-natural-resources-of-zambia.html#:%7E:text=Zambia%20has%20a%20wide%20range,tourmaline%2C%20amethyst%2C%20and%20aquamarine.">rich in natural resources</a>, gains scant rewards from the foreign companies that extract its mineral wealth. <a href="https://www.waronwant.org/sites/default/files/WarOnWant_ZambiaTaxReport_web.pdf#page=6">For example</a>, in 2011, five companies producing copper worth US$4.28 billion paid only US$310 million to the government in taxes. This represented 11% and 19% of production for 2010 and 2011 respectively. In fact, only one or two mining companies declared positive earnings. Others reported losses of questionable validity, according to the UK-based non-governmental organisation <a href="https://www.waronwant.org/sites/default/files/WarOnWant_ZambiaTaxReport_web.pdf">War on Want</a> and the Zambia Extractive Industries Transparency Initiative. </p>
<p>Consequently, the country <a href="https://www.waronwant.org/sites/default/files/WarOnWant_ZambiaTaxReport_web.pdf">loses</a> about US$3 billion a year in tax revenues, a sum <a href="https://www.waronwant.org/sites/default/files/WarOnWant_ZambiaTaxReport_web.pdf">equivalent</a> to an eighth (12.5%) of its current annual <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=ZM">GDP</a>. </p>
<p>War on Want has <a href="https://www.waronwant.org/sites/default/files/WarOnWant_ZambiaTaxReport_web.pdf">accused</a> Vedanta, a copper producer operating in Zambia, of dodging taxes through <a href="https://www.investopedia.com/terms/t/transferprice.asp">transfer mispricing</a>. This is when related companies or divisions trade with each other at prices that aren’t market related, to avoid being liable for tax. Vedanta has 29 subsidiaries operating in the “secrecy jurisdictions” of Mauritius, the Netherlands, the British Virgin Islands and Jersey. <a href="https://taxsummaries.pwc.com/zambia/corporate/taxes-on-corporate-income">Zambia’s tax regime</a> allows the company to pay less tax when it spends money on physical assets or makes losses. It <a href="https://www.waronwant.org/sites/default/files/WarOnWant_ZambiaTaxReport_web.pdf">paid</a> only US$11,111 against profits of US$221 million in 2011-2012. </p>
<p>Likewise, Associated British Foods <a href="https://www.waronwant.org/sites/default/files/WarOnWant_ZambiaTaxReport_web.pdf">was accused</a> in 2015 of paying no tax in Zambia, even though its local affiliate, Zambia Sugar, made profits of US$123 million. This, according to War on Want’s report, cost Zambian public services US$27 million — enough to put 48,000 children into school. The revenue lost to tax havens was <a href="https://www.waronwant.org/sites/default/files/WarOnWant_ZambiaTaxReport_web.pdf">10 times greater</a> than the amount given each year to Zambia by the UK in educational subsidies.</p>
<p>Nigeria provides another example. The Shell Group, through its affiliate, <a href="https://www.shell.com.ng/about-us/what-we-do/spdc.html">Shell Petroleum Development Company of Nigeria</a>, had a special sharing arrangement with another affiliate, Shell Petroleum International Mattschappij BV (SPIM). Services and expenditure were charged to the group so that it made no profit over eight years, between 1992 and 1993. This cost Shell £20.09 million (US$44.75 million) in tax revenues. This is published in the Nigerian Revenue Law Report, 1998-1999 Shell Petroleum International Mattschappij B. V. v Federal Board of Inland Revenue, appeal no. FHC/L/CS/1A 96, Volume 1. This is not unusual; it is one of many cases.</p>
<h2>Why does exploitation continue?</h2>
<p>In an age of globalisation, developing countries have been encouraged to deregulate and privatise their economies to attract foreign investment. The <a href="https://www.macrotrends.net/countries/NGA/nigeria/foreign-direct-investment">flow of foreign direct investment</a> into Nigeria from transnational corporations grew from US$0.59 billion in 1990 to US$2.14 billion in 2000 and US$2.31 billion in 2019. That represented 1.09%, 1.64%, and 0.52% of GDP respectively. Zambia <a href="https://www.macrotrends.net/countries/ZMB/zambia/foreign-direct-investment">attracted</a> US$0.12 billion in 2000 and US$1.11 billion in 2017.</p>
<p>As <a href="https://www.emerald.com/insight/content/doi/10.1108/JFC-01-2022-0012/full/html#loginreload">our investigation</a> reveals, however, opening economies to the outside world can have the opposite effect of that intended. Rather than attracting the lucrative inward investment so desperately needed, countries in sub-Saharan Africa have opened their economies to self-interested multinational corporations. </p>
<p>Globally, between 50 and 60 tax havens <a href="https://www.emerald.com/insight/content/doi/10.1108/JFC-02-2021-0044/full/html">give sanctuary</a> to more than 2 million companies, including thousands of banks and investment funds. Of the Fortune 500 companies, <a href="https://uspirg.org/sites/pirg/files/reports/USP%20ShellGames%20Oct15%201.3.pdf">nearly three-quarters</a> have subsidiaries in offshore tax havens. </p>
<p>As long as small, independent nations gain financial benefit from declaring themselves tax havens, poor nations will be exploited. </p>
<p>There is an urgent need to clamp down on tax practices that drain countries with impoverished economies, and to give poor countries a real voice in tax negotiations. </p>
<p>It seems probable that if the loopholes in the tax laws are not closed, then the rule of law and the effective administration of tax will not be strengthened in Africa. Consequently, the continent may continue to lose billions of dollars to the activities of transnational corporations and their affiliates.</p><img src="https://counter.theconversation.com/content/179797/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>African countries, rich in resources, easily fall prey to aggressive tax planning and tax evasion facilitated by offshore companies.Jia Liu, Professor of Finance, University of PortsmouthOlatunde Julius Otusanya, Professor of Taxation, University of LagosLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1273662019-12-08T07:15:26Z2019-12-08T07:15:26ZKenya’s tax on digital trade and services: what’s known and not known<figure><img src="https://images.theconversation.com/files/305134/original/file-20191204-70101-8jehr7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Digital traders will not escape taxation.</span> <span class="attribution"><span class="source">Create Jobs 51/Shutterstock</span></span></figcaption></figure><p>Kenya will start levying new tax on digital markets <a href="https://www.rsm.global/kenya/insights/tax-insights/kenya-finance-act-2019">under a new law</a> signed by the president early in November. The Finance Act seeks to broaden the Income Tax Act net to include income accruing through a digital market place. The law <a href="http://www.kpda.or.ke/documents/Policies/Finance%20Bill%202019.pdf">defines</a> the digital marketplace as</p>
<blockquote>
<p>a platform that enables direct interactions between buyers and sellers of goods and services through electronic means</p>
</blockquote>
<p>In addition, a similar change has been made to the <a href="http://www.kenyalaw.org/kl/fileadmin/pdfdownloads/AmendmentActs/2019/FinanceAct_No23of2019.PDF">VAT Act</a> making digital market services subject to value-added tax.</p>
<p>It’s not clear yet who will be affected – or how the tax will be imposed. The treasury still has to issue new guidelines on how the tax will be implemented. But it appears that potential targets include online taxi-hailing platforms. If experiences elsewhere are anything to go by, Kenya’s move to tax online commerce could put it on a collision path with Western governments and multinationals. One of the market leaders – Uber – has already <a href="https://www.businessdailyafrica.com/corporate/companies/Uber-seeks-clarity-on-taxing-online-firms/4003102-5256592-kdrbuyz/index.html">warned</a> the government that such a move could result in trade wars and retaliatory tax actions by the US.</p>
<h2>Taking on giants</h2>
<p>Like France and India before it, Kenya is trying to get its cut of every digital transaction within its territory. The argument is that it is only fair to <a href="https://www.businessdailyafrica.com/corporate/companies/Uber--Bolt-owners-and-drivers-face-KRA-tax-bills/4003102-5233472-154si91z/index.html">tap into the revenue</a> accrued from the digital economy taking place within their territory. Companies registered elsewhere and operating in their territory earn income from the same but do not pay taxes, the argument goes.</p>
<p>But this is easier said than done. In 2016 India <a href="https://economictimes.indiatimes.com/tech/internet/google-facebook-twitter-may-be-affected-framework-to-tax-big-tech-companies-being-finalised/articleshow/70458378.cms?utm_source=twitter_app&amp;utm_medium=social&amp;utm_campaign=socialsharebuttons">imposed digital taxes</a> on technology companies involved in digital advertising. In 2018 the country introduced a provision requiring companies to pay tax on domestic income accrued from a digital platform. The provision requires non-resident big tech companies to pay direct taxes on domestically earned income.</p>
<p>In retaliation, the US conducted an inquiry and capped the number of <a href="https://economictimes.indiatimes.com/nri/visa-and-immigration/trump-administration-to-propose-major-changes-in-h-1b-visas/articleshow/66269711.cms?from=mdr">Indian foreign workers</a>. The move was detrimental to India.</p>
<p>Earlier this year France imposed a digital tax on big tech multinational companies. It required them <a href="https://home.kpmg/us/en/home/insights/2019/07/tnf-france-digital-services-tax-enacted.html">to pay a 3% tax</a> on total annual revenue generated . This sparked <a href="https://foreignpolicy.com/2019/12/03/nato-trump-europe-trade-war-digital-tax-google/">a trade war with the US</a> which saw this as double taxation of its companies and their partners. But two months later, the two countries agreed on a <a href="https://techcrunch.com/2019/08/26/us-and-france-reach-a-compromise-on-frances-tax-on-tech-giants/">compromise</a>. France said it <a href="https://www.theverge.com/2019/7/11/20690253/france-digital-services-tax-google-facebook-tech-companies">would tax big tech companies</a> but scrap the tax as soon as the Organisation for Economic Cooperation and Development comes up with a way to properly tax tech companies. And it agreed to refund any over-payments that might occur in the meantime.</p>
<h2>OECD’s proposed model</h2>
<p>The OECD is an <a href="http://www.oecd.org/">intergovernmental economic organisation</a>, founded in 1961 to stimulate economic progress and world trade. Countries use its model convention on taxation as a template for allocating taxation rights between them. </p>
<p>The model allocates the primary right to tax to the country from which capital originates (the home, or resident country) rather than the country in which the investment is made (the host, or source country). </p>
<p>Challenges arise when two or more countries claim rights to tax a party – what’s known as double taxation. The OECD has tried to get states to agree on a harmonised form of tax and processes in the case of cross border transactions. Its convention addresses double taxation – but not conclusively. And when e-commerce took root, new challenges arose, including jurisdiction issues, conflict of laws among nations and double taxation. </p>
<p>On top of this, easy loopholes developed that helped in tax evasion especially by companies dealing with intangible goods and services.</p>
<p>The OECD agreement proposed the concept of significant economic presence. This states that a non-resident is liable to tax in the country of sales even if the taxpayer has no fixed place of business within the geographic boundary of the country of sales. </p>
<p>In the case of the European Union tax kicks in if:</p>
<ul>
<li><p>The non-resident exceeds €7 million in annual revenues from digital services in a European Union member state, and </p></li>
<li><p>it has more than 100,000 users who access its digital services in a member state in a tax year, or </p></li>
<li><p>it enters into more than 3,000 business contracts for digital services in a member state in a tax year. </p></li>
</ul>
<p>The other proposal is described as an “interim” 3% digital services tax on gross revenues derived from activities in which users are deemed to play a major role in value creation.</p>
<h2>Jurisdiction challenges</h2>
<p>The United States exercises personal and territorial jurisdiction which can be termed as the <a href="https://www.usa.gov/taxes">legal power and authority</a> by a state to impose a tax. </p>
<p>The US relies on the OECD model law requirements to exercise jurisdiction on a tax subject that has physical offices within a region. If the company is not incorporated – or has no physical office – the government gains territorial jurisdiction by establishing substantial minimum contracts with the state. Minimum contacts include systematic and continuous action within the state. Such action results in a large volume of interstate business, in the course of which subject received benefits and protection of the <a href="https://www.lexisnexis.com/community/casebrief/p/casebrief-int-l-shoe-co-v-washington">laws of the state</a>.</p>
<p>India’s rules on jurisdiction are similar. It claims to acquire authority over a subject through territorial and personal jurisdiction. It introduced a digital tax known as a<a href="https://economictimes.indiatimes.com/tech/internet/google-and-other-digital-service-providers-generate-over-rs-560-cr-in-equalisation-levy/articleshow/63933584.cms?from=mdr">n equalisation levy in 2016</a>. This imposed a levy on any business to business transactions, including the digital advertising transactions famously known as the Google tax.</p>
<p>It has also introduced another digital tax similar to the OECD proposed model. And it has released guidelines on what constitutes a significant economic presence similar to the OECD’s proposals. It used this law to <a href="https://economictimes.indiatimes.com/news/economy/policy/itat-gives-partial-reprieve-to-uber-in-tax-demand-case/articleshow/66155341.cms?from=mdr">sue</a> Uber for failure to comply with the taxation law.</p>
<p>Kenya might trigger a trade war with the US if it goes ahead and imposes a digital tax. But it would be complying with the international guidelines proposed by the OECD. </p>
<p>In my view it should come up with guidelines that bring about clarity on exactly who and what is been targeted.</p><img src="https://counter.theconversation.com/content/127366/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mercy Muendo 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>Digital transactions generate massive amounts of revenue and the Kenyan government wants to ensure that online traders pay their fair share of taxes.Mercy Muendo, Lecturer, Information Technology and the Law, Daystar UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/769442017-05-02T05:06:20Z2017-05-02T05:06:20ZWA’s economic mismanagement is not a reason to review how the GST is carved up<p>Treasurer Scott Morrison has acceded to pressure from his Western Australian colleagues in announcing another review of the way GST is divided up among the states and territories. But the current system shouldn’t be tossed aside just because the WA government was unable to control its spending.</p>
<p>Australia has long gone much further than other federations in seeking to “equalise” the way state and territory governments provide public services to their citizens. That’s one of the principal reasons why the disparity in living standards between Tasmania (Australia’s poorest state) and WA (our richest), is a lot less than that between, say, Mississippi and Massachusetts in the United States or even Mecklenburg-Vorpommern and Bavaria in Germany. </p>
<p>The <a href="https://www.cgc.gov.au/index.php?option=com_docman&view=document&Itemid=406&layout=default&alias=740-history-equality-in-diversity-second-edition-pdf&category_slug=history-1">Grants Commission was established</a> in 1933, this is the body that decides how much GST revenue the states get in our current system. Since its establishment right up until the year 2000, WA has been the main beneficiary of <a href="https://www.cgc.gov.au/index.php?option=com_content&view=article&id=258&Itemid=536">“horizontal fiscal equalisation”(HFE)</a>. </p>
<p>That’s the principle that GST is assigned by. It assumes each state and territory should be making an equal effort to raise revenue from its own sources and by being equally efficient in its spending, to provide the same range and quality of public services as every other state or territory.</p>
<p>However, since the early 2000s, WA has become Australia’s richest state. This is the result not of any particular effort on the part of successive WA state governments, but rather of China’s almost insatiable appetite for the iron ore with which WA has been uncommonly endowed. </p>
<p>Over the five years to 2014-15, WA’s per capita gross product (what it produced) averaged almost <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5220.02015-16?OpenDocument">50% above that of Australia as a whole</a>. This is a margin without precedent in Australia’s history. </p>
<p>This enabled WA to raise far more revenue per head of population than it, or any other part of Australia, had been able to in the past. This is also why in recent years WA’s share of the revenue from the GST has fallen to such a low level, relative to its share of Australia’s population. </p>
<p>Between 2005-06 and 2015-16, WA’s <a href="http://www.treasury.wa.gov.au/StateFinances/">share of the revenue from the GST fell</a> by about A$2 billion, from A$3.8 billion to A$1.8 billion. But its revenue from mineral royalties rose by almost A$3 billion over the same period, from A$1.2 billion to A$4.1 billion. </p>
<p>Despite the sharp decline in its share of GST revenues, the <a href="http://www.treasury.wa.gov.au/StateFinances/">WA government’s total revenue per head of population</a> in 2015-16 was just A$67 (or 0.7%) below the average for all states and territories. By contrast, by 2015-16 the WA government was spending over A$1,000 (or 10.5%) more per head of population on “operating expenses”, than the average of all states and territories.</p>
<p>WA’s present fiscal woes are the result not of a flawed system of distributing revenue from the GST among the states and territories, but rather of its inability to control its own spending.</p>
<p>Although an equal per capita distribution of GST revenues has become commonly used as a benchmark by government for assessing redistribution, it’s never been generally accepted that GST revenues should be distributed on an equal per capita basis. </p>
<p>Neither the federal government, nor the states and territories, allocate their spending programs on an equal per capita basis. Nor do they collect revenue in that way. There is no reason why an equal per capita distribution of GST revenues should be regarded as some kind of desirable norm.</p>
<p>As you can see in the chart below, if you did allocate GST in equal per capita, according to my calculations Queensland, the North Territory, South Australia and Tasmania would lose millions. But it would give Victoria, NSW and WA more of the GST revenue.</p>
<iframe src="https://datawrapper.dwcdn.net/Jdc86/12/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="350"></iframe>
<p>It would be akin to reducing the top rate of personal income tax, paid by those earning more than $180,000 per annum and raising the bottom rate, paid by those earning less than $37,000 per annum, to the same figure. </p>
<p>Allocating GST per capita like this is not based on need or any policy and is quite abitrary. </p>
<p>The questions in the terms of reference, that the Treasurer has given to the Productivity Commission, were answered almost <a href="http://www.gstdistributionreview.gov.au/content/reports/finaloctober2012/downloads/GST_final_consolidated.pdf">five years ago by a similar inquiry</a>. This was conducted by former NSW Premier Nick Greiner and former Victorian Premier John Brumby, together with Adelaide businessman Bruce Carter.</p>
<p>Even though these state premiers had voiced the same concerns as the current government about the way GST is distributed, their inquiry recommended against any radical changes. They found many of concerns about the current system turned out to be overstated. </p>
<p>And, contrary to the Treasurer’s <a href="http://sjm.ministers.treasury.gov.au/media-release/039-2017/">insinuation</a> that “the current approach of horizontal fiscal equalisation creates disincentives for reform”, the previous inquiry concluded there was not enough evidence of efficiency losses in the economy. </p>
<p>I doubt that the Productivity Commission will find differently. There is room, to be sure, to make the Grants Commission’s procedures less complex and more transparent. But the principle which has underpinned the Grants Commission’s recommendations for more than 80 years has served Australia well, and shouldn’t be tossed aside merely to salve the self-inflicted wounds of Australia’s richest state.</p><img src="https://counter.theconversation.com/content/76944/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Saul Eslake 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 government shouldn’t cave to WA’s calls for a change to the way GST is divvied out. The current system has served Australia well.Saul Eslake, Vice-Chancellor’s Fellow, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/620112016-07-08T07:32:50Z2016-07-08T07:32:50ZCould a corporation tax rate of 15% work for the UK?<figure><img src="https://images.theconversation.com/files/129587/original/image-20160706-12746-1gupg20.jpg?ixlib=rb-1.1.0&rect=0%2C44%2C1024%2C665&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Do the Chancellor's sums add up.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/fairtomiddling/4388010872/in/photolist-7FKGKS-tNqSoR-4dTchT-4dTcb2-69yHQa-4dXbJG-3gi5Xo-4dTcex-ngcnDG-wEXhf-6XgqcB-bjA1qz-5eXXH-bjA1jF-7Fikp7-fmeAzJ-4dXbFL-8noDKP-7JiyY-5rhwgv-bjA1h2-aDGgn8-5TumkC-bjzX4g-4KD6HV-E5MPx9-awz6oL-dzHdMu-FpToUL-bjzXbZ-bjzX9Z-bjzX8P-bjzX6c-bjA1bX-6dv6AX-6HRCJD-9ejWzz-8Y2j5w-7DmLiG-bjzWNM-5aUurf-7HNZ3n-fboCKM-bjA1NT-eC1X7-bjzWQi-cHAH1d-bjA1RP-5mzkHd-5EE5Vq">Sean McGee Hicks/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Britain’s chancellor of the exchequer, George Osborne, has proposed a significant <a href="https://next.ft.com/content/d5aedda0-412e-11e6-9b66-0712b3873ae1">cut in the main rate of corporation tax</a>. The move has largely been seen as an attempt to soothe the concerns of UK businesses struggling to understand the implications of the EU referendum vote and has been <a href="http://www.independent.co.uk/news/world/europe/corporation-tax-cut-george-osborne-brexit-eu-leaders-uk-economy-a7124386.html">met with some scepticism</a>.</p>
<p>A tax cut for companies is sometimes perceived as something that only helps the businesses directly affected, but the economic reality is that it has a far greater impact. With all taxes, regardless of whether they are charged on an organisation, it is only individuals that bear the burden. A company is not a living entity; it cannot be made worse off. </p>
<p>Setting aside the benefits of public spending for a moment, there are three groups that bear the burden of corporation tax: employees (in the form of reduced wages and layoffs), customers (in the form of higher prices), and the shareholders (due to reduced dividends). Cutting the headline rate of corporation tax will not only increase the incomes of these three groups, the subsequent effect on behaviour should increase revenues in other taxes. The hope will be that those changes offset any revenues lost through a cut in the main rate. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/129580/original/image-20160706-12753-1sfimgo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/129580/original/image-20160706-12753-1sfimgo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/129580/original/image-20160706-12753-1sfimgo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/129580/original/image-20160706-12753-1sfimgo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/129580/original/image-20160706-12753-1sfimgo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/129580/original/image-20160706-12753-1sfimgo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/129580/original/image-20160706-12753-1sfimgo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/129580/original/image-20160706-12753-1sfimgo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The economics works, in theory.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/jaimelondonboy/4211613257/in/photolist-7qaBTF-9Tjrgs-9Tjro7-94ECPR-9TgCar-7g7Yh2-8gAR9-7qewBN-hnn5My-CQw8sZ-qC1iKh-94ECt4-7qewfj-7XDDD-7xLz8m-grtEd-4ignkL-4pHT4j-C1K9EX-7qexzy-8MjrPZ-vs61A-8amXDB-7qexcY-7qazrB-7qexo7-7qaABz-7qaBtB-7qevaU-7qeCHj-7qaC7p-8aqcqS-7qaCUt-7qazDV-7qew4j-7qaAqz-7qaA3B-7qazRg-7g7WRV-dH18hq-7gbTf9-7XDDA-dEGuYD-7XDpJ-7gbSrN-7XDDB-8aqcu7-g2bY-7XDDz-uYMajv">Jai'me/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Put simply, if you get higher wages after your company factors in a tax cut, you will pay income tax and national insurance on the increase, but will still be better off than before. You might then choose to use the net increase to buy that slightly-too-expensive toaster you’ve had your eye on alongside other goods which incur sales taxes such as VAT and other duties. If it all works unhindered, then this subsequently increases the income of the business producing the goods – and the cycle continues. </p>
<p>So, as well as potentially raising revenues through other taxes, the reduction in the corporation tax rate could help stimulate enough growth to raise revenues of corporation tax revenues in the medium-to-long term to the same levels as before the cut. </p>
<h2>Investment case</h2>
<p>This has certainly been the case for the UK over the past 35 years. Since 1983, the main rate of corporation tax has decreased from 52% to its current rate of 20%, but revenues have remained generally buoyant – corporation tax receipts consistently <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/532373/May16_Receipts_NS_Bulletin_Final2.pdf">make up about 9-10% of all HMRC receipts</a>. The <a href="http://www.ifs.org.uk/wps/wp0404.pdf">Institute for Fiscal Studies</a> has explained this by pointing out other changes in tax law which offset the cuts, an increase in the size of the corporate sector and economic conditions which have boosted profitability.</p>
<p>However, it is not known at this stage whether changes in the main rate will be accompanied by other measures. These may include reductions in the annual investment allowance, which lets a company deduct its spending on fixed assets like machinery or vehicles from its taxable profits. This is a great help to smaller firms considering investment in new equipment. </p>
<p>The government has changed the level of the allowance <a href="https://www.gov.uk/capital-allowances/annual-investment-allowance">several times over the last six years</a> and could conceivably do so again. Any reduction in allowances increases the tax base (the revenues liable for taxation) and therefore increases revenue for the Treasury. Before the merits of any corporation tax rate change can be fully analysed, issues such as this need to be taken into account. </p>
<h2>Growth fears</h2>
<p>While there is an economic argument to reduce the corporation tax rate, it is less certain how much this could boost the damaged confidence in the UK as a marketplace. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/129591/original/image-20160706-12727-zuvg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/129591/original/image-20160706-12727-zuvg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/129591/original/image-20160706-12727-zuvg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/129591/original/image-20160706-12727-zuvg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/129591/original/image-20160706-12727-zuvg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/129591/original/image-20160706-12727-zuvg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/129591/original/image-20160706-12727-zuvg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/129591/original/image-20160706-12727-zuvg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The pound’s decline is a continuing risk.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/59937401@N07/5474185981/in/photolist-9kJCLV-9VAgWk-9VDM5N-7W8QqN-9VzJ8p-9VyHut-9VAQQG-9VByc5-9VAnRw-9VDaWY-9VBzSG-9VC3iE-9VAwVp-9VCzps-9VBgGi-9kNZEL-6Nfq1h-9VBaMr-9VCwLq-9VB7jC-9Vzk46-9VALmE-9VwzJV-9VAQ4b-9kP1zQ-9VAuME-bRAZ3H-9kP2U7-9kJE8x-9VAub5-9kMGKG-9VxCXn-9VzHe8-9VAn7m-9VxFgX-9VAMK9-9VAF9B-9VDxpf-9Vy2Q6-9VANzf-9VzeFx-bACF1-in6yLn-9VxWEK-6SF8Ar-9VxN1g-6SKbxo-9VDwno-9VD4DS-c9g7k1">Images Money/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Financial markets have largely stabilised after the immediate post-Brexit fluctuations – with the exception of sterling’s <a href="http://www.telegraph.co.uk/business/2016/07/06/what-does-a-falling-pound-mean-for-the-british-economy/">worrying downward trajectory</a>. The prime fear now is a short-term reduction in growth resulting from cautious markets. This week, Bank of England governor <a href="https://twitter.com/BBCNews/status/750270078889828352">Mark Carney pointed to</a>: </p>
<blockquote>
<p>…growing evidence that uncertainty about the referendum has delayed major economic decisions such as business investment, construction and housing market activity.</p>
</blockquote>
<p>Should there be a substantial short-term decline in growth resulting from a “wait-and-see” policy, this may cause a recession in itself and the negative consequences that brings. </p>
<h2>Tax lag</h2>
<p>To assess whether a corporation tax cut would help offset this, it is worth looking at a hypothetical example. Suppose a multinational company currently posts a pre-tax annual profit of £100m. The current corporate tax rate of 20% would give the company a net profit of £80m. Now let’s assume a future tax rate of 15%. In order to achieve the same net profit of £80m the company would have to post a pre-tax profit of just over £94m (with the tax liability at £14m). So if a recession dented that company’s profits by just 6%, that would immediately negatively offset the benefits of a reduction in the tax rate for both the company and the government. </p>
<p>Should a further recession occur, a corporation tax cut could prove to be something of a reckless gamble. Some economists argue that it would be possible to build a robust and equitable tax system without corporate taxes – where the increase in incomes of the three groups mentioned above create increased revenues in other taxes. But defenders of corporation tax highlight the timing benefits. Simply put, the treasury gets the money sooner rather than waiting for it to trickle down through the three groups. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/129684/original/image-20160707-30685-1ln3qip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/129684/original/image-20160707-30685-1ln3qip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/129684/original/image-20160707-30685-1ln3qip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/129684/original/image-20160707-30685-1ln3qip.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/129684/original/image-20160707-30685-1ln3qip.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/129684/original/image-20160707-30685-1ln3qip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/129684/original/image-20160707-30685-1ln3qip.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/129684/original/image-20160707-30685-1ln3qip.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"></a>
<figcaption>
<span class="caption">A question of timing.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/hyku/3632644702/in/photolist-6x1fHd-4c5Wcy-6NcytT-nQhoxb-7NVqen-hcu5v-7tHPnq-aoGKZj-JnUSkL-eJ8Y5c-dGaWcW-enVRfk-5Wg1ZW-6zVvbt-df5oWz-6kScb9-pTq9J7-4GwdmZ-7sNZob-a23E8y-8Tv4Nj-GB9Ze5-u5MgD-6qmvxQ-6wW5Lc-7UbYc7-89gSq-5gpork-51NmPZ-bvp63w-6Fmkka-521cip-4sFE4v-8fvPqs-y7dxCu-ydcr5P-qCnVkS-dD5P2R-cXe3v9-egmRk6-reT6Yr-4YuiuM-q5aDH2-4f3RNr-6WSFR4-pMtmJX-nvbKHq-pdGqQA-aEzGnw-huX3Lt">Josh Hallett/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>This is a key reason why, in a recession, corporation tax revenues are usually the first to be negatively affected and the last to recover. When the economy does improve, companies could still offset any losses incurred during a recession while the economy recovers. Reducing the rate of tax could jeopardise any immediate, much-needed revenue for the government.</p>
<p>As well as the economic argument for reducing corporation tax, the government will have to tackle the political argument. The example given earlier highlighted the three groups affected by corporation tax, but most people still look on corporation tax as something paid by wealthy companies, rather than passed on to employees, consumers and pension fund holders.</p>
<p>At the same time as proposing this tax cut, Osborne also warned of further austerity measures – and it would be easy for political opponents to draw parallels between the two issues to highlight wealth inequality. It risks being a debate about “haves” and the “have nots”, so great care will need to be taken over how proposed cuts are framed to the public.</p><img src="https://counter.theconversation.com/content/62011/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Midgley 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>Rates of corporation tax have a very human impact.Gavin Midgley, Teaching Fellow in Accounting, University of SouthamptonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/587312016-05-04T05:36:27Z2016-05-04T05:36:27ZPaying for infrastructure means using ‘land value capture’, but does it also mean more tax?<figure><img src="https://images.theconversation.com/files/121138/original/image-20160504-13603-bq3i29.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A special tax paid for the Gold Coast light rail. But there is another way.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File%3AFC_2_test%2C_surfers_paradise_boulevard%2C_March_2014.JPG">Bahnfrend/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>With the federal government aiming to kick-start investment in urban infrastructure, <a href="http://www.abc.net.au/news/2016-04-29/government-to-allocate-50-million-for-infrastructure-projects/7369386">pledging A$50 million of public money in the 2016 budget</a> to look at alternative financing mechanisms, attention is turning to the idea of “land value capture” as a means to attract the necessary funds.</p>
<p>Put simply, land value capture involves using the additional value created on land around urban rail, as a result of the railway’s existence, to fund the rail itself.
This allows private investors to reap the benefits of urban development, for example by developing shopping centres at new train stations, using the projected extra tax revenue as a means of funding the infrastructure in the first place. </p>
<p>Depending on whom you listen to, the idea is either <a href="http://www.afr.com/opinion/value-capture-is-infrastructure-magic-bullet-20151021-gkeqj9">infrastructure’s magic bullet</a>, or <a href="http://www.theguardian.com/commentisfree/2016/apr/28/beware-of-politicians-who-tell-you-they-can-deliver-the-world-for-free">not all it’s cracked up to be</a>. It has become a <a href="http://www.afr.com/real-estate/malcolm-turnbulls-value-capture-plan-for-infrastructure-splits-developers-20160429-goic5m">divisive issue for developers</a>. </p>
<p>It has also been described, most notably by the Property Council of Australia and <a href="http://anthonyalbanese.com.au/coalition-must-rule-out-new-property-tax">shadow infrastructure minister Anthony Albanese</a>, as another sneaky way to tax us. So what is under the hood of land value capture?</p>
<h2>Tax increments, not tax rate hikes</h2>
<p>Value capture can use the idea of <a href="http://infrastructureaustralia.gov.au/policy-publications/submissions/published/files/486_propertycouncilofaustralia_SUB2.pdf">tax increment financing (TIF)</a>, which has been <a href="http://www.smartgrowthamerica.org/documents/Tax-Increment-Financing.pdf">used extensively in the United States</a> to deliver urban rail projects.</p>
<p>It works like this. New infrastructure, such as improved transport networks, can raise land values because of the extra amenity that infrastructure provides. Governments can gain extra taxation revenue as a result of the development, without necessarily needing to raise the existing taxation rate.</p>
<p>This increased tax revenue can come in the form of local government rates, state government land taxes and stamp duty, Commonwealth capital gains tax and even GST on property – meaning that all three tiers of governments can benefit. The taxation revenues can be forecast and included in future budgets as a means of paying for the infrastructure costs up front.</p>
<p>The big winners from any infrastructure improvement are adjacent private land owners, as they receive windfall gains in the value of their land without paying for the infrastructure. </p>
<p>The basic TIF model doesn’t involve raising tax rates per se. But governments may create extra taxation levies on particular pieces of land, to fund specific infrastructure projects. </p>
<p>This approach was used to fund the <a href="http://www.goldlinq.com.au/">A$1 billion light rail project on the Gold Coast</a>. A levy was charged to all residents to help raise the initial capital and the operating costs. </p>
<p>These extra levies could also be charged on land where developers will make significant extra profits as a result of the infrastructure being built. This prospect has been used as a <a href="http://www.propertycouncil.com.au/Web/Content/News/National/2016/Infrastructure_deficit_demands_smart_financing.aspx?WebsiteKey=148a29fb-5ee5-48af-954b-a02c118dc5fd">scare tactic by the Property Council of Australia</a>, which would prefer that its members did not have to contribute. </p>
<p>But remember that special levies are not essential for land value capture to work, despite the Property Council and Albanese’s claim. They are optional, and are not the only way to harness land value for infrastructure. </p>
<h2>Lazy land value capture</h2>
<p>In February we released a <a href="http://www.curtin.edu.au/research/cusp/local/docs/Rail_Model_Report.pdf">discussion paper</a> to explain how urban land can be the basis of funding urban rail. </p>
<p>It works like this. Consortia are asked to bid for how they can build, own, operate and finance a rail project through regeneration of “lazy” urban land that has its value unlocked through the building of a rail project. Governments must help with land assembly, zoning and community engagement. But, in essence, it is a competitive private-sector process to provide more yield for developers who create the urban villages increasingly being built around rail stations. </p>
<p>This idea, which we call the “entrepreneur rail model”, will finance new shops, offices, housing and, crucially, new urban rail itself. It involves governments asking for expressions of interest from the private sector to undertake urban rail projects within certain land corridors that include government-owned land. This is then enabled for private development to fund public goods such as transport.</p>
<p>But it doesn’t just depend on handing over public land. Private landowners can also be brought into any development consortium and will gain from the uplift and urban redevelopment as a partner. Because they are adept at recognising how to make money out of urban redevelopment, the process enables the private sector to pay for the rail project as part of the development. </p>
<h2>Overseas approaches</h2>
<p>This is how urban rail is built in <a href="https://trid.trb.org/view.aspx?id=1175245">Japan</a> and <a href="http://www.smh.com.au/national/hong-kong-metro-system-operators-mtr-spread-value-capture-message-to-australia-20151215-glo0wq.html">Hong Kong</a>, and is increasingly coming into new projects in <a href="http://www.ttc.ca/Subway/index.jsp">Canada</a> and the <a href="http://www.smartgrowthamerica.org/documents/Tax-Increment-Financing.pdf">United States</a>. There are no extra taxes involved, as the developers in a sense tax themselves to build the rail line as part of the urban regeneration that sees them earn profits they would not otherwise have realised. </p>
<p>The new <a href="http://www.theguardian.com/australia-news/2016/apr/29/50bn-investment-banking-style-unit-to-fund-transport-projects">Urban Finance Unit</a>, announced by Prime Minister Malcolm Turnbull last month and included in Treasurer Scott Morrison’s budget speech, is designed to facilitate this new process in Australia by creating a way to finance urban rail without significant government support. The unit may fund states and local governments to help facilitate bids and ensure common good outcomes, as suggested in our <a href="http://www.curtin.edu.au/research/cusp/local/docs/Rail_Model_Report.pdf">discussion paper</a>. </p>
<p>The federal government can help in funding urban rail in many other ways, such as through bonds and grants, but the big advantage of using a more entrepreneurial approach is that it builds in urban regeneration as an integral part of the rail project. This is in fact how the first tram and train projects were built around the world. </p>
<p>Such urban development is now much desired in town planning strategies. It is feasible again in our cities because there is a market for urban regeneration based around quality urban rail, with a significant number of people <a href="http://islandpress.org/book/the-end-of-automobile-dependence">choosing this as a lifestyle option</a>. Public transport is no longer just a welfare exercise – there is money to be made. </p>
<p>The <a href="https://cities.dpmc.gov.au/smart-cities-plan">Smart Cities Plan</a> talks about various potential value capture approaches to deliver infrastructure, adding that “done right, value capture can accelerate infrastructure investment alongside urban renewal, and deliver benefits for households, governments, businesses and developers”. Clearly the <a href="https://theconversation.com/smart-cities-plan-offers-signs-of-hope-but-are-turnbull-and-taylor-just-dreamin-58628">details need to be fleshed out</a>, and the government’s forthcoming discussion paper on land value capture will hopefully do that. </p>
<p>Communities will need to be involved in deciding how best to make this happen. Cities will need to identify corridors with significant urban regeneration potential as a basis of all their future urban rail projects. They will take funding wherever they can get it, including various value capture mechanisms. These do not necessarily mean more taxes.</p><img src="https://counter.theconversation.com/content/58731/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Much of the infrastructure Australia needs will be funded by “value capture” – raising tax revenue by boosting land values. Some have decried it as a tax hike in all but name, but it isn’t really.Peter Newman, Professor of Sustainability, Curtin UniversityJemma Green, Research Fellow, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/571622016-04-03T10:46:33Z2016-04-03T10:46:33ZAfrican governments aren’t taxing the rich. Why they should<figure><img src="https://images.theconversation.com/files/117162/original/image-20160401-6809-atbu9y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">One of the ways that super-rich individuals in Africa are evading tax is through keeping their money in offshore accounts. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/goya/6178994684/in/photolist-aq1XR7-8WiSGw-9fyWEk-aFc5Qs-aFc7Fw-aF8cHF-7nPTnu-7nNZTs-7nTT3y-apYiW2-dGgHEc-aFc7Hy-7nQues-7nK6bP-7nKvk6-7nPFaf-7nQoUy-7nQDoq-7nLJEn-8NBkpx-7nLGZr-7nQ4UR-7nJDwT-7nLPpk-7nQFZj-7nQ4iR-7zCdEX-7nPmmd-7nPvpE-7nM51i-7nLF6g-7nQTuY-7nKmZ2-7nPShE-7nLB8z-7zG4HW-7zGoxA-9fypfM-7nPkBh-99aoKQ-7zG2ML-997gjK-8WiQKS-aF8hYi-aFc4RE-7nQqcq-8WfM2c-8WiQPJ-8WfP9x-aq1Viu">Goya Bauwens/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>A great deal of <a href="http://www.theguardian.com/global-development/2015/jun/02/tax-dodging-big-companies-costs-poor-countries-billions-dollars">attention</a> has been paid to the obstacles African governments face in effectively taxing the profits of transnational corporations. African governments are frequently <a href="http://www.publicfinanceinternational.org/news/2015/07/oecd-tells-south-africa-widen-its-tax-base">urged</a> to widen their tax bases by <a href="http://www.africaneconomicoutlook.org/en/theme/public-resource-mobilisation-and-aid/policy-options/deepening-the-tax-base/">reducing tax incentives</a> for foreign investors. But what about Africa’s rich? Some Africans are very rich, and in many cases they are <a href="http://www.christianaid.org.uk/images/Africa-tax-and-inequality-report-Feb2014.pdf">not paying their fair share</a> of taxes. </p>
<p>The number of super rich on the continent is growing fast. According to <a href="http://www.nw-wealth.com">New World Wealth</a>, the number of high-net-worth individuals (people with assets over $1 million) in Africa rose at twice the pace of the rest of the world in the past 15 years. Its <a href="http://www.businesswire.com/news/home/20160315005977/en/Africa-Wealth-Report-2016---Research-Markets">2016 Africa Wealth Report</a> states there are about 165,000 high-net-worth individuals in Africa, with combined wealth of $860 billion. More <a href="http://content.knightfrank.com/research/83/documents/en/wealth-report-2015-2716.pdf"><em>ultra</em> high-net-worth individuals </a> (with $30 million or more in assets) were created in Africa since 2003 than in any other region of the world. According to <a href="http://www.wealthinsight.com/WealthInsightIntelligenceCenter/">Wealth Insight</a>, there are 1,932 in Africa.</p>
<p>But it is challenging for African governments to tax the wealthy.</p>
<h2>Why collection is so hard</h2>
<p>One of the reasons is the challenge of taxing income in economies that are highly informal. In Organisation for Economic Cooperation and Development countries, personal income taxes make up about a quarter of all tax revenue collected. In Africa, they only make up about <a href="http://poseidon01.ssrn.com/delivery.php?ID=967113064118006116123097006110025122030015030047000031018017067096021078028002013106026119119003010032035018085030018105006042069011032046030119013124000102007006029021064024087086020011085002006068005002121073116003101088101001025114086022118088&EXT=pdf">a tenth</a> on average, and as little as 4% in countries like Uganda and Rwanda. This is primarily – <a href="http://poseidon01.ssrn.com/delivery.php?ID=967113064118006116123097006110025122030015030047000031018017067096021078028002013106026119119003010032035018085030018105006042069011032046030119013124000102007006029021064024087086020011085002006068005002121073116003101088101001025114086022118088&EXT=pdf">up to 95%</a> – collected from employees of formal businesses through the pay-as-you-earn system. Self-employed professionals generally evade taxes and formal employees often engage in informal business on the side. </p>
<p>This informality contributes to African tax administrations lacking information on which citizens are high-net-worth individuals. In Kenya, only 100 high-net-worth individuals of a likely <a href="http://www.christianaid.org.uk/images/Africa-tax-and-inequality-report-Feb2014.pdf">40,000</a> are registered with the tax authority. In South Africa, up to 114,000 high-net-worth individuals are unregistered, costing the government about <a href="http://www.christianaid.org.uk/images/Africa-tax-and-inequality-report-Feb2014.pdf">$10.9 billion</a> in tax revenue.</p>
<p>It is also hard for African governments to tax the rich because they hide their wealth using the offshore financial system. Gabriel Zucman, from the London School of Economics, <a href="http://gabriel-zucman.eu/files/Zucman2014JEP.pdf">estimates that 30%</a> of all African financial wealth is held offshore, amounting to about $500 billion. This means African governments are losing out on roughly $15 billion in taxes from individuals annually, and this does not take into account non-financial wealth. In 2015, <a href="http://www.icij.org/project/swiss-leaks/explore-swiss-leaks-data">Swiss Leaks</a> revealed that HSBC Switzerland alone held more than $6.5 billion for clients from sub-Saharan Africa.</p>
<h2>Uganda as a case study</h2>
<p>A recent <a href="http://www.ictd.ac/index.php/ju-download/2-working-papers/98-boosting-revenue-collection-through-taxing-high-net-worth-individuals-the-case-of-uganda">study</a> undertaken by the Uganda Revenue Authority with support from the <a href="http://www.ictd.ac/">International Centre for Tax and Development</a>, revealed the extent to which the political and economic elite evade taxation in Uganda. </p>
<p>The researchers examined lawyers from top commercial law firms and found that out of a group of 60, only 12 had paid personal income tax in 2012, and only 13 did the following year. The team also investigated individuals who paid large import duties. They found that although 12 people paid more than $180,000 in customs duties in 2014, none of them had paid personal income tax.</p>
<p>The researchers also investigated the links between government officials, business and tax compliance. Looking at a group of 71 high-ranking government officials owning large business assets (like hotels, schools and media houses), they found that only one had ever paid personal income tax between 2011 and 2014. Further, the companies the officials were associated with were largely non-compliant, with 47 out of 56 not paying any corporate income tax in 2013.</p>
<h2>Political challenges</h2>
<p>Increasing tax compliance among the wealthy is challenging because economic elites have great political influence. They are also often members of the political elite. In <a href="http://www.businessdailyafrica.com/Treasury-scraps-5pc-capital-gains-tax/-/539546/2748696/-/14d15g9z/-/index.html">Kenya</a>, for example, the government tried to implement a capital gains tax on the sale of property and shares, but was forced to scrap it due to resistance from business.</p>
<p>Uganda tried to introduce a system requiring income tax clearance from people buying land valued over $18,000 in <a href="http://www.monitor.co.ug/OpEd/Commentary/-/689364/1210404/-/12srd61z/-/index.html">2011</a>. This was also stopped due to political pressure.</p>
<p>Still, great progress is possible. Spurred by the results of the study mentioned above, the Uganda Revenue Authority established a high-net-worth individual unit in September. The new unit has been a significant success, raising an impressive <a href="http://www.ictd.ac/bringing-uganda-s-rich-into-the-tax-net">$3.3 million</a> in revenue by February.</p>
<p>Although enforcing tax compliance among the rich can generate significant additional revenue, what is at stake is much greater. The injustice of those with the most money not contributing to the public purse erodes the legitimacy of the whole system, leading those with less to feel even less willing to comply. As Ugandan researcher Ronald Waiswa said:</p>
<blockquote>
<p>If you let the big crocodiles swim freely, the small fish will follow.</p>
</blockquote><img src="https://counter.theconversation.com/content/57162/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rhiannon McCluskey works for the International Centre for Tax and Development, a non-profit research organisation funded by DFID and NORAD. </span></em></p>The number of super-rich individuals in Africa is growing, but they are not paying their fair share of taxes. African governments are losing out on roughly US$15 billion in taxes annually.Rhiannon McCluskey, Researcher Officer, International Centre for Tax and Development Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/556842016-03-03T00:42:26Z2016-03-03T00:42:26ZWill Republican tax plans make America great again?<p>As the old saying goes, there are only two things certain in life: <a href="http://freakonomics.com/2011/02/17/quotes-uncovered-death-and-taxes/">death and taxes</a>. While being taxed is a certainty, the rate and types of income being taxed is not. </p>
<p>Each of the five remaining GOP hopefuls – <a href="https://www.donaldjtrump.com/positions/tax-reform">Donald Trump</a>, <a href="https://www.tedcruz.org/tax_plan/">Ted Cruz</a>, <a href="https://marcorubio.com/issues-2/rubio-tax-plan/">Marco Rubio</a>, <a href="https://s3-us-west-2.amazonaws.com/john-kasich-assets/wp-content/uploads/2015/10/Kasich-Plan-Fact-Sheet-Cutting-Taxes-1.pdf">John Kasich</a> and <a href="https://www.bencarson.com/issues/tax-reform">Ben Carson</a> (who appeared on the verge of dropping out as this article was written) – has released tax proposals on his official website. Examining these plans provides a rough idea of what will happen to the tax system if a GOP candidate wins the November presidential election.</p>
<p>And with Tax Day approaching, a top question in most voters’ minds is, “How much will I have to pay the federal government?” </p>
<p>Since few voters or politicians are currently discussing the taxes to support programs like Social Security, Medicare (payroll taxes), fix the nation’s highways (gasoline taxes) or curb public health problems (“sin” taxes on cigarettes and alcohol), my analysis will adhere to the candidates’ laser-like focus on income and business taxes.</p>
<iframe src="https://datawrapper.dwcdn.net/RkR9B/3/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="420"></iframe>
<h2>Number of individual brackets</h2>
<p>Currently, the federal government has <a href="http://taxfoundation.org/article/2016-tax-brackets">seven tax brackets</a> for individuals. All five of the GOP candidates want to reduce the number of tax brackets. </p>
<p>Brackets are designed to make the tax system progressive so that richer people pay a higher percent of their income in taxes than poorer people. Reducing the number of brackets simplifies the tax system but also reduces progressivity, leading to a system where the rich and poor people pay similar percentages.</p>
<p>The debate over whether it is fair for the rich and poor to pay similar percentages has a very long history. This question was brought up by the earliest economists like <a href="http://www.econlib.org/library/Smith/smWN.html">Adam Smith</a> and John Stuart Mill. </p>
<p>Mill, in his book <em><a href="http://www.econlib.org/library/Mill/mlP.html">Principles of Political Economy</a>,</em> wrote that the rich should pay more taxes than the poor by arguing, </p>
<blockquote>
<p>The subjects of every state ought to contribute to the support of the government as nearly as possible in proportion to their respective abilities. </p>
</blockquote>
<p>While most people today agree that the rich should pay more (in absolute terms) than the poor, there are <a href="http://www.huffingtonpost.com/2014/05/06/millionaires-taxes-survey_n_5272647.html">numerous arguments</a> as to whether they should or should not pay proportionally more.</p>
<p>Today’s GOP candidates approach Mill’s proposal very differently. </p>
<p>Trump supports the most progressivity by proposing the current system be scaled back from seven brackets to four. Rubio and Kasich both support three brackets. Cruz and Carson are on the other end entirely, with both supporting a single bracket flat tax, which has no progressivity.</p>
<h2>Top individual rate</h2>
<p>Another element of progressivity is what’s the top rate.</p>
<p>At the moment, the federal government has individual tax rates ranging from <a href="https://www.irs.gov/pub/irs-pdf/i1040tt.pdf">10 percent to 39.6 percent</a>, with each bracket applied to different levels of income. For example, today the top rate doesn’t kick in until income levels reach over US$410,000 for singles and over $460,000 for married couples filing jointly. </p>
<p>All five GOP candidates want to lower the top rate. A high tax rate means the wealthy provide billions to the government in revenue, at least temporarily. </p>
<p>However, an effective tax system should affect economic decisions as little as possible. High rates often provide a <a href="http://www.laffercenter.com/the-laffer-center-2/the-laffer-curve/">disincentive</a> to work and invest. This means that high rates potentially can kill the golden goose of high government revenue. If high rates cause people to work less, than there will be less income for the government to tax.</p>
<p>While all five candidates want the top rate figure to fall, their proposals vary widely.</p>
<p>Rubio wants to lower the top rate the least by proposing a ceiling of 35 percent. Cruz with his flat tax proposes cutting the top rate the most by taxing everyone just 10 percent, no matter what they earn. Trump (top rate 25 percent), Kasich (28 percent) and Carson (14.9 percent) all feel the optimal number for high income earners is a figure somewhere between Rubio’s and Cruz’s values.</p>
<h2>Top business rate</h2>
<p>Corporate tax reform has been a big issue in recent years and one that increasingly has received some degree of bipartisan support. Both Republicans and Democrats have argued the top <a href="http://taxfoundation.org/article/corporate-income-tax-rates-around-world-2015">business tax rate</a> of 39 percent is too high. </p>
<p>Business taxes can be controversial because some people <a href="http://www.cnbc.com/2014/09/21/axes-do-companies-pay-their-fair-share-of-taxes-depends-how-you-ask.html">view them as unfair</a>. For example, if you are self-employed, the money earned doing that job is taxed just once at the individual rate. However, if you incorporate the business and do the same work, the money is taxed twice, once at the corporate level and a second time when the business gives the profits to the individual.</p>
<p>Another problem is that many large corporations have some leeway in which countries they book profits. While some transactions are clearly local, it is difficult to determine where some transactions actually occur. For example, if a person living in the U.S. buys a song from an Irish band over the Internet from a computer server located in Canada, which country has the right to tax the transaction?</p>
<p>These jurisdictional issues mean companies try to book profits in a country with the lowest tax rate. Currently, many corporations favor Ireland because in 1987 the country slashed the maximum corporate tax rate to <a href="http://taxfoundation.org/article/corporate-income-tax-rates-around-world-2015">12.5 percent</a>. This dramatic drop resulted in many multinational businesses moving their European operations to this low-tax haven.</p>
<p>All five candidates want the top business tax rate to fall, but in a variety of ways. Rubio and Kasich both want to lower the top rate the least by proposing a new top rate of 25 percent. </p>
<p>The other three, however, prefer to slash it much more, seeing the optimal top rate closer to 15 percent. Specifically, Carson targets 14.9 percent, Trump 15 percent and Cruz 16 percent.</p>
<p>Still, no candidate proposes a maximum rate that would undercut Ireland. </p>
<h2>The only thing dead certain</h2>
<p>No matter who wins the GOP nomination this summer, it is relatively simple to predict the type of tax legislation that will be pushed by a Republican president in 2017: fewer brackets and lower maximum tax rates.</p>
<p>The reduction in brackets would most likely lead to a less progressive tax system, but it’s less certain how each plan would affect tax revenue and U.S. <a href="http://businessmacroeconomics.com/">gross domestic product</a> (GDP). </p>
<p>All five claim that their proposals would dramatically boost economic growth. For example, Cruz believes his proposal would boost GDP by 13.9 percent over the next decade – or an average of about 1.4 percent a year – while Carson assures us GDP will be 16 percent higher if his flat tax plan is enacted. Many of the candidates claim this greater growth will offset any reduction in revenue because of the lower rates.</p>
<p>Will these predictions of accelerated economic growth prove accurate and result in overflowing tax coffers? Or will these reductions in rates lead to a fiscal crisis?</p>
<p>There are too many unknowns to accurately predict the result. This leaves us with the cold comfort that death is now the only thing with true certainty.</p><img src="https://counter.theconversation.com/content/55684/count.gif" alt="The Conversation" width="1" height="1" />
There’s nothing as certain as death, taxes and a Republican with a plan to cut them. But how do the candidates’ proposals stack up?Jay L. Zagorsky, Economist and Research Scientist, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/540552016-02-02T06:52:21Z2016-02-02T06:52:21ZPolitics podcast: Tony Burke on Labor’s fiscal challenge<p>In the first Politics Podcast for 2016, Michelle Grattan and Shadow Finance Minister Tony Burke discuss the challenging gap between government revenue and spending, and what Labor would do to address the problem.</p>
<p>Burke pitches Labor’s recent education announcements as being central to its economic vision, describing them as a “strategic economic investment” in what Australia will need post the mining boom. </p>
<p>He also responds to the divisions in Labor over GST changes, and the need to ensure Australia maintains its triple-A credit rating. Asked about Treasury Secretary John Fraser’s high-profile speech last week, Burke is complimentary.</p><img src="https://counter.theconversation.com/content/54055/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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 the first Politics Podcast for 2016, Michelle Grattan and Tony Burke discuss the challenging gap between government revenue and spending.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/484662015-10-06T11:46:05Z2015-10-06T11:46:05ZOECD’s new tax proposals won’t stop companies shifting profits to tax havens<figure><img src="https://images.theconversation.com/files/97405/original/image-20151006-7366-1jeub4v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">ChameleonsEye</span></span></figcaption></figure><p>The news has been <a href="http://www.bbc.co.uk/news/magazine-20560359">full of stories</a> about how companies such as Amazon, Apple, Google, Microsoft, Starbucks and others are able to shift their profits to low or no-tax jurisdictions by using novel, legally permitted corporate structures and complex internal transactions (known as transfer pricing schemes). Companies are able to do so because they are generally taxed at the place of their residence rather than where the underlying economic activity takes place.</p>
<p>The European Union is estimated to be losing about <a href="http://www.euronews.com/2013/05/21/web-as-europe-faces-tax-evasion-worth-1-trillion-euro-meps-debate-solutions-ahe/">one trillion euros</a> each year due to a combination of tax avoidance, evasion and arrears. This is bigger than the combined gross domestic product (GDP) of Norway and Sweden and requires political action.</p>
<p>Against the above background, in 2013, the governments of G20 nations asked the Organisation for Economic Cooperation and Development (OECD) to develop proposals for dealing with <a href="http://www.oecd.org/tax/beps-2015-final-reports.htm">Base Erosion and Profit Shifting (BEPS)</a>.</p>
<p>As part of the BEPS project, the OECD has now completed the first phase consisting of 15 possible actions. These form part of its final reports which exceed 1,000 pages and a <a href="http://www.oecd.org/ctp/beps-reports-2015-executive-summaries.pdf">summary is available here</a>. There is much to digest and the OECD does offer some ways of tackling BEPS, but ultimately the project is <a href="https://theconversation.com/double-trouble-why-landmark-oecd-tax-reform-is-doomed-before-it-starts-48115">unlikely to make a significant dent</a> in organised corporate tax avoidance.</p>
<h2>Profit Shifting</h2>
<p>Transnational corporate groups have been very adept at engineering inter-group loans. Under this, one subsidiary borrows from another and pays interest. No cash effectively leaves the group and the interest paid by the paying subsidiary attracts tax relief while the receiving company, often located in low or no-tax jurisdiction, pays no tax on its income. So the OECD suggestion that the tax relief on such interest payments be restricted may dissuade some from opting to adopt these ingenious and complex financial arrangements.</p>
<p>The OECD has supported calls for <a href="https://theconversation.com/country-by-country-reporting-is-a-victory-for-citizens-over-companies-14654">country-by-country reporting</a> (CBCR). This requires companies to show the profit they make in each country together with sales, employment and other relevant information. This information can help to illustrate the mismatch between economic activity and profits booked in each country. </p>
<p>But the OECD only recommends that this disclosure be made by each multinational corporation to the tax authority in its home country. To secure this information, governments of other countries will need to enter into numerous treaties. Poorer countries will hardly be in a position to leverage negotiations with more powerful countries. A more efficient solution would be for companies to publish the required information as part of their annual accounts – something the <a href="http://www.europarl.europa.eu/news/en/news-room/content/20150703IPR73914/html/Tax-MEPs-advocate-country-by-country-reporting-to-help-developing-countries">European Parliament</a> has called for.</p>
<h2>Out of date</h2>
<p>The <a href="http://www.taxjustice.net/cms/upload/pdf/Picciotto%201992%20International%20Business%20Taxation.pdf">current corporate tax system</a> was designed nearly a century ago when the contemporary form of transnational corporation, direct corporate investment in foreign operations and the internet did not exist. The OECD has failed to address the three biggest fault lines in the current system. First, under various international treaties, companies are taxed at their place of residence rather than the place of their economic activity. The OECD reforms do not make any significant change.</p>
<p>Second, modern corporations, such as Starbucks and Google, are integrated entities. They coordinate the economic activities of hundreds of subsidiaries to achieve economies of scale, market domination and profits, but for tax purposes are assumed to be separate economic activities. So a single group of companies with 500 subsidiaries is assumed to consist of 500 independent taxable entities in diverse locations. This leaves plenty of scope of profit shifting and tax games. </p>
<p>Third, the profits of a group of companies are allocated to each country by using a system known as <a href="http://repository.essex.ac.uk/8098/1/WP2010-1%20-%20PSikka%20Transfer%20Pricing%20Paper.pdf">transfer pricing</a>. This requires arm’s-length or independent market prices to calculate the price of intra-group inputs and value of outputs to estimate taxable profits. In the era of global corporations, independent prices can’t easily be estimated. For example, as I found in an investigation in 2011, just <a href="http://www.etcgroup.org/files/publication/707/01/etc_won_report_final_color.pdf">ten corporations control</a> 55% of the global trade in pharmaceuticals, 67% of the trade in seeds and fertilisers and 66% of the global biotechnology industry. </p>
<h2>The way forward</h2>
<p>The OECD recognises the problem but does not offer any way forward. Instead, it seeks to repair the current broken system through improved documentation for transfer pricing and international treaties. An alternative approach known as <a href="http://www.taxjustice.net/cms/upload/pdf/Towards_Unitary_Taxation_1-1.pdf">unitary taxation</a> can address the above shortcomings. It treats each group of companies as a single unified economic entity. It recognises that there can be no sale, cost or profit until the company transacts with an external party. Thus, all intragroup profit shifting is negated. </p>
<p>The global profit of an entity is allocated to each country in accordance with key variables, such as sales, employees and assets – and each country can then tax the resulting profit at any rate that it wishes. A system of unitary taxation has been operated within the US since the 1930s to negate the impact of domestic tax havens (for example Delaware) and profit shifting. The OECD could have studied this but chose not to.</p>
<p>The BEPS project is unlikely to be the last word on corporate tax avoidance.</p><img src="https://counter.theconversation.com/content/48466/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Prem Sikka is director of the Association for Accountancy and Business Affairs (AABA), a not-for-profit organisation.</span></em></p>The EU is thought to be losing one trillion Euros from tax avoidance, evasion and arrears. But the latest tax reform is unlikely to fix that.Prem Sikka, Professor of Accounting, Essex Business School, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/472052015-09-11T05:46:23Z2015-09-11T05:46:23ZFactCheck Q&A: would 60% of any GST revenue raised have to be spent on compensation?<figure><img src="https://images.theconversation.com/files/94331/original/image-20150910-18672-1okasbk.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Shadow Treasurer Chris Bowen, on Q&A, September 7, 2015.</span> <span class="attribution"><span class="source">Q&A</span></span></figcaption></figure><p><strong>The Conversation is fact-checking claims made on Q&A, broadcast Mondays on the ABC at 9:35pm. Thank you to everyone who sent us quotes for checking. Viewers can request statements to be FactChecked via <a href="http://www.twitter.com/conversationEDU">Twitter</a> using hashtags #FactCheck and #QandA, on <a href="http://www.facebook.com/conversationEDU">Facebook</a> or by <a href="mailto:checkit@theconversation.edu.au">email</a>.</strong></p>
<hr>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/SZwwJ7bvTkc?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Excerpt from Q&A, September 7, 2015.</span></figcaption>
</figure>
<blockquote>
<p>The fact of the matter is if you increase the GST, you have to spend close to 60% on compensation and then you’ve only got 40% of what you’ve raised left and it doesn’t go very far. – Shadow Treasurer, Chris Bowen, <a href="http://www.abc.net.au/tv/qanda/txt/s4286225.htm">speaking</a> on Q&A, September 7, 2015.</p>
</blockquote>
<p>NSW Premier Mike Baird has called for the Federal Government to raise the goods and services tax (GST) rate from 10% to 15% to help pay for health care and other costs, but his proposal has been met with resistance from the ALP.</p>
<p>Speaking on Q&A, federal shadow treasurer Chris Bowen said close to 60% of any revenue raised through the GST would have to be spent on compensation. Is that accurate?</p>
<h2>No legal requirement</h2>
<p>From a legal perspective, the simple answer is no.</p>
<p>There is nothing that legally requires the government to provide compensation (of any amount) if the GST is increased. </p>
<p>However, from a political point of view, in order to obtain support for any GST rate rise, the government would likely offer compensation through income tax cuts and increased social security payments. </p>
<p>When asked for a source for the 60% figure, a spokesman for Bowen referred to comments by NSW Premier Mike Baird. Bowen’s spokesman said:</p>
<blockquote>
<p>I think the best reference point is from the architect of increasing the GST to 15%. <a href="http://www.abc.net.au/news/2015-07-20/gst-proposal-like-putting-lipstick-on-a-pig-victoria-treasurer/6633718">Here</a>, Mike Baird on ABC 7.30 clearly outlines the revenue raise/amounts he would consider for compensation. If you take A$18 billion over $32 billion, Mike’s reasoning, then you get 56%.</p>
</blockquote>
<p>The spokesman referred to the following exchange between Baird and 7.30 presenter Leigh Sales:</p>
<blockquote>
<p>LEIGH SALES: But then how much would that cost you out of the revenue that you would hope to raise by increasing the GST?</p>
<p>MIKE BAIRD: I mean, it’s - it depends on how much you pay. I mean, my proposal, as I said, for those 60% of households which are under A$100,000 and then 50% from $100,000 to $155,000, that’s the package at the moment, effectively you’d get from $32 billion down to about $15 or $16. So it’s $17 or $18 billion worth in terms of the compensation payments.</p>
</blockquote>
<p>In a previous opinion piece for <a href="http://www.theaustralian.com.au/opinion/mike-baird-raise-the-gst-to-15-per-cent-to-pay-for-healthcare/story-e6frg6zo-1227448117813">The Australian</a>, Mike Baird wrote:</p>
<blockquote>
<p>Our expectation is that a package can be designed with compensation to ensure households earning up to $100,000 are not disadvantaged.</p>
</blockquote>
<p>As a regressive tax, the GST disproportionately affects those on low incomes. Careful thought would therefore have to be given to how such a compensation package would be designed. Income tax cuts, for example, would also benefit high income households. </p>
<p>While the possibility of increasing the GST is currently being discussed, there have been no formal proposals put forward in terms of how a compensation package would be designed and implemented. </p>
<p>Further, even if compensation is offered, not all states are likely to agree to a GST rate rise. For example, the Victorian Treasurer Tim Pallas has <a href="http://www.abc.net.au/news/2015-07-20/gst-proposal-like-putting-lipstick-on-a-pig-victoria-treasurer/6633718">said</a> he would veto any proposals to raise the GST, referring to the possibility of a compensation package as “just putting lipstick on a pig”. </p>
<p>Legally, while the federal government <a href="https://theconversation.com/why-the-commonwealth-can-change-the-gst-without-the-states-36298">can change the GST without the support of the states</a>, it would be unlikely to do so.</p>
<h2>Verdict</h2>
<p>It is not correct from a legal perspective to say that the government would have to spend close to 60% of any GST revenue raised on compensation. However, the government would likely offer compensation to accompany a GST increase.</p>
<p>The amount of compensation offered would be subject to more formal government modelling and debate. There is no formal proposal on the table pegging the compensation amount at 60% of GST revenue raised or any other specific figure. </p>
<hr>
<h2>Review</h2>
<p>There is no legal or generally agreed political requirement to compensate for an increase in the GST.</p>
<p>The political answer varies with the revenue, efficiency and equity objectives of the tax reform, and with the specific design of a tax reform package which includes a larger GST.</p>
<p>The NSW premier, Mike Baird, proposes to raise the GST rate from 10 to 15% to fund projected increases in government expenditure on health care. </p>
<p>Since low and middle income people, as well as high income people, benefit from higher expenditure on health care, it could be argued that all households may be expected to contribute extra taxation.</p>
<p>True, a higher rate GST is more regressive than a higher income tax rate, or a higher Medicare levy rate.</p>
<p>The government could even consider no income tax reduction or social security increases if the higher GST were to replace more distorting indirect taxes, such as state stamp duties. </p>
<p>On the other hand, if the larger GST was part of a lower income tax and higher consumption tax mix reform package, all of the extra GST revenue would likely be recycled to households. – <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/47205/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Shadow Treasurer Chris Bowen told Q&A that the government would have to spend close to 60% of any GST revenue raised on compensation. Is that a fact?Kathrin Bain, Lecturer, School of Taxation & Business Law, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/397662015-04-13T09:55:42Z2015-04-13T09:55:42ZWhy most of us procrastinate in filing our taxes – and why it doesn’t make any sense<figure><img src="https://images.theconversation.com/files/77376/original/image-20150408-18063-1em035w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tick tock, tick tock.</span> <span class="attribution"><span class="source">Tax day via www.shutterstock.com</span></span></figcaption></figure><p>April 15th, a day most of us dread, is fast approaching. Have you filed your taxes yet? </p>
<p>Economists believe most people are rational calculating machines, but many of us don’t behave rationally about filing our taxes. </p>
<p>Instead, most of us wait until the very last minute. Figures from the <a href="http://www.irs.gov/uac/Newsroom/Filing-Season-Statistics-for-Week-Ending-March-27-2015">end of March</a> suggest roughly 50 million – or one-third of all this year’s individual tax returns in the US – will have been filed in the final two weeks before Tax Day. </p>
<p>This is NOT a good idea for most of us.</p>
<p>I experienced this procrastination during the past weekend when I was finally able to convince one of my sons to sit down and do his income taxes. He was very happy when the final tabulation showed a good-sized refund. Walking out the door, my son said if he had known it would be a refund, he would have done his taxes much earlier.</p>
<h2>Most of us owe nothing</h2>
<p>Waiting till the last minute is strange for a number of reasons. First, the majority of people in the US either get a refund or don’t owe the federal government any money. The graph below produced from <a href="http://www.irs.gov/uac/SOI-Tax-Stats-Historical-Table-9">IRS data</a> shows the percentage of filed tax returns that are due a refund. Since the 1950s a rising number of people have overpaid. About eight out of every ten tax returns filed in 2013 got a refund.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/77379/original/image-20150408-18057-1230v8a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/77379/original/image-20150408-18057-1230v8a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/77379/original/image-20150408-18057-1230v8a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=370&fit=crop&dpr=1 600w, https://images.theconversation.com/files/77379/original/image-20150408-18057-1230v8a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=370&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/77379/original/image-20150408-18057-1230v8a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=370&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/77379/original/image-20150408-18057-1230v8a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=465&fit=crop&dpr=1 754w, https://images.theconversation.com/files/77379/original/image-20150408-18057-1230v8a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=465&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/77379/original/image-20150408-18057-1230v8a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=465&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The graph shows more and more tax filers are owed money.</span>
<span class="attribution"><span class="source">Author's Calculations From IRS Data</span></span>
</figcaption>
</figure>
<p>The IRS also tracks the number of returns that owe no tax. Since 1950 on average 4% of all returns filed owed no tax. Combined this means only about 15% of all filed tax returns pay the government any extra money beyond what has already been taken out of paychecks or sent in throughout the year as estimated payments. </p>
<p>In other words, if you are procrastinating, there is an 85% chance you either owe nothing or will get money back, which gives you better odds that many <a href="http://www.masslottery.com/lib/downloads/about/June2014financialYTD.pdf">state lotteries</a>.</p>
<h2>Large refunds and unlikely audits</h2>
<p>Second, if you do get a refund, typically it will be quite large. The most <a href="http://www.irs.gov/uac/SOI-Tax-Stats-Collections-and-Refunds,-by-Type-of-Tax-IRS-Data-Book-Table-1">recent data</a> for the 2012 tax year showed that among people who overpaid, the typical overpayment amount was about $3,000. Of this, the average person elected to receive $2,800 back and left $200 with the IRS to pay future taxes.</p>
<p>Third, many people procrastinate because they fear being audited. The percentage of individual returns audited in 2010 was about 1.1% and has since fallen to about 0.9%. However, these low numbers mask huge variations in the type of returns that are audited. Most of the audits happen either to millionaires or self-employed people with high income, not to the general public. </p>
<p>About 7.5% of people declaring income over a million dollars and 2.7% of self-employed people earning between $200,000 and a million dollars were audited. As for the rest of us – excluding those who declared self-employment or farm income – the chance of being audited is about 0.3%. </p>
<p>Roughly the same number of people <a href="http://www.irs.gov/uac/SOI-Tax-Stats-Examination-Coverage:-Recommended-and-Average-Recommended-Additional-Tax-After-Examination-IRS-Data-Book-Table-9a">visit emergency rooms</a> each year after slipping or falling in a bathroom as are selected among the general public for IRS audits. Moreover, among this small group chosen for auditing, one out of every five has no changes made to their return after the IRS examination.</p>
<h2>Lightning-like odds</h2>
<p>Fourth, some people are concerned they could go to jail because of making a tax mistake. The odds of this happening are in the same range as being <a href="http://www.lightningsafety.noaa.gov/odds.htm">hit by lightning</a>. In the US slightly more than 300 people are hit by lightning each year. Since 2000, fewer than 600 people a year on average <a href="http://www.irs.gov/uac/SOI-Tax-Stats-Criminal-Investigation-Program-by-Status-or-Disposition-IRS-Data-Book-Table-18">go to jail</a> for tax crimes, meaning the chance of “doing time” for tax reasons is slim indeed.</p>
<p>Fifth, those who fill out their returns on their own often find the task daunting. The language is convoluted, the rules are Byzantine, and tax filing requires collecting many papers and forms that don’t all arrive at the same time. The process makes many people feel <a href="http://www.miamiherald.com/news/local/community/miami-dade/article9534044.html">confused</a>, stupid or inadequate. </p>
<p>Lastly, a <a href="http://www.gallup.com/poll/151910/tornadoes-taxes-coincide-stressful-days-2011.aspx">Gallup Poll</a> has found Tax Day to be one of the most stressful days of the year, which is not surprising given that many people put off doing their taxes until the last moment. <a href="http://www.sciencedirect.com/science/article/pii/0092656686901273">Research</a> suggests procrastination is related to stress and that procrastinators often do not finish tasks that are highly stressful.</p>
<h2>Trouble is, no one knows the truth</h2>
<p>The question remains, why do so many people procrastinate when the odds are greatly in their favor? One reason is that almost no one knows the <a href="http://www.amazon.com/Business-Information-Zagorsky-McGraw-Hill-Paperback/dp/B00DU7GT1E/ref=sr_1_2?ie=UTF8&qid=1428342038&sr=8-2&keywords=zagorsky+information">above statistics</a>. </p>
<p>While the IRS is quick to take your money, it is slow to release data. There are a number of reasons why. Tax returns are due months after the fiscal year is over. The IRS does not get most individual tax returns for 2014 until the beginning of 2015. Then, many people and businesses ask for extensions. </p>
<p>This means it takes a long time before the IRS gets all the tax returns for a particular year. Additionally, the <a href="http://www.irs.gov/uac/SOI-Tax-Stats-Purpose-and-Function-of-Statistics-of-Income-%28SOI%29-Program">Statistics of Income</a>, which is the IRS office that produces the data, has a small budget. Most of its money and time is spent producing information for the Treasury Department’s Office of Tax Analysis and the Congressional Joint Committee on Taxation, so that the impact of congressional and presidential proposals to change the tax system can be evaluated.</p>
<p>Another reason is that the tax people owe is uncertain since Congress is constantly changing the rules, and as life’s circumstances change, different tax rules apply. </p>
<p>After each year’s returns are collected, the IRS publishes a <a href="http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns-Publication-1304-%28Complete-Report%29">large book</a> that summarizes the information found in individual tax returns. The first chapter of each book is a lengthy summary of all the recent tax law changes. Constant changes to the tax code reduce people’s ability to accurately forecast their tax liability, which makes people put off dealing with computing and filing their taxes.</p>
<h2>Facing the scary unknowns</h2>
<p>Sometimes it is rational to delay. Although most people get refunds or owe no money, about 15% of people must pay the Federal government on April 15. The typical person in this category <a href="http://www.irs.gov/uac/SOI-Tax-Stats-Historical-Table-1">owes about</a> $6,000, which is twice as large as the average refund. </p>
<p>It is rational for people who owe the IRS money to delay filing since it gives them a longer time to gather the funds and a longer time to receive interest on their money before incurring a late payment penalty</p>
<p>In general, many people procrastinate when faced with the unknown because the unknown is scary. It is very rational to anticipate the worst when facing the mysteries of the US tax code. </p>
<p>However, for many people, Tax Day is a time of needless worry because the majority of us get back a sizable refund. While gathering together the time and papers needed to complete your tax return is a pain, four out of five of all taxpayers will find a silver lining.</p><img src="https://counter.theconversation.com/content/39766/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky 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 vast majority of us will get a refund from the federal government, while the odds of an audit or worse are akin to getting struck by lightning.Jay L. Zagorsky, Economist and Research Scientist, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/392062015-03-24T13:33:59Z2015-03-24T13:33:59ZThe frightening maths that shows Britain’s austerity future<figure><img src="https://images.theconversation.com/files/75688/original/image-20150323-17699-jrbjd3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Do you dare gaze into the future?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/matthewpaulson/8335614895/in/photolist-dGAcUc-2Ymztt-bCbZaA-gfqcv-6aB3nY-54hU1r-9DNhmb-hhLwU9-4qxth7-5cjj8L-76jcmc-dAWBiP-27Cbf-77pf5n-6fkvuN-4w7hbF-ckPP8Y-8XeaF-annw4R-mtAZdb-do1VXa-gCMtYL-bF2z1d-4qxsEu-bDGypr-5ys5GL-dBRcB9-bdpvue-7Evib6-acNCc3-78Kohk-51zQcZ-8MBJTz-8xaRNf-57cCp1-54hU3B-54n8bJ-5aUaCP-9Cm52T-gLuFq-54n8aN-54n88N-dMrAs3-9VymzD-9VBdkb-aTgzs-a6881v-32H8Tr-bTWjF2-8JAsfN">Matthew Paulson</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>There was much to digest from last week’s budget. Some commentators focused on George Osborne’s bid <a href="http://www.theweek.co.uk/budget-2015/62957/budget-2015-osborne-shoots-labour-foxes-ahead-of-election#">to undercut</a> the Labour Party’s general election campaign; others focused on <a href="http://www.ft.com/cms/s/0/442bcd34-cd8f-11e4-9144-00144feab7de.html#axzz3VDa3Vkhy">Tory rumblings</a> that the Chancellor of the Exchequer had missed a chance to offer some pre-vote sweeteners. We thought it was a good moment to draw attention to some important fiscal forecasts that shed a painful light on the growing cross-party acceptance of austerity. </p>
<p>We are referring to the UK fiscal imbalance: the difference between the present value of the government’s commitments to pay future benefits (such as state pensions and NHS outlays) and the present value of its tax revenues. According to a set of independent <a href="http://www.cesifo-group.de/portal/page/portal/DocBase_Content/ZS/ZS-CESifo_DICE_Report/zs-dice-2009/zs-dice-2009-4/dicereport409-rr1.pdf">estimates by Cesifo</a>, the UK fiscal imbalance is equivalent to a whopping 510% of GDP. It is a reflection of the public spending pressures that we face as the <a href="http://www.history.com/topics/baby-boomers">baby boom generation</a> reaches retirement age and life
expectancy continues its upward trend. Add in the government’s official debt on top of that and you get a number close to six times our national income.</p>
<h2>Compare and contrast</h2>
<p>To put this figure in context, a <a href="http://www.iea.org.uk/publications/research/the-government-debt-iceberg">related study</a> by the Institute of Economic Affairs (IEA) recently calculated that total spending would have to be cut by more than a quarter as compared with the level implied by current policy if the UK is to avoid tax increases and all spending is to be met out of tax revenue in the long run. By comparison, the US has a much lower fiscal imbalance as a proportion of national income (due to the relatively small size of its social security programmes), while other leading European economies also fare better.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/75742/original/image-20150323-17672-1a68bej.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/75742/original/image-20150323-17672-1a68bej.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/75742/original/image-20150323-17672-1a68bej.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=388&fit=crop&dpr=1 600w, https://images.theconversation.com/files/75742/original/image-20150323-17672-1a68bej.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=388&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/75742/original/image-20150323-17672-1a68bej.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=388&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/75742/original/image-20150323-17672-1a68bej.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=488&fit=crop&dpr=1 754w, https://images.theconversation.com/files/75742/original/image-20150323-17672-1a68bej.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=488&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/75742/original/image-20150323-17672-1a68bej.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=488&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"><a class="source" href="http://www.cesifo-group.de/DocDL/dicereport409-rr1.pdf">Cesifo DICE report</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The scale of the UK fiscal imbalance is staggering and helps to explain shadow Chancellor <a href="http://www.politics.co.uk/blogs/2015/03/19/ed-balls-wouldn-t-reverse-anything-from-osborne-s-budget">Ed Balls’ admission</a> that he would not reverse his opposite number’s pledges. And of course, it also raises the question of how on earth we should deal with it. </p>
<p>There are several options available, including an increase in income taxes, National Insurance contributions or consumption taxes such as VAT and fuel duty. We could raise the mandatory retirement and state pension ages, or reduce unemployment and other welfare benefits. Or we could increase the share of young immigrants in the population to rebalance the age distribution. </p>
<h2>Taking the hit</h2>
<p>This list makes us think about which groups in society should bear most of the burden of this adjustment in our economy – workers, retirees or the unemployed. But it is also about the trade-off between current and future generations. On the one hand, a relatively fast fiscal adjustment would spread increases in taxes and reductions in spending over a much smaller population – primarily those generations currently living. As a result, the burden <em>per person</em> would be much larger, and the economic pain for individuals correspondingly greater. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/75698/original/image-20150323-17688-xqx9g6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/75698/original/image-20150323-17688-xqx9g6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/75698/original/image-20150323-17688-xqx9g6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/75698/original/image-20150323-17688-xqx9g6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/75698/original/image-20150323-17688-xqx9g6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/75698/original/image-20150323-17688-xqx9g6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/75698/original/image-20150323-17688-xqx9g6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/75698/original/image-20150323-17688-xqx9g6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Taking the load.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/trekkingtheplanet/7507223164/in/photolist-crotU9-bhD83n-bsYh42-5skrEc-apSwLv-oaExZm-8KxEgD-6gE9Zq-dedt3k-89nagZ-8AKDBo-hkWYQs-ajPo28-eff2WM-58K6Fr-8EN5sz-2WY8yj-5PzsUY-5mkYb9-4Fwu9q-qZim4D-3dyZWS-44L4K2-srDc5-7gLs99-ddVMy2-esWgF-7H74fM-aLPXD-33bcC8-rnC1D3-qZjt9t-49REYB-8UVa88-5kuQMj-5LRfzp-4WDrvn-7knDfW-j5useJ-5LVA97-5QTRsS-8Th61-di8DL6-7oKJN2-frrKn-5QPtLv-5QTNky-5QPyXX-5QTQSs-5QPxxa">Darren and Sandy Van Soye</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>On the other hand, it is difficult to justify shifting most of the burden onto unborn future generations, because the latter have not benefited directly from the spending surge of recent decades and so cannot be expected to foot the bill. Recent policies (for example <a href="http://www.public-sector-pensions-commission.org.uk/">relatively generous public sector pensions</a>; <a href="http://www.nidirect.gov.uk/index/information-and-services/pensions-and-retirement-planning/pensions-and-retirement/state-pension/changes-to-the-state-pension/changes-to-the-planned-increase-in-state-pension-age.htm">the delayed and insufficient proposed rise in the state pension age</a>) are not striking a fair balance here, with unborn generations and the current young poised to bear almost the entire burden of the fiscal imbalance. </p>
<p>So, what should be done? For one thing, we can say that any workable solution is likely to require a combination of the measures listed above, so that no one group is singled out to bear the brunt. That way, the burden could be rebalanced toward current generations but the economic pain on individual groups would remain bearable – a necessary condition for any economically and politically viable solution. </p>
<p>The fiscal imbalance presents an important set of choices for the UK economy, and it therefore deserves a public debate. The first step in the debate is to appreciate the scale of the problem: the frightening fiscal arithmetic. The difficult part is to find a solution and then stick with it.</p><img src="https://counter.theconversation.com/content/39206/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The political to-and-fro after George Osborne’s budget failed to ignite political imaginations. Maybe because all parties are struggling to rationalise the hole government coffers.Michael Hatcher, Lecturer in Economics, University of SouthamptonAlessandro Mennuni, Lecturer in Economics, University of SouthamptonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/381732015-03-19T19:29:15Z2015-03-19T19:29:15ZA roadmap for the 2015 Budget: ways to increase tax revenue<p>Prime minister Tony Abbott has suggested that people will find the 2015 federal budget “pretty dull and pretty routine”, which has been interpreted as meaning the federal government is likely to continue its approach of cutting expenditure. </p>
<p>An odd feature of the budget discussion is the absence of measures that would increase total taxation revenue. This is a one-sided approach to preparing a budget.</p>
<p>A change in the size of the budget deficit can be achieved either by increasing tax revenues or by reducing total expenditures. I take as given the need to reduce the size of the structural budget deficit. So too is the need for reform of major expenditures such as health and income transfer programmes. </p>
<p>With treasurer Joe Hockey flagging the release of the Tax White Paper in coming weeks, it’s surely time to focus on the tax side of the budget. </p>
<h2>How tax systems work</h2>
<p>For each tax in our tax system, the tax take depends on two features of the tax; the base of the tax and the rate or rates of tax applied to the base. Consequently one needs to distinguish between the parameters in our tax system that fix the rates of taxation – for example, the 30% corporate tax rate or the marginal tax rates applied to household income – and those that fix the bases of taxes.</p>
<p>Examples of the latter are the exemption of household income received from superannuation and accelerated depreciation allowance in the corporate tax system.
Discussions of tax takes usually focus on tax rates, not on tax bases. </p>
<p>Both the tax bases and tax rates offer many possibilities for increasing the total tax take. The bases of the various taxes could be broadened by reducing exemptions and loopholes. I’ve provided some examples below.</p>
<p>A strategy that increases the total tax take by broadening tax bases has several advantages. Removing concessions that favour particular sectors or classes of investors shifts the tax system towards neutrality and the tax system would become more efficient for a given level of payments by tax payers. </p>
<p>It would also make the system more horizontally equitable by treating like circumstances equally for all investors. And it would operate to increase equity among taxpayers of different income levels as most of the concessions and exemptions that might be eliminated benefit predominantly middle and upper income households. As a final bonus to the nation, it would simplify our tax systems.</p>
<h2>Some possible changes to tax bases</h2>
<p>There are many possibilities. Some of the big ticket items are:</p>
<ul>
<li>Eliminating negative gearing for housing investments</li>
<li>Restricting the allowable deductions for depreciation and other business expenses</li>
<li>Revising rules relating to income from trusts</li>
<li>Tightening the rules for fringe benefit taxation</li>
<li>Reforming the taxation of super contributions and income </li>
<li>Reducing tax concessions for not-for-profit organisations</li>
</ul>
<p>Every one of these proposals will meet objections from the taxpayers concerned but we need a national perspective. </p>
<h2>Further strategy options</h2>
<p>We can even contemplate a budget strategy that raises tax revenues without any change in tax rates. With a worsening structural debt problem and growing demands for public expenditures in several areas, now is not the time for tax rate cuts.
For some years the corporate sector has been pressing the government to lower the corporate tax rate. </p>
<p>Our statutory corporate tax rate is higher than that of most countries in the Asia-Pacific region but our dividend imputation is more generous than most other countries, which reduces the tax burden for (domestic) shareholders. The real burden of corporate taxes is measured by the effective tax rates. These depend on other parameters which determine the base of corporate income tax liability, corporate “income”. If the government moves to lower the statutory corporate tax rate, it should at the same time close loopholes so that the total corporate tax take increases.</p>
<p>A few increases in applied tax rates are justified. One is removing the 50% reduction on capital gains income. Another is changing the base of taxes on these beverages to a uniform alcohol-content, as recommended by the Henry Tax Review and others, and setting the rate to increase total revenue. A third is capping the threshold for tax-free income from superannuation.</p>
<h2>Some difficulties with the tax options</h2>
<p>One possible objection is that the tax system is a complex one in which different taxes interact to determine the final liability of all taxpayers and they also interact with the transfer system. Consequently, changes to our tax system require a careful system-wide evaluation. This is true.</p>
<p>But this objection does not provide an excuse for inaction on the tax front. Some changes in tax regimes could be made in the next budget. Some taxes have less interaction; for example, taxes on alcoholic beverages.</p>
<p>The ground for tax reforms which improve the efficiency and/or equity of the tax system has been well prepared by recent tax investigations. The 2010 Henry Review was the most thorough investigation of our whole tax system ever conducted in Australia. Its analysis still applies, though the macro-economic circumstances of the Australian economy have worsened. We also have a Senate Enquiry into Corporate Tax Avoidance which is due to report in June.</p>
<p>In any case, this same objection that reforms need careful consideration over a longer period applies equally to many expenditure-reduction proposals. The unsuccessful and unpopular attempt to introduce a medicare co-payment shows the need for careful consideration. </p>
<h2>A longer term perspective is required</h2>
<p>A strategy of increasing tax revenues to reduce the deficit cannot all be carried out in a single budget. This strategy calls for an integrated program of changes over several budgets. In the 2015 Budget, the Government could announce some changes immediately while foreshadowing other changes to increase total taxation revenue in future budgets. </p>
<p>Above all, the budget strategy needs to look at both sides of the budget. A one-sided concentration on expenditure reduction measures is likely to impose real costs on households if the measures are not carefully designed and to impose the burden mainly on lower-income groups. A two-sided strategy opens up possibilities of increased national efficiency and improved productivity, and greater fairness. </p>
<hr>
<p><em>Editor’s note: Peter will be answering questions between 10 and 11am AEDT on Friday March 20. You can ask your questions about the article in the comments below.</em></p><img src="https://counter.theconversation.com/content/38173/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Lloyd 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>Discussions of tax usually focus on tax rates, not on tax bases. But both offer possibilities to increase the total tax take.Peter Lloyd, Professor of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.