Note Ritchie\’s logical leap

The resolution also raises the stakes to make evading the FTT potentially far more expensive than paying it. Taking the UK stamp duty approach, the text links payment of the FTT to the acquisition of legal ownership rights. This means that if the buyer of a security did not pay the FTT, he or she would not be legally certain of owning that security. As FTT rates would be low, this risk is expected to far outweigh any potential financial gain from evasion.

I think the principle in this last paragraph especially important. What it says is that the right to ownership of an asset is dependent upon having paid the tax due when acquiring it: without that tax having been paid the title to the asset is void and the asset is forfeited to the state.

Isn\’t there just a slight difference between having valid legal title to something and it being forfeit to the State?

For example, I\’ve no idea where the receipt is for the boxer shorts I am currently wearing. I cannot prove that I paid VAT, the required tax, on them. And I\’m not sure I\’m all that worried that I cannot prove valid legal title to said boxer shorts.

But that\’s a little different from stating that this (used!) underwear is now forfeit to the German State isn\’t it?

And of course financial markets are well used to dealing in assets that have no clear, registered, legal title. Ever heard of bearer shares and bonds?

17 thoughts on “Note Ritchie\’s logical leap”

  1. And what happens after you’ve sold your used underwear on the eBay? Will the German state be entitled to go after the buyer to reclaim that property? Even if the buyer paid all relevant taxes? Is the buyer negligent for having bought used underwear without first establishing that you had title?

    This is important.. In the fast-moving world of used underwear transactions one can assume that a pair of used boxers will have gone through multiple transactions, and possibly materially changed in value, before anyone gets around to realising that somone forgot to push the ‘I’d like to pay some tax plz’ button way back in the chain.

  2. Ritchie’s piece is especially ludicrous given that in financial markets you can cash settle almost anything – and cash is the ultimate bearer instrument.

    What would end up happening (in Ritchie-land) is that pension funds would be left holdiing real assets, and by default paying the taxes, which would be passed on to their customers (pensioners) in terms of lower returns, and in the meantime true speculators would simply trade in cash settled contracts for difference where the underlying asset never changes hands, and any short hedge would be dealt with by sale/repurchase borrowing/lending agreements.

    Indeed, it would actually free up cash for speculator types, whilst tying real-money pension types into trades because of the increased entry and exit costs.

    Good job Ritchie.

  3. This is also a left-libertarian fallacy. “You needed access to land to get those goods, and you didn’t negotiate for access to the land properly, so the goods are mine.” No, in that case they wouldn’t belong to anyone, so I have as much right to hold them as anyone else.

  4. Ritchie’s theory of state justification rests on it being necessary for ownership of anything to have a state to recognise and defend that ownership and therefore be able to charge any fee for so doing. This should not be a surprise!

  5. The EU proposal exempts pension funds from paying the tax. (It cannot of course exempt them from the effect on returns of reduced liquidity.)

    The proposal includes a tax on derivatives at one tenth the rate of the share tax: that would apply to contracts for difference. They don’t say how they plan to collect it.

  6. @ Paul B

    Pension funds would end up paying the tax indirectly – banks would have to pay the tax when trading with the pension fund and that charge would be reflected in the spread the bank shows the pension fund in a price.

    CFDs would be impossible to police, as they can trade anywhere in the world, unlike the underlying which tend to have to settle through exchanges.

  7. Jock has it; this is primarily about Murphy’s view of the State, and only indirectly about his ignorance of stamp duty.

    He’s claimed several times that private property is merely conditional, being a privilege granted by the State rather than a natural right.

  8. @ Tim
    The receipt is not legal title – it is just evidence of legal title, so you only need it if someone produces a prima facie case that you don’t own the shorts.
    Ritchie has gone two steps farther – all fresh food, which is zero-rated for VAT purposes, now belongs to the state, whether its the carrots and raspberries you grow in your garden or the bread you buy from the baker or milk or meat or fish.

  9. These guys are idiots. If you wanted to evade FTT you’d simply trade under US law and the lack of enforceability in the EU wouldn’t bother you. UK stamp duty on securities hasn’t worked this way for 30 years, for precisely this reason.

  10. Well, it’s a paradigmatic thing. Ritchie’s mental model of property is that it emanates from the State, which represents society (the collective). So, “ownership” is more like wardenship; your property is merely whatever the State has awarded you notional control of, and that may be revoked at any time.

    This is of course diamettrically opposed to propertarianism of the libertarian kind, in which property is owned entirely by the individual and the State, when it interferes with said property, is akin to thievery.

    But to be fair, Ritchie’s view is much closer to the general view of the population and particularly of the government and ruling class. And as discussed a couple of threads down, Tim is closer to Ritchie in this than perhaps he may find comfortable; he certainly believes that the State has an inherent right to confiscate whatever property it desires via taxation, as with the carbon tax proposal. So from my perspective, left and right are really much closer to each other ideologically than they care to admit, and equally incompatible with a libertarian/liberal view regarding taxation, property and economics. They just differ regarding which groups in particular most deserve to have their property expropriated (hence, a carbon tax is fine, but a banker tax is some kind of crime against nature, etc).

  11. IanB, if you believe that carbon emission cause wider problems, then a carbon tax isn’t an expropriation but an enforced compensation for damage caused.

    Similarly a properly constructed bank levy is an enforced charge for explicit or implicit government guarantees for the banking system, to the extent (more or less) that it is used by each participant.

    Very different to redistributive taxation, which is simply “you have, he hasn’t, hand it over”.

  12. Richard, I do not believe that you can actually calculate an accurate- or even order of magnitude- figure for these things which you describe as requiring compensation. Can you prove me wrong?

  13. IanB, you are probably right. But that does still leave it a practical problem rather than one of principle.

  14. Richard;

    In the narrow sense, you’re correct (and are widely supported in that opinion).

    But, to a large extent, that opinion (and the very saneness, normalcy, and social consciousness of its holders and supporters) is one of the very chiefest reasons why “things” don’t work any better than they have in the past (and promise to work even less well in the future.

    A banking failure is only catastrophic for its own clients in the case of numerous bamks on choice.
    But “national” banks and banking regulation are effective means to dissuade many undertaking a “due diligence” who might so do otherwise and in assuring those disinclined to such diligence that their course is reasonable and civilized.

    IanB and I are of the “Austrian School” economic persuasion; the current malaise and the history of booms, busts, panics (and world
    war) are not only entirely understandable on the basis of economic theory but are more or less predictable–and have been very well predicted for nearly a hundred years.

    Further (to address points already raised), it may very well be that, typically, specimens of the species Homo sapiens can survive and even live somewhat materially comfortable lives without what we call “rights” in “property.” But, to the extent that property rights are limited or abridged by any other than mutual, contractual
    obligations, such specimens fall short of being, in any real sense, “free men.”

    Modern civilization is no longer troubled by the ambitions and imagination of hereditary rulers and has even reduced influence of petty warlords to a few backward and outlying regions. But their
    spirit (and, in a very real sense, legitimacy) lives on in EVERY claim of the state to some rightful
    entitlement to some portion of the property of those within its juridiction or within the reach of its political influence beyond legitimate borders.
    The existence of such states (as are all currently known) is, at core, a complete rejection of any
    “principle” of personal freedom.

    My “take” on such matters may seem “over the top” or, perhaps, doctrinnaire. But, as you seem a thinking person, I’m confident that the future will convince more than any argument I make (future=”too late”).

  15. “But that’s a little different from stating that this (used!) underwear is now forfeit to the German State isn’t it?”

    No no! It’s forfeit to the British State! Remember, according to Ritchie, all people and companies, wherever they are based and wherever they do business, should pay tax in the UK.

  16. IanB, you are probably right. But that does still leave it a practical problem rather than one of principle.

    Communism only failed in the practical as well.

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