Taxed to Death

Death and taxes, the two 'inevitables'. One is a natural part of the human condition due to and defining our mortality: the other a man-made imposition which beggars belief in its operation and drives folk to distraction.  Taxes are anything but natural. 

We know not the hour or the means of our future demise and try not to think on't too much, but with taxes we get to hear too much and too little, and while accident, homicide and simply fading away (as old soldiers may be fortunate enough to experience) happen, we seldom hear of the autopsies. And we seldom hear sensible investigation and analyses about taxes either, especially when cogent discussion is kept behind paywalls. 

Behind the bars I get to hear all sorts and was pleased to hear two very cogent discussions, previously hidden behind paywalls, which I will bring to you. 

First though (and later) I shall give a view of my own.

Yes, we need to pay for 'common goods': our roads, trains, infrastructure of all sorts that are better contributed, financially, from all. So we pay our taxes. But at every step there are opportunities for rorts, theft, embezzlement, sanctimonious cant, excuse, and an enormous range of people living off the sweat of others. 

And that's on the 'official' side.

Like it or not we have hundreds of thousands of people - millions on Oz - who have to be paid from the public purse. They too pay taxes. But their pay and taxes are from the monies given to them by those who are not employed on the public purse. Why do the public servants pay taxes at all, I often wonder.  That includes all those employed by the Tax Office.  

It is a great money-churn,  The productive taxpayer pays them all and their taxes. It is a wonder there is any left for 'common-good' use.

Why not pay public servants tax free at the rate after the tax would have been taken?  Then a good half of those doing the servant-work of taking it could be sent into the productive workforce. Less tax would need to be levied.

Taken at source from the ordinarily employed person, the tax-take money is not even seen by them.  Out of sight: out of mind. The taxman likes it that way.

Until the taxman calls. We don't often hear the tales of woe about that nor of the deaths from despair.

The taxman never, ever brings joy and helpfulness, succour or even a bottle of wine to anaesthetise the pain. And those taxmen are rapacious, cruel, pen-pushers.  They do not subscribe to 'Natural Justice'. Justice is another department's business.

Grace Collier is a fine lady with an analytical mind and a sharp pen. 

Her recent  discussion in the Australian can be seen only by those who pay, so I am pleased to have her sit at a table in the Tavern surrounded by customers sitting on their wallets, and tells us herself.

ATO’s tax on natural justice

Don’t be a fool and assume you have certain rights. 

You may think if you are accused of something the presumption of innocence applies unless proven otherwise in a court. You may think the authorities are not allowed to bust down your doors in the middle of the night unless they have a warrant.

You may think no one in the government can just whisk money out of your bank account without your permission, or sell your house from under you, without going through some sort of process first where it has been established that a debt is owed by you and orders are made that it must be paid.

These individual rights you think you have are what separates a free democracy from a dictatorship. In all areas of law, the listed assumptions about your rights are correct 

— except when it comes to taxation.

If a person within the Australian Taxation Office decides that in their opinion you owe a debt — and they have the power to choose the amount — then by law you owe that money, whether that debt is real or not. You can dispute the debt in court, but you must pay it first. 

In the meantime, the ATO is entitled to collect the debt off you in any way it wishes. It has the legal power simply to take the money out of your bank account, sell your house and raid your business or home.

In this country, taxpayers have fewer rights than murderers.  

This was pointed out on Monday night by a tax barrister on the ABC’s Four Corners program. If you missed it, I strongly recommend you watch online.

Last month, this column touched on Minister for Revenue and Financial Services Kelly O’Dwyer’s since-shelved plan to give the ATO power to report alleged debts to external credit agencies (“O’Dwyer unchains tax office bullies”, 17/3). After reading the column, which detailed a submission by Self-Employed Australia, tax commissioner Chris Jordan went to a meeting with officials from two unions. He referenced the column and asked the unions to support him by rebutting my allegations.

Before Jordan’s union mates could put their shoulder to the wheel, the Four Corners program aired. It is now blindingly apparent that the allegations were true, and the sound of wringing hands and gnashing teeth is ricocheting through ATO headquarters. 

Denial, anger, despair: these are the emotions senior executives are experiencing. To them I say: just imagine how your victims felt when they lost their incomes and assets, and had their lives ruined.

These Tax officials, the Department and Ministers will not have their incomes taken away, nor their assets. Their lives will continue as normal, sitting in comfortable offices, and enjoying all the salaries, perks, privileges and rorts, paid for by hard-working taxpayers.  They will get fat pensions, also provided by taxpayers.

Since the program aired the floodgates have opened, and there are many more stories that will come to light in future.

As we all know, thanks to high government spending, there is a desperate and ever-expanding need for revenue, and the evidence of waste is always apparent. 

Just a small example, for your consideration:

Unsolicited emails from a National Disability Insurance Scheme provider regularly land in my inbox. It wants me to register a tax-exempt, not-for-profit social franchise and start a community choir. 

Me, a community choir, can you imagine? 

My choir must accept anyone who wants to sing in it and no auditions can occur because auditions exclude people who cannot sing. I am to hold the choir every week because it helps with loneliness. In return, the NDIS will pay me $500 a year for every NDIS recipient who sings in my choir.

The choir idea sounds like a wonderful thing except taxpayers should not be funding it. 

It is precisely because of this sort of nonsense many people who pay a lot of tax resent it.

One hears a lot of resentment, predominantly from people who pay little or no tax at all, and usually against the wealthy who pay pretty well all the tax that can be usefully deployed. 

The 'average' taxpayer, be he or she in the private sector earning their crust and being taxed without even seeing it; or the public servant who, as said, is paid and has their taxes paid by the taxes of the private sector taxpayer: mostly get more back in government bribes than they pay. They are nett beneficiaries. 

They keep quiet.

But, we in Oz also have the GST. Pretty well everything we buy with what is left to us after tax, carries a 10% tax. Americans laugh at us. But are things any better for them with their Federal taxes, State taxes (we in oz don't have those) and even City taxes ! We don't have those either. 

Nevertheless, the price of a civilised society is taxation. If people do owe a tax debt it must be paid and, while tax minimisation is legal, tax avoidance is not and should be punished. But ATO employees have unfettered power. 

These people, who are not bad people, by the way, sit in their securely tenured public service bubbles without any understanding of what it is like to create their own income, and income for others, out of thin air every month.

Where there is a system in which individuals are issued unfettered and unchecked power, mistakes and abuses will occur, and those are unacceptable because the impact is so great. When an ATO person decides someone owes a debt, and decides to collect it, then people’s lives can be destroyed.

On March 28, Jordan spoke to federal parliament’s Standing Committee on Tax and Revenue. He disclosed that every week during the 2016-17 year, 37 people were pushed by the ATO into bankruptcy or a wind-up of their income-earning activity. And every week 455 people had money taken from their bank account by the ATO without their agreement.

There are some in our community who find the ATO’s powers acceptable. They think the ATO should be able to mercilessly extract any amount of money it wishes from anybody in any way it wants to, without any higher body having any ability to stop it. 

These people belong in a communist dictatorship.

For those who believe in fairness, legal process, justice, social mobility and individual freedom, these are worrying times. 

We have passed a dangerous tipping point. 

Now, most households pay no net tax and, as such, 

the few are supporting the many. 

The majority have an insatiable demand for more and more funds, the minority are providing those funds, and the agency that collects the funds has draconian powers, which it is abusing, causing catastrophic outcomes.

Those with income and assets should be aware their position is precarious and their future fraught with danger. 

Australia looks like a stagnant pond where the piranhas outnumber the goldfish and the water level is dropping.

Grace received a heary cheer for her ladylike rant. She made room at the table for Matt Ridly who widened the issue into areas we rarely get to discuss. He has taken to the Times, which also inhibited our otherwise ability to hear his view by putting it behind a paywall.

Public Sector bureaucracies grow like Topsy. They originate in a social, political or trade need, and then grow, inexorably, to make sure that need continues. The need is nurtured. 

The very thought of eradicating or even alieviating that need is like a toothache to them. Their very existence depends upon it. 

For example: Poverty? Oh yes. They need poverty. The more the better. The more there is the more need for public servants and huge budgets. 

And gravy-trains. And corruption. 

And embezzlement. 

And status. 

One might niaivly think that Capitalism and a sound Marketplace would be a good counter to the unfair and unjust impositions of Government, but that is a mistake. 

Corruption spreads. It is a disease.; a swamp; it sucks down and drowns.

So, to Matt.

The swamp is a huge drag on us all

While the world economy continues to grow at more than 3 per cent a year, mature economies, from Europe to Japan, are coagulating, unable to push economic growth above sluggish. The reason is that we have more and more vested interests against innovation in the private as well as the public sector.

This pub of course.

Continuing prosperity depends on enough people putting money and effort into what the economist Joseph Schumpeter called creative destruction. The normal state of human affairs is what The jurist Sir Henry Maine called a “status” society, in which income is assigned to individuals by authority. 

The shift to a “contract” society, in which people negotiate their own rewards, was an aberration and it’s fading. 

I am writing this from Amsterdam and am reminded we caught the idea off the Dutch, whose impudent prosperity so annoyed the ultimate status king, Louis XIV.

In most western economies, it is once again more rewarding to invest your time and effort in extracting nuggets of status wealth, rather than creating new contract wealth, and it has got worse since the great recession, as zombie firms kept alive by low interest rates prevent the recycling of capital into new ideas. 

A new book by two economists, Brink Lindsey and Steven Teles, called The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality, argues that “rent-seeking” behaviour — the technical term for extracting nuggets — explains the slow growth and rising inequality in the US.

This 'rent-seeking' is the raison d'etre of the public sector. And increasingly some of the larger aspects of the private sector that depends upon Government. And do not get me started on Charities!  

They make the case that, in four areas, there is ever more opportunity to live off “rents” from artificial scarcity created by government regulation: financial services, intellectual property, occupational licensing and land use planning: 

“The rents enjoyed through government favouritism not only misallocate resources in the short term but they also discourage dynamism and growth over the long term.”

 

Here, too, hidden subsidies {extracted, coerced, simply taken at source, from taxpayers} ensure that financial services are a lucrative closed shop; patents and copyrights reward the entertainment and pharmaceutical industries with monopolies known as blockbusters; occupational licensing gives those with requisite letters after their name ever more monopoly earning power; and planning laws drive up the prices of properties. 

Such rent seeking redistributes wealth regressively — that is to say, upwards — by creating barriers to entry and rewarding the haves at the expense of the have-nots. 

True, the tax and benefit system then redistributes income back downwards just enough to prevent post-tax income inequality from rising. 

But government is taking back from the rich in tax that which it has given to them in monopoly.

As an author, my future grandchildren will earn (modest) royalties from my books thanks to lobbying by American corporations to extend copyright to an absurd 70 years after I am dead. Yet there is no evidence that patents and copyrights incentivise innovation, except in a very few cases. Indeed, say Lindsey and Teles, the evidence suggests that “rents that now accrue to movie studios, record companies, software producers, pharmaceutical firms, and other [intellectual property] holders amount to a significant drag on innovation and growth, the very opposite of IP law’s stated purpose.”

[Thomas Babington Macaulay MP summarised an early attempt to extend copyright in a debate thus: "The principle of copyright is this. It is a tax on readers for the purpose of giving a bounty to writers. The tax is an exceedingly bad one; it is a tax on one of the most innocent and most salutary of human pleasures; and never let us forget, that a tax on innocent pleasures is a premium on vicious pleasures." A correspondent sends me the following details of this appalling saga: "Someone noted that there is a divergence in copyright term in the European Union.

All the then member states protect works for the life of the author plus fifty years while West Germany alone protects works for the life of the author plus seventy years. Immediately the copyright publishers suggested this as something in need of harmonisation. But instead of harmonising down to the norm, all the member states were lobbied to harmonise up to the unique German standard. As a result, Adolf Hitler's "Mein Kampf" which was going out of copyright in 1995 was suddenly revived and protected as a copyrighted work throughout the European Union.

Gilbert and Sullivan operettas whose copyright had been controlled by the stultifying hand of the D'Oyly Carte Opera Company found themselves in a position to once again stop anyone else performing Gilbert and Sullivan works or creating anything based upon them. 

It is not surprising that, following a brief flowering of new creativity when the Gilbert and Sullivan copyrights initially expired (e.g. Joseph Papp's production of Pirates on Broadway and the West End stage), since their revival by the European Union harmonisation legislation their use have become effectively moribund. A generation of young people are growing up without knowing anything about Gilbert and Sullivan - an art form which, it can be argued, gave birth to the modern American and British musical theatre."]

As for occupational licensing, Professor Len Shackleton of the University of Buckingham argues that it is mostly a racket to exploit consumers. After centuries of farriers shoeing horses, uniquely in Europe in 1975 a private members bill gave the Farriers Registration Council the right to prosecute those who shod horses without its qualification.

I think I may have mentioned before (or perhaps a customer did - that is more likely) that Governments take away your right to do whatever you always did and then sells that right back to you for a licence fee. 

Did Government copy the Mafia or the other way around?

Then there are energy prices. 

Lobbying by renewable energy interests has resulted in a system in which hefty additions are made to people’s energy bills to reward investors in wind, solar and even carbon dioxide-belching biomass plants. The rewards go mostly to the rich; the costs fall disproportionately on the poor, for whom energy bills are a big part of their budgets.

An example of how crony capitalism stifles innovation: Dyson found that the EU energy levels standards for vacuum cleaners were rigged in favour of German manufacturers. The European courts rebuffed Dyson’s attempts to challenge the rules, but Dyson won on appeal and then used freedom of information requests to uncover examples of correspondence between a group of German manufacturers and the EU, while representations by European consumer groups were ignored.

So deeply have most businesses become embedded in government cronyism that it is hard to draw the line between private, public and charitable entities these days. 

Is BAE Systems or Carillion really a private enterprise any more than Oxford University, Oxfam, Oxfordshire county council or the NHS? 

All are heavily dependent on government contracts, favours or subsidies; all are closely regulated; all have well-paid senior managers extracting rent with little risk, and thickets of middle-ranking bureaucrats incentivised to resist change. 

Disruptive start-ups are rare as pandas; the vast majority work for corporate brontosaurs.

Capitalism and the free market are opposites, not synonyms. Some in the Tory party grasp this. Launching Freer, a new initiative to remind the party of the importance of freedom, two new MPs, Luke Graham and Lee Rowley, not only lambast fossilised socialism and anachronistic unions, but also boardrooms “peppered with oligarchical and monopolist cartels”.

One of the most insightful books of recent years was The Innovation Illusion by Fredrik Erixon and Björn Weigel, which argues that big companies increasingly spend their profits not on innovation but on share buybacks and other “rents”. Far from swashbuckling enterprise, much big business is “increasingly hesitant to invest and innovate”. Like Kodak and Nokia they resist having to reinvent themselves even unto death. Microsoft “was too afraid of destroying the value of Windows” to go where software was heading.

As a result, globalisation, far from being a spur to change, is an increasingly conservative force. 

“In several sectors, the growing influence of large and global firms has increasingly had the effect of slowing down market dynamism and reducing the spirit of corporate experimentation”.

The real cause of Trump-Brexit disaffection is not too much change, but too little. 

We need to “radically reduce the restrictive effect of precautionary regulation” and promote a new regulatory culture based on permissionless innovation, Erixon and Weigel say. 

“Western economies have developed a near obsession with precautions that simply cannot be married to a culture of experimentation”. 

Amen.

So, there you have some insightful roughage to chew upon.

I have the drinks to wash it down.

Meanwhile I shall leave you with an 'Opinion' handed down from the bench.

The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. 

And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

James Avon Clyde, Lord Clyde KC DL (1863 – 1944)

Lord Justice General and Lord President of the Court of Session from 1920 to 1935

Be good now.

Pax