Ragging on Ritchie

So, Compass insist (it\’s really Richard Murphy, again) that we can raise taxes on the rich and everything will be just hunky dory. There are a few leetle problems with their assumptions though, it should be said.

There are strong grounds for
supporting reasonable proposals to limit the
capacity of corporations to avoid tax by moving
their tax base to national regimes with lower
corporate taxation rates. This would require
international co-operation, probably initially at
an EU level.

Well, there\’s ambition for you. They want to tear up one of the defining characteristics of the European Union. The free movement of labour, goods and capital across the 27 countries. Good luck renegotiating the Treaty of Rome guys.

On a financial transactions tax.

London’s $2–3 trillion a day in transactions is
speculative, the effective tax rate increases
substantially for repetitive transactions, thus
reducing the incentive for speculators to trade
and so reducing price volatility. At times of significant
price change in the market, the effective tax
rate rises, thus dampening speculation and acting
as a disincentive to the herd instinct.68

Yes, they believe that speculation increases price volatility: when every fule kno that it dampens it.

There are, however, other forms of FTT. A tax
could be imposed on all debits – that is payments
– in bank accounts. The rate might be very low –
say, 0.1%. The GDP in the UK is at present
approximately £1.4 trillion per annum. To
achieve this level of national income, several
times this volume of debits is required in bank
accounts (for example, wages paid are a debit, and
when those who receive them spend that cash
they are a further debit). Speculative activity also
creates substantial cash movement for little
income generated. If it is supposed that debits run
at three times the level of GDP, a tax at 0.1%
would raise £4.2 billion, costing the average
household less than £20 a year, far less than most
households pay in bank charges.

You recall how the financial crisis was brought on by people taking their money out of ATMs, tenner by tenner do you? No, me neither, but that\’s what they\’ve decided they\’d like to tax.

The simplest reform would be the
most effective: all UK passport holders should
pay UK tax on all their worldwide income
whether or not they are in the UK.

Congratulations, you\’ve now become a slave of the State. Whatever you do, wherever you go, you\’ve got to pay Alistair Darling. This is to move to the US basis of personal taxation and it does seem perverse to pick up on the very worst part of their system (so bad that they\’re the only country that does it) as the one thing you\’d like to copy.

I also have a feeling that this would fall foul of EU rules: you\’re not allowed to discriminate between different national origins. But if a Latvian (or Frenchman) working in Latvia pays 20% flat tax (or whatever their rate is) and an Englishman working in Latvia has to pay 40%, that looks like discrimination to me.

But finally, here\’s the great guffaw.

They intend to raise the average tax rate (that is, the percentage of total income paid in taxes….this is not the marginal rate) for the top 10% of households from around 34% to 55%. That\’s an over 60% rise in taxation on this group of 2.3 or so million households.

We also see marginal tax rates rise substantially (as of course they would have to). I can see something over 70% easily: top rate of 50%, two sets of NI adding something like 23/25 % (for they will lift the NI cap).

In fact, with their \”minimum tax rates\” of 40% at £100,000 and 50% at £150,000 (ie, withdrawal of personal allowances and of perhaps even the lower rate allowance) we might well have bands where marginal tax rates are above 100%.

Now, we might think that there could be some changes in behaviour over such changes in rates. You know, this Laffer Curve thing: yes children, it really is true, the Laffer Curve exists. The argument is not over whether but at what rate we move from maximising tax income to diminishing it by raising the rate further. That\’s an empirical matter of course but recent rough estimates would put it in the 40-50% rate area (note, for marginal tax rates, not average). So what do our brave boys and girls think of this, the possibility that their tax rises would lower revenue rather than increase it?

Our view on avoidance is
that if the top rate is increased while at the same
time reforms are made to the tax system,
minimising avoidance and evasion, the taxable
income elasticity is likely to be small, if not zero.

Correct, they simply claim that it won\’t happen. That no one will trade leisure for lower income. That hoicking tax rates by 60% will not change work patterns at all.

Fuckwits.

The requirement is clear: that we dedicate our work as Christians to Christ – not the making of money. Thsi puts all Christian teaching at odds with neo-liberalism, per se

And those who have skills must use them in pursuit of the creation of Chsritian ideals – including relief of poverty

WTF?

Let\’s agree, for the moment, with Ritchie\’s oft stated contention that the last 30 years have seen the rise of this \”neo-liberalism\” stuff.

OK, so what else has been happening in the past 30 years? The largest reduction in poverty that our species has ever seen. Hundreds of millions, if not billions, rising up out of the destitution of peasant agriculture into a middle class lifestyle.

To thus claim that neo-liberalism is incompatible with the Christian injunction to reduce poverty is thus, umm, well, odd….or should we perhaps go a little stronger and say barking lunacy?

I\’d forgotten he was a Godbotherer.

And it also quite contrary to the message of Luke’s gospel. In Luke 4, starting at verse 18 Jesus says:

The Spirit of the Lord is upon me, because he has anointed me to bring good news to the poor. He has sent me to proclaim release to the captives and recovery of sight to the blind, to let the oppressed go free, to proclaim the year of the Lord’s favour.

This is the clearest statement of Christian duty there is. Support for progressive taxation fulfils that duty.

How easy it now is to be a Christian! As long as you support the taxation of the rich bastards you\’re done!

Ritchie has a bleat about how taxes don\’t seem to be capturing much more money in developing countries.

The reason is that import duties have been lowered (much the easiest tax to collect but they do horribly hamper trade), corporate taxation levels are being competed away and so the tax load has to go onto personal and consumption taxes like VAT.

OK, so why has this move been made? Well, it appears that it is this sort of tax system which actually builds a functioning society:

In colonial Nigeria in the last years of the 19th century, a strange quirk of history led the British rulers to draw an arbitrary boundary line along the 7?10? N line of latitude, separating the population into two separate administrative districts.

Below the line, the colonial government raised money by levying taxes on imported alcohol and other goods that came through Southern Protectorate’s sea ports. Above the line, the administrators of the landlocked Northern Protectorate had no sea ports, and instead raised money through direct taxes. In the areas near the border, this took the form of a simple poll tax, where tax officials collected from each citizen the equivalent of between $4 and $20 in today’s dollars.

Could this seemingly minor difference—created over a century ago by a long-defunct colonial administration, and long ago erased by subsequent administrative divisions—possibly still matter today?

Yes, it could, according to Daniel Berger, a PhD student in politics at NYU. Berger’s paper, Taxes, Institutions and Local Governance: Evidence from a Natural Experiment in Colonial Nigeria, finds that the “simple act of having to collect taxes caused governments to be forced to build the capacity which can now provide basic government services.” As a result, governance today is “significantly better” in areas just above the line than in those just below it.

If people actually see and feel the taxes they have to pay then they\’ll demand that they be better spent perhaps?

As ever it appears that we all want the same thing: better governance in these nations and thus more economic growth in this instance. However, Ritchie is, as ever, arguing for the counter-productive policy, the one which will not improve governance and thus will not improve economic growth.

Plus ca change.

This is simply gorgeous from Mr. Murphy.

Your comments on markets shows just how naive the whole basis of your thinking is

Get over first year undergraduate economics

There are no supply and demand curves

Firstly – they don;t slope consistently, if they exist

Second – advertising, monopoly power and externalities destroys them for most commodities

Third, you assume the existence of homo economicus – which is sweet but utterly ridiculous of you – maximisers aren’t out there – so the market you think exists is simply a fiction

I could go on, and on

I don’t need to – all you prove by your comments is that all you and your like say is based on a profound fallacy – and therefore irrelevant.

In one fell swoop, centuries of economics is overturned by our hero!

Markets don\’t exist nor do supply and or demand curves!

Is there nothing this man doesn\’t know?

I think in fact that he\’s heard some scraps of this or that and then leapt to these truly insane conclusions. For example, of course supply and demand curves don\’t slope consistently. No one has ever tried to say that they do: consider the demand curve for water. At the level of a litre or so a day we\’ll pay damn near anything for it. At the level of millions of litres pouring through the front door it inverts as we\’ll pay people to pump it out of the front room for us.

It would be a very strange economics indeed which didn\’t recognise this sort of thing: and of course economics does indeed recognise it. That the curves change shape at different points, even that they have inflection points, doesn\’t mean that they don\’t exist or that they can\’t be useful at times.

He might also be thinking of the fact that the curves are not continuous (rather than consistent) and that they are discrete. This does complicate matters it is true, but doesn\’t obviate them.

You can fill in the rest for yourselves really: advertising for example doesn\’t destroy demand curves, although it might change them (indeed, the point of it is to shift them….meaning that the existence of advertising rather proves the existence of demand curves which is something of a blow to Murphy\’s thesis).

The very description of monopoly power rests on the way in which the monopolist faces a different supply curve than firms in a competitive market which again is something of a blow to the idea that the existence of monopoly power disproves the existence of supply curves.

Etc, etc and so forth.

Sorry – but until we get rid of consumerism this just won’t happen

When Cameron calls for a serious tax on advertising, the end of tax relief on advertising and restrictions on the power of the media to limit such absurd publications as the FT’s How to Spend It you’re just living in cloud cuckoo land.

Now he wants to end free speech as well?

I commented yesterday on Richard Murphy\’s plan for a financial transactions tax on money that moved through CHAPS. One point was that the effect would be to entirely close down the short term money markets.

I could add much the same of a great deal of what is done by corporate treasury functions – many of which will have had the primary purpose of distracting attention from the real goal of the entity – which is to ensure profit is earned in real markets – not financial ones.

They are not the same thing

And I’d wholeheartedly agree that the net sum of much money market and inter bank activity – however originally contracted is not a zero sum game but a net loss, possibly of serious amount to the economy.

Far from him seeing this as a problem, he actually thinks that this would be a benefit.

And yes, this is indeed someone who advises the TUC on tax matters.

Just think through what he\’s saying here. If British Aerospace has money lying around (a not unlikely occurence, they get their revenue in huge chunks from the leasing companies as planes roll out, they pay out money over time for wages and materials. Heck, people pay up front fees to book a place in the order book, years before they actually get the plane.) then he thinks it better that that money simply sit in an account somewhere rather than be lent out to someone else to make use of.

That\’s the implication of closing down corporate treasury functions. In fact, looked at this way (for of course the money sitting in a bank account will be lent out, the margin going to the bank, not to BAe) he\’s trying to ensure that the banks become even more important as intermediators of cash flow, rather than the disintermediated money markets.

It\’s very difficult indeed to work out which economic planet he\’s living on for it certainly ain\’t this one.

Oh, my word, Ritchie Murphy has really outdone himself this time with his new Financial Secrecy Index.

It\’s simply a quite glorious fuck up even by his standards.

By his method of ranking the worst in the world is Delaware. So children, shall we see how they\’ve scored the place?

Here.

There are twelve measures used. The more negative scores you\’ve got the worse you are: plus, there\’s a weighting to see how many people use whatever naughty laws you\’ve got. So somewhere that was very secret indeed but only three people used would not be as high (or low if you prefer) on the index as somewhere that many people used but which was only mildly naughty.

That, as it happens, is about the only sensible part of this index that I can see.

So, one by one:

This weak opacity score arises because the USA (Delaware):
1. Provides banking secrecy;

So what is the definition of bank secrecy used?

1 Is legal banking secrecy banned (i.e. Is there no legal right to banking secrecy)?

Ah, now the two things are really not quite the same now, are they? It\’s entirely possible for there to be no law banning bank secrecy while there might be other laws insisting upon bank openness. Now I\’ll admit that I\’m not an expert on US law (as of course Ritchie is not) but there are myriad laws in the US where a bank should not only inform the Feds about movements in your accounts (for example, every cash transaction over $10,000) but I\’m similarly sure that there are myriad laws where the bank *must* inform the Feds about your bank transactions (that $10,000 cash one being one of them).

I would be absolutely astonished if under any reasonable test the US had anything approaching bank secrecy: that it doesn\’t have a law against it is not evidence that the US does indeed have bank secrecy.

We also seem to have something of a misunderstanding (which will come clearer later) of the US system, which is that it is a Federal one. Only some things are regulated at State level, many others at Federal. State chartered banks at State level for example, but all of the larger ones also have Federal oversight. So the test of whether there is bank openness or not is something which will depend upon Federal, not Delaware, law.

2 Does not put details of trusts on public record;

I have no idea: anyone else?

3. Does not comply sufficiently with international regulatory requirements

Again, dunno, their definition is: 3

Does the FATF rate 90% largely compliant and with no non-compliant ratings?

4. Does not require that company accounts be available on public record;

Well, not quite, the definition here is:

Are company accounts available for inspection by anyone for a fee of less than US$10?

Anyone know whether Delaware accounts are indeed publiclly accessible and if so, for what fee? I have a feeling our own dear Companies House would fail the £7.50 test…

5. Does not require that beneficial ownership of companies is recorded on public record;

Again, it\’s not quite what they say. Their actual test is:

5
Are details of the beneficial ownership of companies available on public record online for less than US$10?

Again, I have no idea about what happens in Delaware on this point but perhaps someone would like to tell us?

6. Does not maintain company ownership details in official records;

Similarly, does Delaware allow anonymous ownership? Dunno. Their test is:

6
Are details of the beneficial ownership of companies submitted to and kept updated by a competent authority?

7. Did not respond to Tax Justice Network requests for information;

Oh, that one must hurt. That the authorities do not respond to a survey sent by self-appointed puffed up egomaniacs.

8. Does not participate in the European Union Savings Tax Directive;

Hmm, that, under this Federal system of theirs, is something for Congress to deal with, not Delaware. Under the Constitution States are expressly forbidden from signing their own foreign treaties. no?

They pass number 9 because they have many tax information sharing agreements (because the US does).

10. Does not have adequate access to banking information;

Hmm, what does that mean?

10
Has the jurisdiction\’s authority effective access to bank information for information exchange purposes?

Again, that\’s Federal, not State.

11. Allows company redomiciliation;

Eh? You mean that thing which every corporate within the EU (and EFTA) has, the right to move jurisdictions? This is evidence of them being naughty boys? Plus, I would suspect (do not know, but would suspect) that redomiciliation to another US state is easy, but redomiciliation out of the US altogether would come up against some fairly stiff Federal tax laws.

12. Allows protected cell companies.

Who knows what this means?

But shall we also look at the \”other data\”? Yes, why not.

Financial services as a percentage of GDP
Not Available
Not Available
Number of multinational company subsidiaries in the jurisdiction
Not Applicable
Not Applicable
Number of Big 4 firms in the jurisdiction
4
–
Number of lawyers in the jurisdiction
1104766
5
Number of accountants in the jurisdiction
Not Available
Not Available

Wow, that really is something. Delaware has more lawyers than it has head of population. Quite incredible really. Of course, what they\’ve done is use the number for all lawyers in the US. The actual Delaware Bar seems to be around 4,000 people or fewer.

And the Big Four accountants are in Delaware (assuming they\’ve not made the same mistake about the US etc)? Well, that might just be because of the Delaware Court of Chancery. And if you don\’t understand the implications of that then you\’ve really no business at all commenting upon companies or incorporation in the jurisdiction. Absolutely none at all.

This data shows
1. That the USA (Delaware) may have a significant dependence8 upon financial services;
2. That the Big Four accounting firms do have a significant presence9 in the USA (Delaware), suggesting that it does host significant international activity;
3. That the USA (Delaware) does exhibit a significant number10 of lawyers accountants when compared to other secrecy jurisdictions, suggesting the relative significance of its activities.

Well, actually, no. The evidence does not show that Delaware has a significant dependence upon financial services*, the presence of the Big Four does not show significant international activity and the number of lawyers is so hoeplessly wrong that we can conclude nothing more than that this exercise has been put together by someone with absolutely no clue what they are doing.

But then that\’s our Ritchie, ain\’t it?

There\’s one small get out for Murphy\’s army here. That they are using some US wide information. However, the idea that the presence of the Big Four and lots of lawyers in the largest economy in the world is evidence of it being a secrecy jurisdiction is simply insane. Sorry, but it really is.

*Other evidence does most certainly show that Delaware makes good money out of being a centre for the law about corporate governance. But as the above doesn\’t even try to delve into that, let alone understand it, that can\’t be what they\’re referring to as part of their evidence, can it?

Yes, it\’s our favourite retired accountant again.

It has been commonplace for tax to be charged in accordance with “law”. For example, it was decided in a legal opinion given in the House of Lords in the United Kingdom in 1869[1] that:

If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute what is called an equitable construction, certainly such a construction is not admissible in a taxing statute.

This principle remains enshrined in most British tax law (in particular)and appears to heavily influence taxation thinking in general.

OK, established principle of British law, been there a century and a half at least but Ritchie wants that to change. Got to say he doesn\’t lack ambition at least. But why? Why change it?

But the profession will hate it. They want certainty. We need principles to ensure tax is fair.

Well, apparently tax shouldn\’t actually be certain: shouldn\’t be about what the law says it is, it should be about whatever the taxman decides on the day it should be. Bugger all that rule of law stuff, that democracy (you know, the bit about having to go through Parliament?) shtick is simply too, too, old fashioned.

Tax should be what ever is demanded and pay up quick Sonny Boy.

Fuck that for a game of soldiers quite frankly. And the horse it rode in on.

Rather than that sort of dictatorship of the bureaucracy we\’d be better off scrapping corporation tax altogether (for of course the vast majority of all of this is about that very corporation tax). And there\’s no particular reason to think that there would be much revenue loss to the Treasury if we did as well: given tax incidence (yes, even St Cable of Vince is on board with this one) the money not collected in corporation tax would pop up elsewhere, almost certainly in dividends (and capital gains….and yes, part of the change here would be to equalize CGT with income tax rates at the same time as abolishing corporation tax) to shareholders and higher wages for workers: both of which are taxed and at or above the marginal rates of corporation tax (40% for higher rate payers for example).

But wait! There\’s more!

Yes, we should slap the banks with loads more tax so that they have less capital and thus can lend less! Truly, the work of a genius in the middle of a credit crunch, don\’t you think?

And I am quite convinced it is the right thing to do. Banks have to repay society. Banks are liquid now – using government money. If they need new capital they should raise it, not save it. And HMG needs the tax – plus to cost of doing business for banks has to increase.

Interestingly, when Lloyds\’ announced plans for a rights issue (you know, that raising more capital bit) Ritchie was against that too.

There is a sadness here as well as the hilarity. There really are people in The Treasury who listen to this guff without guffawing in laughter. Sadly so.

You cannot, for example, make a nurse and (I assume he means \”an\”-Tim) added value supplier by transferring them to the private sector.

Our Ritchie.

Private nurses exist: is he saying they don\’t add value? That people pay them because they don\’t value what they do?

What?

The rest of it is that everything truly valuable is supplied by the State, those things provided by the market mere trinkets.

Sorry, more Ritchie. His comment at his place.

Tim

I’ll quote this from a review of On Kindness by Adam Philips & Barbara Taylor, Hamish Hamilton, £14.99 in the Guardian today:

“Kindness was mankind’s “greatest delight”, the Roman philosopher-emperor Marcus Aurelius declared, and thinkers and writers have echoed him down the centuries. But today many people find these pleasures literally incredible, or at least highly suspect. An image of the self has been created that is utterly lacking in natural generosity. Most people appear to believe that deep down they (and other people) are mad, bad and dangerous to know; that as a species – apparently unlike other species of animal – we are deeply and fundamentally antagonistic to each other, that our motives are utterly self-seeking and that our sympathies are forms of self-protectiveness.

Kindness – not sexuality, not violence, not money – has become our forbidden pleasure. In one sense kindness is always hazardous because it is based on a susceptibility to others, a capacity to identify with their pleasures and sufferings. Putting oneself in someone else’s shoes, as the saying goes, can be very uncomfortable. But if the pleasures of kindness – like all the greatest human pleasures – are inherently perilous, they are none the less some of the most satisfying we possess.

In 1741 the Scottish philosopher David Hume, confronted by a school of philosophy that held mankind to be irredeemably selfish, lost patience. Any person foolish enough to deny the existence of human kindness had simply lost touch with emotional reality, Hume insisted: “He has forgotten the movements of his heart.”

For nearly all of human history – up to and beyond Hume’s day, the so-called dawn of modernity – people have perceived themselves as naturally kind. In giving up on kindness – and especially our own acts of kindness – we deprive ourselves of a pleasure that is fundamental to our sense of well-being.”

Your argument that economics follows immutable laws of human nature is simply wrong. The current view of that nature has been perverted, not least by economists, and libertarians in particular, as the article goes on to note. Hobbes has a lot to answer for, but the fact is that for a great many people in the world the maxim that a person should love their neighbour as themselves (found in all the major world religions) holds true. Your view of economics and the inevitability of human nature is wrong Tim, because it is built on sand.

Richard

My response, as I don\’t know whether it will get published.

Umm. Richard, at the risk of being banned from the comments here again.
You do know that David Hume was the best (philosophic) friend of Adam Smith, don’t you? You do know that Adam Smith wrote “The Theory of Moral Sentiments”? You do know that Smith wrote about “sympathy ” (what we would probably these days call empathy)?

I am, as a Fellow at the Adam Smith Institute, a follower of Smithian (and by implications, Humean) philosophic thought. I am not a Hobbesian. I’m afraid that you are once again betraying your paucity of knowledge about such matters.

Both Smith and Hume pointed out that “sympathy” (as they called it) was indeed entirely human and entirely admirable. But that it wasn’t unlimited. There’s a passage in Wealth of Nations where Smith points out that what happens to Chinamen (his phrase, not mine) is of less import than what happens to our neighbours.

This is indeed a “law of human nature”. What happens to those socially or societally close to us is more important to us (whether it should be or not) than what happens to those who are not so. This is a simple observation of human nature. One made by Smith with the aid of Hume.

Indeed, those who worry about inequality within a society, as opposed to those worrying about global inequality, are making the same argument. When people say that “relative poverty” in the UK is a problem, they are stating that inequality here is of more import than inequality between, say Britons and Ugandans. For that inequality is happening close to us and as Smith and Hume said, empathy (or sympathy) seem to work harder the closer we are to each other.

You’re going to have to do much better than this to prove that I’m some sort of heartless bastard, sorry. In fact, you’re going to have to get a rather greater education than you seem to have in either economics or the philosophy that underlies the major economic schools before you can even critique, let alone criticise, my opinions.

As I’ve said before, you just don’t know what you’re talking about as yet.

Mr. Murphy today.

FT.com / Companies / Financials – Danger of persistent deflation is seen as low – I agree on one condition: which is that we print a lot of money

That will permit quantative easing

Of course, it\’s quantitative easing, not quantative. But it\’s a straight monetarist argument.

MV equals PQ of course and if V is falling (as it is, obviously) then in order to keep either or both P or Q stable then we need to increase M. And there are a number of ways of increasing M, from things like changing reserve requirements to increase M4, interest rates for M3 (umm, I\’ll admit to being more than a tad hazy at this level of discussion of monetary economics. Please do correct me in the comments) to simply printing the stuff to increase M0.

Who knew, our Ritchie, a follower of Uncle Milt?