Ragging on Ritchie

By slashing government spending, by making half a million people in the public sector and as many again in the private sector redundant, he might be claiming to cut government cost but what he is actually doing is something much more sinister and dangerous. What he is doing is deliberately sucking demand out of our economy.

Umm, OK.

That is 1.6 million people won’t be paying tax any more. But they will be claiming benefits. Even if they are the new, reduced ones. So far from saving money, George Osborne’s so-called cuts will actually increase spending whilst massively reducing his tax income. The consequence is obvious. The deficit will go up, not down.

Which, according to that Keynes bloke, magically puts demand back into the economy.

So, if Osborne has cocked up, the seeds of the solution are in that very cock up that Osborne has made.

Most odd for a self-proclaimed Keynesian to be arguing that an increased deficit is a bad thing to have in a recession really, isn\’t it?

In addition my tolerance of the comments that add little or nothing to debate (and that’s rather a lot of those that seek to oppose my views, I suggest) will be even lower than usual.

It\’s an interesting version of \”debate\” isn\’t it?

Developing the agenda this country needs does not require debate here with the right wing

Somewhat restrictive even if interesting.

So, this one that Caroline Lucas (the original calcs done by you know who) has come out with. That sacking 490,000 civil servants will cost more than employing them. For the benefits that have to be paid will be higher than the wages.

In any case, surely this cannot be right, if you consider the implied microeconomic situation. For if the government saves net salary but loses unemployment benefit and the total is negative, then the employee\’s calculation is identical but with a minus sign attached: in other words, the employee would be better off being sacked and going onto benefits. Of course, in the famed 490,000 there may be some for whom this is not true; but if Lucas is right, then there must be a great number for whom it most certainly does hold. But then, what to make of the fact that we do not see masses of public servants spontaneously deciding that they would be better off out of work?

Pisses all over Ritchie\’s chips, doesn\’t it?

Yup, usual stuff. Entirely ignores that corporation tax is largely bourne by the workers, not the shareholders, and certainly not by the company itself.

Trots out his known to be wrong estimate of tax avoidance. This is fun too:

These big companies\’ tax rate will fall from 28% to 24% over the next four years – a move that seems generous, but quickly becomes ludicrous when it is appreciated that the effective tax rate of the largest companies in the UK is now 21%. This means that over the next four years, it is likely that their effective tax rate (that is, the rate they really pay) will fall to 17%.

And he\’s wrong there for the same reason that his estimate of tax avoidance itself is wrong. For of course some (according to taste, most, nearly all, a tiddly bit, but certainly not Ritchie\’s insistence that none of it is) of this difference between the headline rate and the actual rate is because of the various allowances that Parliament builds into the tax law.

And part of the deal over corporation tax being lowered as the headline rate is that those allowances are reduced as well. So this change will actually lead to a shrinking of the tax gap as Ritchie measures it.

Just seems odd that he\’s not celebrating what he\’s working so hard to achieve.

But the biggie?

This is all about profits that Vodafone made in Germany. And according to Ritchie\’s plans for the corporate taxation system, such profits should be taxed where they arise, where the economic substance of the transaction is.

In Germany.

So, if RitchieWorld were to be consistent there would be no money owed at all to the UK Treasury.

Ain\’t that interesting?

Talking about a Tobin Tax, the Robin Hood Tax idea. Mr. Murphy says this:

I also believe in the two tier version – with rate hikes when volatility increases

Which is interesting really. Derivatives, one of those things to be taxed, lower volatility. So taxing them in order to reduce the trading of them, which is the aim of such a tax, would increase volatility and thus the rate at which the tax should be charged. Which will lead to less trading, more volatility and thus a yet higher tax rate.

Excellent, eh? We\’ve just introduced positive feedback into the financial system, positive feedback which would inevitably destroy it entirely.

Retail sales in Britain unexpectedly fell last month as consumers started tightening their belts ahead of the government’s austerity measures,

Fascinating. So, people do react now to future changes in income. Ricardian equivalence holds.

But, just at the time that we so obviously needed an economic stimulus

Therefore economic stimulus won\’t work because people do react now to future changes in income and Ricardian equivalence holds.

Now, as it happens, I don\’t think that Ricardian Equivalence does hold, certainly not for all people for all even foreseen changes in future income.

But it is something of an oddity to use proof of equivalence holding as proof that we should follow a course of action that won\’t work precisely because equivalence holds.

This is the reality: Labour managed the economy well until the bankers broke its back.

I thought this was a quite gorgeous line:

He claims real spending will be at the same level as 2008 – but he ignores the analysis I offered last Friday.

Well how about that and hush ma\’ mouth n\’all.

The Chancellor of the Exchequer ignores a blog post from a Wandsworth accountant who has retired to Norfolk.

These Tories really are bastard baby eaters, aren\’t they?

So, I understand that the Dispatches programme, featuring our favourite retired accountant, Richard Murphy, made some allegations about tax avoiding behaviour by some Tory politico types.

And it is a puzzle. I simply do not understand how he can hold violently contradictory views like this:

On the other hand it taxes its companies on a completely perverse territorial basis – so that profit earned outside the US is not taxed until remitted from abroad……..The answer is very obvious: the US needs to reform its basis for determining tax residence for corporations – and tax them on their world wide income.

This is coming from the man who insists that every company should reports its accounts on a country by country basis. So that civil society (ie, Ritchie and his mates in his construction) can check that each company is paying the right amount of tax where they actually do business.

Who promotes this credo:

Tax compliance is seeking 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 undertaken coincides with the place and form in which they are reported for taxation purposes.

Who was in fact promoting that credo yesterday.

Now I can see how you could believe in either of these ideas.

You\’re a US company, you pay US tax on your profits anywhere in the world. You drill for oil in Angola, sell it in Holland and we\’ll have a piece of that, thank you, because you\’re a US company.

Or, I can see that you can argue that the economic substance of this transaction is in Angola or Holland: thus tax should be paid in either Holland or Angola. And that\’s true whether it\’s an Angolan, Dutch, US or Cayman Islands company: we\’ve identified the economic location and thus the taxing jurisdiction.

But I simply cannot see how you can support both ideas. That tax should be paid where the economic substance of the transaction takes place and also that regardless of where that economic substance is, tax should be paid in the US.

The two ideas are entirely contradictory.

Is there some special operation you can have to enable one to argue that black is indeed white except when I find it convenient to call black black?

Another report from Ritchie today.

First we propose that everyone who has a UK passport should be tax resident
in the UK, automatically, wherever they live in the world. That means they
would always have liability to pay tax in the UK on their worldwide income,
gains and wealth, just as all US citizens do in the USA.

How d\’ye like them apples? You are to be, wherever you live in the world, a helot to HM Treasury.

This is
especially true of those who have long term ties to the UK and who have the
right to reside here permanently but who seek to avoid their obligation to pay
tax in exchange for that right.

Yup, just the right of residence in the UK means you should be paying tax in the UK. You could be born in The Bahamas, grow up, live, work, marry and die there, but if you\’ve the right of residence in the UK (say, through inheritance) then Ritchie says that you should be paying tax in the UK.

The fact that a person has the
right to reside in the UK and make use of all the facilities it has to offer –
whether they do so or not – is what establishes the obligation to pay tax.

That you don\’t use the NHS, education system, roads and the rest matter naught in Ritchie world. You\’ve got money and the State should have it!

Tax
is not after all a payment for services supplied: tax is the price we pay for
having the right to live, work and participate in a state, whether we avail
ourselves of that right, or not.

See?

This provides a giggle though:

Firstly, and perhaps most importantly, this briefing suggests that the domicile
rule should be abolished with regard to taxation. This historic legal
anachronism, which is discriminatory in origin and practical outcome, should
have no place in a modern tax system. It is quite unacceptable that an accident
of birth should alter a person’s UK tax liability when all other matters are
identical.

Erm, isn\’t being born with the right to British nationality, residence, simply an accident of birth? Meaning that he\’s just contradicted everything he\’s suggesting above about the passport method of determination?

Finally, he talks about the money these changes will raise. Ah, but he\’s forgotten, he\’s forgotten that he\’s just abolished domicile. There\’s no certainty that there will in fact be any money raised by this at all.

Take me as an example. I\’m not resident in the UK. I am, however, almost certainly domiciled. I\’ve not yet bothered to take up my right to an Irish passport so almost certainly am, despite having been out of the country for what, 18 of the last 20 years?

So I\’ve no income tax arising in the UK….however, the UK, me being domiciled, will indeed take an interest in whatever might be in my will when I pop my clogs. Taking me into the income tax net (given his exemptions, especially for EU countries, where he\’s got no alternative than to exempt) but taking me out of the domicile net would be a money loser, not gainer.

This is the problem with getting the tax system redesigned by a retired small time (his practice was dealing with the affairs of luvvies and musicians) accountant.

Glorious opening:

In ‘The Missing Billions’ tax avoidance by UK companies was estimated at £12
billion. That estimate is not updated here, largely because,…

No, sadly they don\’t go on to say the true reason why: it would just be so embarrassing to have to admit that this was one of the parts of that report that Mr. Murphy got so howlingly wrong.

Just to remind ourselves: Ritchie said here\’s the headline rate, here\’s the actual rate, the difference is avoidance. He entirely and completely ignored the various allowances that Parliament puts into the tax code so as to get companies to do the things that Parliament would like companies to do.

Not updating the estimate prevents people like me from screaming \”Told you so!\”.

Most especially though,
by paying particular attention to tax data in the accounts of the UK’s High
Street banks we show that those banks appear to have since 2008 accumulated
tax losses having a total cash value to them of approximately £19 billion.
These they can now offset against the tax payments they might owe in 2010
and onwards on the profits they are now making solely as a result of their
banking operations being saved at considerable cost by the UK taxpayer.
This is of great significance. At a time when everyone is supposed to be
contributing to the resolution of the UK financial crisis in equal measure it
would seem that the banks who created it, and whose losses were supported by
the government with taxpayer funds, will be offsetting the resulting tax losses
against their future profits for some time into the future.

Yes…and? You are taxed on your profits over time. You make a loss then you\’re entitled to have that taken into account when you do make a profit. There\’s a very good reason for this too. When you start up a business you expect to make a loss as you do so. The tax system recognises this and taxes only on your net profit over time, not insisting that you bear the losses but pay full whack if you do come into profit.

Richard wants to change this of course: retrospectively. Forcing the banks to pay more tax is much more important to Richard than anything so trivial as the rule of law or security of contract, of course.

There is no logic to this extraordinary situation. To give banks a second tax
subsidy on losses which have already, effectively, been borne by the taxpayer
and government is quite unnecessary, and economically inappropriate.

I think you\’ll find there\’s a really rather large economic literature on the necessity of the rule of law and security of contract you know.

What is clear is that the proposed bank levy now being considered will make
little difference to the overall contribution these banks will make to the cost of
remedying the mess they caused, not least if their tax payments in the UK are
reduced to anything like the extent their deferred tax assets might suggest
likely.

The bank levy is not to be thought of as a tax. It\’s an insurance premium (which is why it is only charged on liabilities which are not already covered by other forms of deposit insurance) on the deposit insurance that we taxpayers are indeed granting to the larger banks. It simply ain\’t a tax.

The current situation where
multinational corporations can appear to float above such geographically
based obligation is unacceptable to all organisations in civil society and
government and should be subject to urgent reform.

Crikey! \”all organisations in civil society\”?

I think you\’ll find that it\’s only ones that Ritchie belongs to and that most certainly ain\’t \”all of civil society\”. For example, I\’m part of civil society, as are you. The Adam Smith Institute is a perhaps more organised part of civil society, as is the Women\’s Institute, the RNLI and the Battersea Dogs\’ Home.

I\’m not sure about you but I know that I, the ASI, WI, RNLI and Battersea and it\’s inhabitants couldn\’t give two shits about corporations appearing to float above such geographically based obligations.

I once actually had this argument with Richard and his claim was that I couldn\’t be part of civil society because my heart was not pure.

This is quite glorious! Section 1 talks about the Missing Billions report, this new report and then says:

The extent of UK tax evasion has been most recently independently estimated
in a report for TUC affiliated union PCS, in which the sum was estimated to be
£70 billion a year5.

Richard Murphy wrote the Missing Billions report. Richard Murphy is writing this report and Richard Murphy wrote the PCS report. That\’s some interesting meaning of the phrase \”independently estimated\” there.

And this is absolutely hilarious!

This comparison of the headline rate of tax with tax actually paid might seem
a crude measure but in fact numerous academic studies have found that the
headline rate appears to be a major influence on business decision making
albeit that the effective rate is also of significance9.

footnote 9 is:

For example, see Do Countries Compete over Corporate Tax Rates?, Michael P. Devereux,
Ben Lockwood, Michela Redoano, 2005

That Mr. Devereux about whom Ritchie has said

\”But it does show just how biased, opinionated and thoroughly normative economics is. Prof Mike Devereux amongst others please note.\”….\”I know all the twaddle Devereux, Jim Hines and other aficionados of so called free markets that are anything but free put forward about corporation tax being a tax on labour. And I’ve also shown they are wrong.\”….\”If I might say so that’s a remarkably obtuse comment. No of course we don’t wasn’t a list of all your academic appointments Mike. But we do want to know about your conflicts of interest. Have you no perception at all about how to handle an ethical issue? It would seem not. Which explains a lot about your department.\”….\”What does this actually mean? Just this: create tax loopholes, prevent tax change to block loopholes, cut tax rates and then pay one of the least objective academics in the UK, Professor Mike Devereux of the corruption funded Said Business School at Oxford to undertake an annual review\”…

Yes, that Michael P. Devereux.

It\’s amazing how research is accepted from a source when it\’s agreed with, rejected when, as for example, Mr. Devereux points out that corporation tax is actually a tax upon labour and that the incidence of it, in the UK, is probably over 100%. Convenient eh?

This comparison of the headline rate of tax with tax actually paid might seem
a crude measure but in fact numerous academic studies have found that the
headline rate appears to be a major influence on business decision making
albeit that the effective rate is also of significance9. If, therefore, business takes
account of the difference between these two rates in making their decisions it is
entirely appropriate to do so for other purposes.

And to the major point: depends what you\’re trying to measure really. If you\’re trying to measure the amount of tax that those scabrous bastards aren\’t paying then it\’s not appropriate: if, that is, you fail to adjust for all those allowances that Parliament puts into the tax law so as to get those scabrous bastards to do what Parliament would like them to do. You know, like invest in R&D (125% allowance), workforce training, capital allowances (investment by corporations is GOOD!) and so on.

This is Richard desperately trying to worm out of having to admit to getting it wrong first time around.

Yup, page 9, he adjusts for goodwill and for deferred taxation: but not for allowances. His estimate is thus garbage.

Here\’s a fun little thing. If you were going to go and try and work out something about how those scabrous bastards in companies are ripping off the British tax system, you\’d take care to limit your studies to those companies which are in fact subject to the British tax system, wouldn\’t you?

You know, companies which are actually domiciled in the UK?

Not Ritchie though, that would be much too accurate. He\’s got WPP in there (domicile, Eire), BHP Billiton (some weird joint UK/Oz domicile) and Unilever (Dutch/UK isn\’t it?).

He\’s missed the point that you don\’t have to be UK domiciled to be on the London Stock Exchange nor in FTSE.

Tax expert, eh?

The effective rate of corporation tax paid by the companies surveyed fell from
just under 28% in 2000 when the headline rate was 30% to about 23% in
2009 when the headline rate was 28%. But, much more significant is the trend.
Over a decade the trend has been for effective corporation tax rates of major
corporations to fall by almost half a per cent a year with the trend rate in 2009
being just 21% – a figure 7% below the headline rate for that year.

Umm, OK. So, were there any changes in the allowances that a company could use over these years? I\’ve no idea but it\’s the first thing I would expect a tax expert, forensic accountant and one of the country\’s leading experts to tell me at this point. Even if it were to consider it so as to reject it. You know, \”this change to capital allowances will have had a small effect but not explain the whole amount\” or some such?

On the way that the banks will be able to carry forward their tax losses:

In this case the question must, and should arise, about the alternative tax
contribution banks can and should make if their corporation tax payments will
be substantially lower than might reasonably be expected in years to come.
This is especially true as it seems likely that no other corporate sector enjoys
anything like the tax benefit that banks now do as a result of losses that this
bailed out sector seems to benefit from.

Umm, no other corporate sector will enjoy such tax losses in the future because, erm, no other corporate sector has made such losses.

Jeez, it\’s not that hard is it?

As a result, action is now needed to ensure that banks contribute through their
tax payments to government to the extent most in the UK would expect so that
as cuts begin to impact on the UK economy as a whole they are seen to be
bearing their fair share of the burden for the consequences of their past
profligacy and recklessness. Without such action this will not happen, and that
is unacceptable.

In essence, Richard wants to tear up the rule of law, retroactively change tax law, so as to make sure banks pay more tax, the amount he considers acceptable rather than the amount either the letter or spirit of the law make them liable to.

Those companies which are leaving are making the point that it\’s not so much the amount of tax making them leave but the uncertainty. Not a great surprise when you\’ve got Mr. Murphy and the TUC insisting on ripping up contracts.

BTW, if we\’re allowed to screw people over, breach previous promises to them, why can\’t we do this to public sector workers with their pensions? Times have, after all, changed,  and we\’re already being told that people should bear their fair share of the burden for past profligacy and recklessness, no?

Not a great improvement on any of his previous reports: same mistakes being made with more being added.

…..including an increase in the absurdly low rates of corporation tax paid by big business in this country.

Umm, what absurdly low rates are those?

Umm:

The UK (in 2006) got 4% of GDP from taxes on corporate income. The OECD average is 3.9%. EU 15, 3.4%.

So our \”absurdly low\” rates are higher than Sweden (3.7%), Germany (2.1%), France (3.0%) are they?

Oh, and he insists that companies should pay more corporation tax because they benefit from having an educated workforce:

We all benefit from a well trained workforce

There are externalities in economics – some are costs. Some are benefits. This is a massive benefit.

Employers need to contribute to that – heavily

But, as we also know from the economics of taxation, from tax incidence, it isn\’t the employers that pay corporation tax, is it? Companies certainly don\’t and in a small open economy like ours, we in fact know that it\’s the workers, in the form of lower wages, which pay more than the majority of that economic burden.

See the errors which ignorance of basic economics can lead you into?

Tax Research UK has published a new briefing on secrecy jurisdictions today. This has also been endorsed by the Tax Justice Network and the Task Force on Financial Integrity and Economic Development. It is  available here.

Groups that Ritchie started and is a member of endorse report by Ritchie.

Up next, Elizabeth Windsor endorses the hereditary monarchy.

Apparently, the government borrowing the money to pay for universities, leaving the generation enjoying the universities to pay back the loans and the interest, is entirely different from the students borrowing the money to pay for their own education, they then being liable for paying back the capital and the interest.

And all this to achieve the ultimate goal – a new line of securitised debt obligations that can be sold in financial markets for trade to underpin the returns of the owners of capital – or more especially, those who trade in the assets that those owners of capital make available for that purpose, for the owners of capital – often those contributing to the underperforming pension funds they are forced to subscribe too as a result of the failure of the state to supply a decent alternative – are in the majority of cases denied any option about how their assets are used and traded by those who have created opaque mechanisms to capture much of the income arising from them to service the demands of a financial elite.

Yup, that\’s right. Student loans which are not securitised and sold are beholden to financial capital far more than gilts which are sold to financial capital.

This time on N Ireland\’s mooted 12.5% corporation tax rate.

In the intro:

The ERGNI argument is debunked in this
report by Richard Murphy of Tax Research UK, one of the most important
thinkers on this subject.

Erm, yes, well…..

This from Richard himself is fun:

First amongst these are
the enormous obstacles that would be placed in the way of trade between
the UK and Northern Ireland because much of it would then be subject to
cumbersome and costly transfer pricing rules to prevent tax leakage from the
rest of the UK.

Richard is, as you know, the man who is insisting that all companies everywhere should be subject to these \”cumbersome and costly\” rules under his country by country reporting proposal.

Pages 9 and 10 give us a quite glorious argument. Foreign Direct Investment has been falling off in Eire, this is true (although it would be very interesting to know what the \”others\” bit is and Ritchie\’s link is to a slide show, not highly informative) and portfolio investment increasing. That portfolio investment doesn\’t bring all that much in the way of jobs with it.

By the end of page 10 this has morphed into:

But the reality is that in that case nor will Northern Ireland attract
the foreign direct investment it dreams of, or the new jobs for anyone but
lawyers and accountants that go with it, by offering a low tax rate.

D\’ye see what he\’s done? Yes, good. That Eire, a significantly richer place than NI, has seen a fall in FDI means that, in Ritchie world, lowering the tax rate in NI will not engender any FDI.

That doesn\’t in fact follow: if it did we would be wondering why Taiwan\’s getting less FDI while China\’s grows, wouldn\’t we?

You what?

It will be noted that in five quarters in 2009/10 Ireland had inward investment
of $31.1bn. Outward investment in that period was $31.0bn. In other words,
Ireland is not the location in which foreign direct investment is taking place.

No it doesn\’t!

It could mean that, for sure, but it could also mean that foreigners are investing in Eire and that the peeps of Eire were investing their own money outside Eire, meaning a rough net balance.

And, given the colonisation of various Mediterranean and E European reports by the Irish spending the property boom, there\’s certainly some of that having gone on.

Murphy\’s made entirely the opposite mistake he made in the Green New Deal. There he said that UK capital flowed abroad: true, but the net effect was foreign capital flowing into the UK. Must be, as the UK runs a trade deficit. Here he taking the net balance as proof that there\’s no FDI when it\’s entirely possible that there is.

The conclusion of his charging through the byways of tax legislation is that:

This section has explored issues that give the Republic a competitive
advantage with regard to tax that they exploit to bring business to their
country which it is highly unlikely that Northern Ireland could replicate.

Yup, a low tax rate in NI wouldn\’t work because all of the other tax laws are so restrictive. To which an obvious answer is, well, relax those as well.

He also makes some (quite possibly sensible) points about how having a different tax jurisdiction within the UK would lead to problems. To which, of course, the answer is, well, let\’s just cut the UK\’s corporation tax rate to 12.5%.

After all, we know that it\’s mainly a tax upon the wages of the workers anyway.

Oh Dear Lord:

I’ve already noted Sir Philip Green’s report on supposed government purchasing inefficiency, and the gaping holes in it, here and here.

But then it occurred to me – if he’s so good at buying why do his stores ever have sales?

After all, aren’t sales just an opportunity for a store to get rid, at low margin, of what they bought in error and couldn’t sell at full price / margin? If he’s so good at buying surely they wouldn’t need to do that, would they?

see more Lolcats and funny pictures

I cannot believe that it\’s necessary to point out to an accountant that there\’s a difference between purchasing for resale, those items which may or may not catch the eye of the passing and fickle public, and purchasing for one\’s own internal consumption: something which you really rather should know how much you\’re going to use.

The difference being between not quite knowing what you should buy to sell and buying well what you already know you\’re going to use.

From blog to blog:

It\’s a cast-iron case of Ritchiebollocks.

Owen Tudor and Richard Murphy both claim that the IMF\’s report out today supports their case for a financial transactions tax.

Sadly they\’re both blathering (if not in fact being deliberately obtuse to the point of mendacity).

This is the same report that was leaked a couple of months back. My response is here.

What the IMF actually tells us is that an FTT (ie, The Robin Hood Tax) would not in fact reduce volatility and could well increase it, would not in fact be paid either by banks or capital but by workers in the long term and that there are better ways to achieve the desired goals anyway.

This is not what I would call an endorsement of their mitherings.

Don\’t let them get away with their \”spin\” (\”spin\”, in this case being properly defined as \”being deliberately obtuse to the point of mendacity\”).