Since You Asked

Stop banging the vending machine

‘Starbucks has caved in to public pressure and pledged to pay £10m in UK corporate tax in each of the next two years even if it makes a loss following calls to boycott the coffee chain over its “immoral” tax practices.’

Financial Times

Seems like the “tax shaming” campaign worked, then.

I suppose so, if you think that the amount of tax the government collects should be determined by public relations campaigns on all sides. I’m not sure how sustainable that is likely to be – or indeed how well public protest is likely to work against, say, a multinational provider of industrial detergents or rat poison. Not everybody has a consumer-facing business to worry about.

“Tax shaming” has worked. Don’t deny it.

Has it really worked? It’s worked for the politicians and campaigners who have described the low corporation tax paid by some multinationals as an “insult”. But while politics deals in insults and shame, corporations don’t, by and large. And I have no idea why anyone goes to Starbucks, but I can assure you it isn’t because of their noble decision to bung the taxman a few extra quid. These campaigns may chivvy a few companies for a few years but this is no way to run a tax system.

Fine. What’s your alternative?

Why not just abolish corporation tax? We could collect the same revenue using other taxes. Closing the loophole that lets Amazon and others ship free of value added tax from the Channel Islands will be a good start.

You’re just going to let the fat cats have their way, then?

Hang on. Which fat cats? All tax is ultimately paid by individuals. You can tax individuals by taking a slice of their income. Or you can tax them more indirectly, and one way to do that is to tax the corporations whose shares individuals ultimately own. The question is this: do we have any reason to believe that taxing the individuals who own pieces of profitable corporations is a particularly sensible way to raise money?

It’s progressive.

It’s hard to be sure of that, but let’s assume you are right. We could also be progressive using income tax, and that would include taxing dividend income as though it was any other kind of income.

Isn’t it easier to tax profits and dividends separately, rather than load the whole bill on to dividends?

I think that Starbucks and all the other companies accused of perfectly legal corporate tax avoidance are rather proving the point there. Profit is a really slippery concept. Remember the old saying from Hollywood, advising people not to work in exchange for a slice of a film’s ultimate profits: “A percentage of net profits is a percentage of nothing.” Profits are easily manipulated by multinational companies and a number that is easily manipulated is probably not the kind of number we should be trying to tax much. There are easier ways to tax the rich.

But corporation tax has an advantage: some of the people who pay it are foreigners who own shares in British companies.

Oh, OK. I see. Is it a good idea to tax foreigners now? I thought we gave up on taxing Americans in 1783.

This is different. We’re not trying to tax all Americans.

No, only the ones who invest in the UK. I get it, I get it.

So you’re saying that tax simply shouldn’t be a moral issue. It’s all about the letter of the law?

No, although getting the law right wouldn’t hurt. Tax is, in part, a moral issue. It’s just that morality is something that tugs at individuals, not companies. We all need to do our bit and pay our taxes, and one reason that the moral component is important is that many individuals with modest means would find it easy to cheat on their taxes by the simple technique of lying. HM Revenue & Customs is too busy to find many of them, and so a big weapon against small-scale tax cheating is moral persuasion.

One rule for the companies, one rule for the little people?

I’m one of the little people, too. I think it’s important that we pay our taxes and I think it’s important that the rich pay a larger share than others. But that’s nothing to do with Starbucks. And to think that a multinational corporation has insulted you is a category error. It’s like thinking a coin-operated machine has stolen money from you. We need to stop banging the vending machine in fury and figure out a better way.

Also published at ft.com.

Clarification: “Closing the loophole that lets Amazon and others ship free of value added tax from the Channel Islands will be a good start.” – that’s clumsy phrasing. As I explained here, the loophole closed earlier this year. I was conflating “was a good start and will have good results”. Sorry for spreading confusion. – TH

8th of December, 2012Since You Asked • Comments off