Monday 25 February 2008

The need for fairness in taxes

Easy to file

I just filed my taxes with the Dutch tax authorities called Belastingdienst and if anything being the son of an accountant and having every mutation of the anti-accountancy gene in my being, they have the simplest tax filing system in the whole wide world.

It is all done electronically, you download a programme, install it and you just go through the sequence of filling in the numbers then use your DigID code to file the stuff – all done in under 20 minutes.

All you require are a number of Year Summary (Jaaropgave in Dutch) letters you get from your employer or employment agency, your mortgage lender, the community value of your home based on the assessment of your local government and a number of insurance details.

I do not complicate my tax filing with receipts of taxi rides and other little expenses, the time spent adding up pennies (cents) ends up losing you pounds (Euros).

When I looked at the summary of my returns I suddenly realised I was so much into the top tax band, it made me sick, I was paying so much at 52%.

Tax breaks away from home

Now, I moved to the Netherlands at a time when the UK Labour Party was introducing a new tax code called IR35 where as a self-employed owner of a company my income was to be taxed at source rather than after it had gone through the company – there was an exodus at a time when the UK needed IT personnel.

At the same time, the Netherlands had been attracting brains and skills for decades with what they called the 35% ruling which gave you the first 35% of your income tax-free before the local taxes apply.

At that time, you could claim back literally everything, soon after they closed a number of loopholes and reduced the tax break to 30% and most of those claims did not go through as easily as before.

The issue here when it comes to taxes is not that people do not like to pay taxes but that when taxes do not have an element of fairness, people who pay more tend to feel they are getting nothing back.

If I had stayed in the UK, I would have been looking for an extra GBP 20,000 a year in taxes for a situation where the transport system would not have improved, where I still had to pay heavily for essential health services through insurance and where access to social services were restricted because I did not have a disadvantaged or poor profile.

Moving to the Netherlands with my career profile allowed me to take advantage of a tax break that can run for 10 years before one settles into the full Dutch tax whack.

Infiltrating tax havens

An interesting issue about the fairness of rates of tax is brewing in Europe, surreptitiously; the German secret service through bribery involving a large sum of money (€5 million or $7.3 million) and subterfuge obtained names of German citizens with bank accounts in Liechtenstein who presumably have hidden their wealth from the taxman at home.

They have been trying to obtain this information from Liechtenstein and they have been unable to break the confidentiality clauses that make the Liechtenstein banking system a favoured haven for who feel entitled to have greater percentage of their hard-earned wealth in their pockets than in the wasteful hands of big government.

In fact, it appears an informant had also offered some information about Britons to the UK tax authorities for a price, but they turned the offer down.

Tax fairness would defeat tax evasion

Now, they are accusing Liechtenstein of aiding and abetting tax evaders which is a rather grave if not scurrilous accusation.

Germany now plans to tighten the screws on European tax havens, because they presumably foster tax evasion.

Well, I think that attack plan is wrong headed, because the issue is not necessarily the legality of taxation, I am sure everyone would willingly pay their taxes; the problem is the fairness of the system of taxes.

Crown Prince Alois, the hereditary prince of Liechtenstein went to the crux of the matter when he said of the German system – “If it were a more direct democracy with a better tax system perhaps its citizens would not cheat”.

Hard words, but ones that have the bitter taste of the truth, most of the tax systems in Europe and the United States are warped, over-burdening, unfair and not delivering value for money for the people who contribute the most.

Liechtenstein is not the problem, they are not the tax evaders, Germany is the problem, their tax regime is burdensome and unfair leading their citizens to seek havens for their large incomes.

It is evidently a matter of human nature to find ways to circumvent a feeling of unfairness and if one has the means to implement the measures, they would; in this case in tax havens that have strict confidentiality laws.

A taxed purpose

Whilst tax provides a means of revenue generation for the government, it behoves the government to ensure the moneys go to activities in a prudent manner for managing infrastructure and services without wastefulness - wishful thinking.

I am not sure that taxing for redistribution of wealth is a fair thing, it penalises those who really do work hard to succeed and lets off those we might wrongly assume do too little to get ahead or do nothing at all but leech on the state having children irresponsibly and so on – a reactionary diatribe.

The aspect of repricing is general and based on consumption and representation which implies that “rulers tax citizens and citizens demand accountability” - is almost Utopian.

The only way we can hold people accountable for the way our taxes are spent is through elections that just get rid of politicians; we still retain the same mandarins.

For instance, in the UK, the government has committed over GBP 50 billion in taxpayer’s money in shoring up the Northern Dust and with nationalisation assumed for taxpayers twice that in liabilities and not one head has rolled in government or the government agencies that govern the banking system.

Reform and rewrite

In the end, the real work to be done is in addressing, reviewing and rewriting the tax codes of these countries, I do not think anything can justify paying anything near 50% in taxes.

I did at least three 220 hour months in 2007 and this was NOT for the government or so someone who sits at home each day expecting me to pay for their willingness to remain jobless and not take up opportunities where they have no other choices – I had work to do.

What would it take for governments and lawmakers to reform the tax code? People like me waving placards and persuading our representatives that have a bit of capitalist backbone to see the benefits of fairness in taxation rather than penalising us for being successful to make the less successful feel good.

Then I remember when someone racially abused me a few years ago by suggesting that we black people come to his country for welfare - the reality of my response just makes me angrier about taxes. “I probably pay more taxes than you earn in a year and that goes into the government to have idiots like you speak to me like that.” How true.

Other readings

Taxation in the United States – Complex

Federal Tax Reform

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