June 2010

Yes, him

So, well, no, we\’ll subcontract this one out shall we?

Yes, Ritchie forgot double taxation relief. No, Ritchie won\’t admit to having done so.

Quite why he cannot simply admit to an \”Ooopsie Moment\” I don\’t know. We all have them sometimes and most of us realise at some point that the best response is to simply declare \”Ah, yes, sorry, Ooopsie Moment there. Sorry, try harder next time\”.

But I have to say further that what I really love about this is that Ritchie\’s own plans, those country by country reporting ones, would lead to a much larger double taxation relief. And thus, by the measurements he uses, a larger tax gap in the UK.

Bear with me here a moment. The aim of country by country reporting is to make sure that companies are properly tax compliant.

Tax compliance – the duty of the taxpayer

For the individual taxpayer tax justice is about tax compliance. This happens when the individual seeks to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions they undertake coincides with the place and form in which they report them for taxation purposes.

What this means for large, international, companies is that they should be paying tax where the economic substance of the transaction takes place. Profits made from oil in Angola should be taxed in Angola. From flogging mustard in Poland in Poland. Country by country reporting is an aid to making sure that this happens.

I\’ve not misrepresented his views here: this is absolutely what he is campaigning for.

Excellent: now we come to double taxation relief. The money that BP makes in Angola should be taxed. righteously, in Angola. Mustard sales in Poland by Tesco\’s should be taxed in Poland. But of course BP and Tesco\’s should not be taxed in the UK on such profits because the economic substance of the transaction is not in the UK. And thus, under Ritchie\’s preferred tax and information scheme, double taxation relief will rise.

And thus, given that Ritchie uses the existence of double taxation relief as proof perfect that there is a tax gap, the tax gap will rise. That very tax gap which Ritchie is campaigning to close.

Everything old is new again

Middle aged economist reads article on how to nap.

When, of course, middle aged economist should in fact read middle aged monarch on how to nap.

As Charles V pointed out.

In order to have a successful siesta, one will require one throne, one castle and one castle key. Place oneself upon the throne inside the castle and hold the castle key in one\’s left hand.

Fall asleep.

As one falls into a deep sleep one\’s left hand will relax, dropping the large and heavy castle key onto the stone floor of the castle, thus waking one.

This process will take 15 to 20 minutes which is exactly the time required for a refreshing siesta.

If one is sadly bereft of thrones, castles or castle keys (although who really is without at least one of each of these essentials), no doubt a suitably innovative mind could create substitutes.

On turning criminals into useful and productive members of society

Another, Dr. Reefer — it’s the name of the dispensary and the trade name of the owner — is proudly ramshackle, in part because it hasn’t been thoroughly renovated since a restaurant moved off the premises.

“This used to be a hot dog place called What’s Up Dog and my place was in the basement,” says Pierre Werner, Dr. Reefer himself. “When What’s Up Dog closed, I moved in the very next day, and I’ve been open every day since.”

Mr. Werner, for the record, is not actually a doctor. Rather, as he puts it with a note of pride and defiance, he’s a “three-time convicted felon for possession of marijuana with intent to sell.” That history, as well as his habit of standing near the side of the road and waving a huge Dr. Reefer sign at passing cars while shouting “come get your meds,” makes other dispensary owners, not to mention some local politicians, wince.

How to get laid

Abstract: Beginning in their late twenties, women face the unique adaptive problem of declining fertility eventually terminating at menopause. We hypothesize women have evolved a reproduction expediting psychological adaptation designed to capitalize on their remaining fertility. The present study tested predictions based on this hypothesis—these women will experience increased sexual motivations and sexual behaviors compared to women not facing a similar fertility decline. Results from college and community samples (N = 827) indicated women with declining fertility think more about sex, have more frequent and intense sexual fantasies, are more willing to engage in sexual intercourse, and report actually engaging in sexual intercourse more frequently than women of other age groups. These findings suggest women’s “biological clock” may function to shift psychological motivations and actual behaviors to facilitate utilizing remaining fertility.

Forget chasing the teenage tarts: go for the women in their 30s.

Ms. Klein

The cuts are happening for a simple reason. When the G20 met in London in 2009, at the height of the financial crisis, the leaders failed to band together to regulate the financial sector so that this type of crisis would never happen again. All we got was empty rhetoric, and an agreement to put trillions of dollars in public monies on the table to shore up banks around the world. Meanwhile the US government did little to keep people in their homes and jobs, so in addition to haemorrhaging public money to save the banks, the tax base collapsed, creating an entirely predictable debt and deficit crisis.

At this weekend\’s summit the Canadian prime minister, Stephen Harper, convinced his fellow leaders that it simply wouldn\’t be fair to punish those banks that behaved well and did not create the crisis (despite the fact that Canada\’s highly protected banks are consistently profitable and could easily absorb a tax).

If banks make losses and fall over they should pay more in taxes. If banks make profits and don\’t fall over they should pay more in taxes.


Public funding of science

We get the usual \”scientists should get tax money\” argument rolled out at The Guardian. My comment left there:

Scientist in doesn\’t understand economics shocker!

The argument in favour of tax funding for science is that science is a public good. This means that it is non rivalrous and non excludable. If Mr (sorry, Professor? Dr.?) Khan discovers anti-gravity then we can\’t a) stop other people from using it nor b) does other people using it mean that we cannot.

Because science is a public good economists agree that it\’s something which a pure market system won\’t provide enough of: if you cannot profit from it directly, other people being able to take your results and use them for free, why would you invest in it? Thus we subsidise it from taxes.

However, this very same argument which tells us that there should be tax subsidy also tells us that it doesn\’t matter which country the science is done in. If a German, a Chinee, a Portugee or an American discovers anti-gravity then we are all able to use the discovery as well. Because science is a public good.

So, because science is a public good we should subsidise it, but because science is a public good it doesn\’t matter which country does it.

Now, as soon as you start saying \”Ah, but what about patents\”, what about things that are invented which are then protected, which people can make money out of and thus we really might want to make sure they are invented in the UK….well, when you\’re talking about things which are protected, which people can make money out of, then we\’re no longer talking about a public good, are we? Because this is now excludable. We\’ve a patent on anti-gravity and you can only use it if you pay us.

If it\’s not a public good then there\’s no reason for the tax subsidy.

So, you can either argue that science should be British, because we can make money from it, which has the side effect of destroying the argument for tax subsidy, or you can say that science is a public good and should have a tax subsidy….but you cannot then argue that science must be British.

One or the other please, not both. Trying to argue both just shows that you don\’t understand the science of economics: not a good thing for a scientist trying to make an economic argument.

Have they got this right?

The job losses in the public sector will result from the 25% inflation-adjusted reduction in Whitehall spending over the next five years,

I\’\’m not sure they have.

The 25% cuts are nominal cuts. Cuts from the planned future spending as upgraded for inflation, expansion of government, population growth and so on.

An \”inflation-adjusted\” reduction would be a reduction in cash terms wouldn\’t it? And we\’re not actually having one of those. Cash spending will still rise.

So I think the Guardian has got this entirely the wrong way around. The 25% cuts are NOT inflation adjusted, rather than being inflation adjusted.

Or have I got confused here?

Hmm, Larry Elliott tells me I\’m wrong via email:

No the real terms cut is 25 pc. The nominal reduction is much smaller, a point made quite forcefully by Reform and the Institute for Economic Affairs

Clearly I need to think about this a little more, silly Timmy. For I fear that Larry is right and Timmy wrong here.

Madsen\’s new book

Rather than simply criticizing this situation, I have taken steps to help rectify it. Coming out soon is my new book \”Understanding Economics.\” Its subtitle is \”Economics for non-economists,\” and its aim is to introduce those who have not studied economics professionally to an understanding of its essentials. I have tried to do this without jargon or equations, yet in what I hope is a fluid and non-patronizing way.

Among the first copies to be sent out, one will go to a foundation which uses the word economics in its title, but nowhere in its thinking, and one will go to a retired accountant who is paid to write about economics yet quite obviously knows nothing at all about it. Others will go to journalists who report their output uncritically.

I think we can guess who those two copies are going to. Now we just await their reviews, yes?

Err, Brendan?

Brendan Barber, the TUC’s general secretary, said: “It is absurd to think that the private sector will create 2.5m new jobs over the next five years.”

Umm, you do know that the private sector creates at least that many each and every year, don\’t you?

On one estimate, one in seven private sector jobs was destroyed each year between 1997 and 2005.

If there\’s 24 million private sector jobs (close enough for a blog post) and 3.4 million are destroyed each year but unemployment doesn\’t rise then 3.4 million must be being created each year as well.

Now it\’s entirely possible that there won\’t be net private sector job creation: but that\’s not what you\’re saying, is it?

Infamy, Infamy, they\’ve all got it In For Me…..

The far right have always liked to argue that my work on the tax gap is wrong because I categorise tax avoidance as part of the tax gap.

Can you guess who yet?

But this argument is entirely wrong.

Indeed it is. the argument from this little Fuhrerlite right wing bastardo is exactly the opposite. I have no problem at all with \”tax avoidance\” being categorised as part of the tax gap.

My argument is that in calculating the tax gap Ritchie includes legitimate use of tax allowances, people justly and rightly doing exactly what Parliament intended, as part of the tax gap. That is, he states that tax compliance is tax avoidance and thus part of the tax gap.

Note that the Revenue quite categorically say that tax planning – that is using allowances and reliefs provided in law for the intention that parliament considered appropriate (in my lexicon, tax compliant behaviour)  is not part of the tax gap. I completely and utterly agree. I have never once suggested otherwise.

Oh, gosh, really? Perhaps I\’ve got the man all wrong then. If so, my deepest apologies.

So, let us look at The Missing Billions, which is where the estimation of the tax gap all starts out.

In 2006–07, HM Revenue & Customs raised £44.3 billion in corporation tax, of which
£23.8 billion came from those businesses within the Large Business Service. In 2006
the companies in this survey declared UK current tax liabilities of £11.5 billion, or just
under half the total tax managed by this unit. If the estimated loss is extrapolated
across all of these 700 companies then the total corporation tax expectation gap
might be some £11.8 billion. This is an increase from £9.2 billion, which was the
estimate made the last time a similar exercise to that undertaken here was completed,
relating to the period to 2004 30.
As a proportion this may be the highest gap of all. Much may be due to legitimate tax
planning, but by no means all is. Some, undoubtedly, is due to tax avoidance
When this sum is added to the £12.9 billion of tax loss already calculated for individuals
it suggests that the total UK tax gap due to tax avoidance can be estimated at £24.7
billion, and rising.

My bolding.

So, do you see what he\’s done there? Yes, he\’s included legitimate tax planning in his estimate of the tax gap. He\’s actually said that he\’s done this.

Just to remind ourselves. From Ritchie\’s report on the tax gap:

Much may be due to legitimate tax
planning, but by no means all is. Some, undoubtedly, is due to tax avoidance

Ritchie today:

using allowances and reliefs provided in law for the intention that parliament considered appropriate (in my lexicon, tax compliant behaviour)  is not part of the tax gap. I completely and utterly agree. I have never once suggested otherwise.


So, let’s summarise this: it is clear that the far right have no idea what they’re talking about, clearly can’t do statistics or appraise them, do not understand what tax avoidance is or, alternatively, peddle straightforward incorrect information for their own political purposes.

Umm, perhaps I\’ll not be apologising after all then.

However, much, much, more exciting than this revelation that R. Murphy cannot even remember his own report (to put the gentlest possible interpretation of these variances in words forward) we have an intervention from a tax accountant. One that I am not competent to evaluate of course but one which is absolutely fascinating:

However, Ritchie\’s real howler is where he claims, on p.11, that large companies pay an average tax rate of 22.2% as if this is evidence of wholesale avoidance.  Ritchie has used the tax payable figure of £47.7bn and compared this to average chargeable income of £226bn to get all frothy at the mouth about the iniquity of this effective tax rate of 21.1%.

But the HMRC figures show that the actual tax charge on those profits is in fact £65.5bn, for an effective tax rate of almost 29% – bang on what you would expect given a statutory rate for large companies of 30%.  This charge is then relieved by the provision of double tax relief on £16.8bn of the tax due, to reduce the actual amount payable to £47.7bn.

What the berk has done is ignore double tax relief altogether.  Double tax relief is an essential part of our tax system to keep it fair.  It ensures that companies that trade in one jurisdiction but are legally resident in another only pay tax on those profits once.  Basically the UK and another country come to an agreement to tax each other\’s companies to ensure that profits aren\’t taxed twice.

Ritchie\’s analysis needs to take account of double tax relief or, as he\’s capably shown, you end up with idiotic garbage as a result.

Now, it looks like he owes Gauke a big apology. And he\’d better go back to the drawing board, because his estimates of tax avoidance are now clearly several orders of magnitude too big.

Assuming this is correct then our international tax expert has managed to forget something really quite important. That corporation tax paid to Johnny Foreigner gets knocked off your corporation tax bill due to HMRC.

Something which, well, no, he didn\’t did he? Seriously? He did? Or not?

Yes, of course I believe Christie but can we get some independent verification? Has he really been banging on about this for all these years without noting this really rather important point? And the TUC has been paying for this \”research\”?

What say you?

Great soccer games of recent times

Grenada went into the match with a superior goal difference, meaning that Barbados needed to win by two goals to progress to the finals. The trouble was caused by two things. First, unlike most group stages in football competitions, the organizers had deemed that all games must have a winner. All games drawn over 90 minutes would go to sudden death extra time. Secondly and most importantly, there was an unusual rule which stated that in the event of a game going to sudden death extra time the goal would count double, meaning that the winner would be awarded a two goal victory.

Barbados was leading 2-0 until the 83rd minute, when Grenada scored, making it 2-1. Approaching the dying moments, the Barbadians realized they had no chance of scoring past Grenada\’s mass defense, so they deliberately scored an own goal to tie the game at 2-2. This would send the game into extra time and give them another half hour to break down the defense. The Grenadians realized what was happening and attempted to score an own goal as well, which would put Barbados back in front by one goal and would eliminate Barbados from the competition.

However, the Barbados players started defending their opposition\’s goal to prevent them from doing this, and during the game\’s last five minutes, the fans were treated to the incredible sight of Grenada trying to score in either goal. Barbados also defended both ends of the pitch, and held off Grenada for the final five minutes, sending the game into extra time. In extra time, Barbados notched the game-winner, and, according to the rules, was awarded a 4-2 victory, which put them through to the next round.

Upon being on the PR list

I\’ve ended up, sadly, on several of these PR lists. Hip Hop this and that in NYC, for example.

I am, of course, being based in Portugal, and, umm, how to put this gently, deeply uninterested in Hip Hop, NYC or, indeed PR, not a regular responder to certain invitations.

There are, just occasionally, invitations that I would love to accept though:

African American Media Network Executive Director Makakuvu Ali El Bey, Bikini Ad Model and Civil Rights Activist Monica Watkins and Star Industries Officials will join dozens of models wearing bikinis in a protest against the State of New York MTA, Tomorrow JUNE 29 at 11:30 AM. Outside the MTA Michael J. Quill Bus Depot on 41st Street between 10th and 11th Avenue A popular Georgi Vodka ad featuring an African American woman wearing a bikini has been banned in certain Brooklyn neighborhoods after being deemed obscene by religious communities. Community, Civil; Rights and officials from Star Industries will be holding huge protest of the MTA to speak out against the censorship.

The thing that is being protested about….well, I know nothing. But being at the protest, umm, as a middle aged male, well, it does sound fun, at the least.

Yes, this has been cleared with my wife. As someone married to a middle aged male, she\’s fine with an appetite sharpened away from home: as long as dining is done at that home.

Miserable cheapskate fu……s

One of the inevitabilities of living in a poor rural area is that those around you have the poor rural attitude to animals. Either they work or they don\’t exist.

One of the inevitabilities of living in a poor rural area where some of the urban areas are getting richer is that even that curt but fair attitude to animals has waned: only the curt is left.

If the farmers (or more accurately, and without the perjorative overtones this word has in English, the peasants) around here have too many puppies or kittens then they drown them.

The townies abandon them in the public rubbish bins. Alive. As the three kittens I just found were.

In a plastic bag with a little bit of water.

When I\’m walking three dogs (one rescued from just such a binly fate 6 months ago) we\’re going to find these interesting little packages of course.

And what I\’d like to say to my fellow animal owners around here is:

Grow a pair you miserable fucks.

No animals don\’t have rights but we do have duties towards them. And those duties include, if you don\’t want them, having the balls to kill them.

As you didn\’t and as has now happened.

Kittens a few hours old (umbilical cords still attached) and hypothermic won\’t last long, this is true. A few hours at most. But why do I have to clear up your mess?

I agree that I\’m such a townie that I had to have the vet deal with them, way too squeamish to drown them myself.

But I didn\’t leave them to die in a rubbish bin either and you did.


I can help Ritchie here

Slightly technical but I can indeed help R. Murphy here.

He\’s made \”calculations\” of what the tax gap is.

HMRC, the naughty little boys, disagree with Richard as to the size of that tax gap.

He\’s got a nice little chart here.

Now, look at that chart. The boxes and so on.

OK, so HMRC count as part of the tax gap the second and third of the top four boxes.

General non-compliance and avoidance.

Richard (although he doesn\’t say so here) counts as the tax gap the second, third and fourth of the top four boxes.

Oh yes he does!

In the Missing Billions he looks at the headline tax rate and the actual tax rate. The difference between the two is the tax gap.

He makes no allowance at all for people making use of tax allowances exactly as Parliament intended.

Well, one allowance:

As a proportion this may be the highest gap of all. Much may be due to legitimate tax
planning, but by no means all is. Some, undoubtedly, is due to tax avoidance.

That is, in one sentence, he manages to point out that his entire calculations are wrong. The difference between the headline rate and the effective rate is not in fact a good guide to tax avoidance. It\’s a measure of the just and righteous use of allowances plus avoidance. Indeed, he implies himself that the majority of it is just and righteous (\”much\”).

And then, every time he returns, like a dog to its own vomit, he ignores his own observation. That he has not measured tax avoidance at all.

So, this is why his figures differ from those of HMRC. They are trying to measure tax avoidance. Richard is not trying to measure tax avoidance. Richard is trying to measure tax avoidance plus the just and righteous use of tax allowances: tax compliance in fact.

Well, if you ask different questions you\’re likely to get different answers, aren\’t you?

Umm, no….

On the list of the world\’s top self made women:

3. Elena Baturina, Russian, Construction, 2.9 billion

The description of \”self made\” for the fortune made in construction by the wife of the Mayor of Moscow slightly cheapens the value of the phrase \” self made\” don\’t you think?

You know, that Mayor of Moscow who has spent the last 20 years deciding who gets the privatised state property, who gets the planning permission and who gets the City contracts?

Yes, it\’s Ritchie again

We all know he wants us to invest our pension in Green Bonds. Green bonds that pay 3%.


Then there\’s this:

Planned inflation has to be part of the solution too. It is the only historically proven way to wash bad debt out of an economy. Which is why we need it at 4 to 5% now.

Rightie Ho.

The thing is, I really cannot see how those two can be combined with this:

People want fair pensions – not ones that decline in value.

Do you think Ritchie realises that if inflation is higher than interest rates then people lose money as they hold bonds?

Well, yes

Markets misprice: fact.

Just look at the fact that some enormously overpaid footballers have been humiliated over the last couple of weeks by a succession of teams staffed by people who are paid less.


English top flight clubs spent in excess of £1.32billion on employee salaries – more than Italy’s Serie A (£0.93bn), Spain’s La Liga (£800m), the Bundesliga (£684m) and France’s Lique 1 (£615m).

Not that I can see any direct link between club wage bills and national team success really.

On legal liability for the BP oil spill

Moreover, to craft a moratorium that passes legal muster, the administration (Interior Department) would almost certainly have to argue that deepwater drilling is so inherently risky that it cannot be countenanced.  At most, the BP spill demonstrated the risks of drilling, risks that must exist independently of BP if all drilling is to be stopped: if the administration is correct that the irremediable and indefensible risks of drilling demand termination of the activity forthwith, those risks are inherent in the activity and would exist and have existed regardless of whether the BP well had exploded or not.  That is, if the administration’s argument justifying the moratorium is correct, it would be correct regardless of whether the BP spill had occurred or not.  How can you make BP pay for people not making money for not performing an activity they shouldn’t be performing in the first place?