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Modern economics

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Nick
Posts: 11027
Joined: July 4th, 2007, 10:10 am

Re: Modern economics

#1361 Postby Nick » May 4th, 2015, 11:33 am

Latest post of the previous page:

thundril wrote:
animist wrote:Nobel Prize winner Paul Krugman's views on austerity:

http://www.theguardian.com/business/ng- ... ?CMP=fb_gu

Yes. Thanks from me too, Animist. Have read, downloaded, and added it to ny economics research file.
I am however, prepared for the devastating discovery that Krugman is an economically illiterate buffoon, because he Doesn't Agree With Nick.

:laughter: He doesn't!


And of course, other Nobel laureates are available. :D

Ron Webb
Posts: 289
Joined: May 9th, 2009, 11:21 pm

Re: Modern economics

#1362 Postby Ron Webb » May 4th, 2015, 10:53 pm

Nick wrote:I have an accountancy background. There are over 1,000 specific tax exemptions specifically put into tax legislation in order to influence tax-payers behaviour or to mitigate against the effects of tax which the UK government considers unfair. If a company complies with them, it is hardly their fault, is it?

I'm glad that you implicitly acknowledge that it is possible for laws to be fair or unfair. What I need you to understand is that that is a separate question from whether or not a company is complying with these fair/unfair laws. Just because the tax laws allow them to operate in a certain way, that doesn't automatically make it fair.

You're right, one of the ways is to re-invest it back into the business, and that may be part of Starbucks' strategy.
That's a business strategy, which may be right or wrong, not a tax strategy.

C'mon, Nick. You have an accountancy background. Surely you know that re-investing is a common way to avoid paying tax on what would otherwise show on the books as a profit. Tax strategy is part of business strategy. The two are not mutually exclusive.

But paying tax is part of any business model, because, when you make taxable profits, it's kinda compulsory! As they are not making taxable profits, then either they are on hard times, or they are creating hundreds of new stores. You know, start-ups. Or are you saying that no chain of coffee-shops should have more than one store? In fact, not be a chain at all? How would that help?

I'm saying that instead of opening 700+ new locations, maybe they should have settled for 600+, so that they would have some money left over to pay their fair share of the road maintenance, policing, etc. -- just like Costa. Yes, I understand that current tax laws allow them to invest the whole of their profit and then plead poverty to the tax man, but I'm saying maybe that isn't fair.

Bottom line -- There are two major coffee chains in the UK: Starbucks and Costa. Both seem to be quite successful; but only one of them is paying tax, while the other is not. However you slice and dice the numbers, that doesn't seem fair to me.
They both play by the same rules. They both use Big 4 auditors (Deloittes and Ernst & Young respectively). Their tax computations and audit procedures follow the same rules. But just like Aldi has made a profit this year, and Tesco's a thumping loss, there is no reason why their results should be the same. Fairness really doesn't come into it.

Really? You don't think that tax laws should be fair?

Again, let me be clear: I'm not for a moment blaming Starbucks or claiming that they are not complying with the law. I'm saying that the net result -- two apparently successful companies, both using the same public services, but one paying corporate tax and the other not -- just doesn't look fair to me. How to fix that is a difficult question, but somebody's got to pay for the roads and the police and all. Why Costa, but not Starbucks?

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Alan H
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Re: Modern economics

#1363 Postby Alan H » May 4th, 2015, 11:11 pm

+1
Alan Henness

There are three fundamental questions for anyone advocating Brexit:

1. What, precisely, are the significant and tangible benefits of leaving the EU?
2. What damage to the UK and its citizens is an acceptable price to pay for those benefits?
3. Which ruling of the ECJ is most persuasive of the need to leave its jurisdiction?

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Nick
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Re: Modern economics

#1364 Postby Nick » May 5th, 2015, 1:13 am

Ron Webb wrote:
Nick wrote:I have an accountancy background. There are over 1,000 specific tax exemptions specifically put into tax legislation in order to influence tax-payers behaviour or to mitigate against the effects of tax which the UK government considers unfair. If a company complies with them, it is hardly their fault, is it?

I'm glad that you implicitly acknowledge that it is possible for laws to be fair or unfair. What I need you to understand is that that is a separate question from whether or not a company is complying with these fair/unfair laws. Just because the tax laws allow them to operate in a certain way, that doesn't automatically make it fair.
Hooray! We are making progress! It's not down to Starbucks or any other company to decide what the law says. So stop giving Starbucks a hard time and give the MP's who make the law a hard time!

You're right, one of the ways is to re-invest it back into the business, and that may be part of Starbucks' strategy.
That's a business strategy, which may be right or wrong, not a tax strategy.

C'mon, Nick. You have an accountancy background. Surely you know that re-investing is a common way to avoid paying tax on what would otherwise show on the books as a profit. Tax strategy is part of business strategy. The two are not mutually exclusive.
So when is making a loss on an investment, just to save 20% of the amount lost, a business strategy? Don't be daft! And are you really suggesting that companies shouldn't invest, just so that they pay tax in the current year? We might as well cancel the education budget. That would pretty much cure the deficit overnight. But would be about as wise as your suggestion. Governments of all stripes go to great lengths to encourage companies to invest, not to deter them from doing so!

But paying tax is part of any business model, because, when you make taxable profits, it's kinda compulsory! As they are not making taxable profits, then either they are on hard times, or they are creating hundreds of new stores. You know, start-ups. Or are you saying that no chain of coffee-shops should have more than one store? In fact, not be a chain at all? How would that help?

I'm saying that instead of opening 700+ new locations, maybe they should have settled for 600+, so that they would have some money left over to pay their fair share of the road maintenance, policing, etc. -- just like Costa. Yes, I understand that current tax laws allow them to invest the whole of their profit and then plead poverty to the tax man, but I'm saying maybe that isn't fair.
This is just lunacy! We keep on hearing that greedy capitalists invest to make more profits. Which are taxed. And here we have someone complaining that we should cripple the future economy, just to generate a little more corporation tax in this current year. It is by investing that the profit levels, from which future corporation tax can be drawn, can be increased.

Bottom line -- There are two major coffee chains in the UK: Starbucks and Costa. Both seem to be quite successful; but only one of them is paying tax, while the other is not. However you slice and dice the numbers, that doesn't seem fair to me.
They both play by the same rules. They both use Big 4 auditors (Deloittes and Ernst & Young respectively). Their tax computations and audit procedures follow the same rules. But just like Aldi has made a profit this year, and Tesco's a thumping loss, there is no reason why their results should be the same. Fairness really doesn't come into it.

Really? You don't think that tax laws should be fair?[/quote]*sigh* It is the level of profit achieved by competing companies which has nothing to do with fairness, not the tax laws. What is fair about the tax law, is that all companies are taxed in the same way on their profits, vis a vis their competitors. If, as you seem to be suggesting, corporation tax should be based on some unique idea of "fairness" dreamed up in your imagination, that would be totally unfair, as it would have nothing to do with profit, would it? And its effect on business confidence, to investment, job creation, tax revenue.... in fact the whole economy, would be devastating.

Again, let me be clear: I'm not for a moment blaming Starbucks or claiming that they are not complying with the law. I'm saying that the net result -- two apparently successful companies, both using the same public services, but one paying corporate tax and the other not -- just doesn't look fair to me. How to fix that is a difficult question, but somebody's got to pay for the roads and the police and all. Why Costa, but not Starbucks?
Because you are not comparing like with like. When Costa was growing they paid little tax, as Starbucks is now doing. But as Starbucks grows, it will slow, and their corporation tax bill will rise. So overall, their fiscal contribution to the country will be equivalent; it will be a tax on their profits. All you see are timing differences.

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Nick
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Re: Modern economics

#1365 Postby Nick » May 5th, 2015, 1:15 am

Alan H wrote:+1

Seriously, Alan? Seriously? :sad2:

Ron Webb
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Re: Modern economics

#1366 Postby Ron Webb » May 5th, 2015, 3:36 am

Nick wrote:Hooray! We are making progress! It's not down to Starbucks or any other company to decide what the law says. So stop giving Starbucks a hard time and give the MP's who make the law a hard time!
It was never my intention to give Starbucks in particular a hard time. My comments are directed at those who argue, as you do, that it's okay for successful companies like Starbucks to avoid their fair share of corporate taxes, just because current tax law allows them to do so.

So when is making a loss on an investment, just to save 20% of the amount lost, a business strategy?
When that investment will pay off down the road, either in future earnings and/or higher net worth. By the way, I'm not sure it's reasonable to describe an investment as a "loss".

Don't be daft!
So much for "all due respect", eh? :D (Plonker!)

Governments of all stripes go to great lengths to encourage companies to invest, not to deter them from doing so!
Indeed. Sometimes they go too far, as perhaps in this case.

This is just lunacy! We keep on hearing that greedy capitalists invest to make more profits. Which are taxed. And here we have someone complaining that we should cripple the future economy, just to generate a little more corporation tax in this current year. It is by investing that the profit levels, from which future corporation tax can be drawn, can be increased.
Somehow I don't think that the UK economy would be "crippled" if Starbucks only opened 600+ new outlets instead of 700+. Among other things, whatever Starbucks lost in sales would probably be picked up by Costa et al.

*sigh* It is the level of profit achieved by competing companies which has nothing to do with fairness, not the tax laws. What is fair about the tax law, is that all companies are taxed in the same way on their profits, vis a vis their competitors. If, as you seem to be suggesting, corporation tax should be based on some unique idea of "fairness" dreamed up in your imagination, that would be totally unfair, as it would have nothing to do with profit, would it? And its effect on business confidence, to investment, job creation, tax revenue.... in fact the whole economy, would be devastating.
Is it written somewhere in holy scripture that profit, and specifically profit as defined in the current tax laws, is the only fair scale by which tax should be assessed? As you pointed out (and I'll take your word for it), there are already more than 1000 exemptions to the basic formula already. Perhaps net worth, or changes in net worth, should be a part of the equation too.

Because you are not comparing like with like. When Costa was growing they paid little tax, as Starbucks is now doing. But as Starbucks grows, it will slow, and their corporation tax bill will rise. So overall, their fiscal contribution to the country will be equivalent; it will be a tax on their profits. All you see are timing differences.
But timing differences do matter. I'm not sure that HMRC has such a nonchalant attitude about it, for instance. Try asking them if they wouldn't mind your putting off paying your personal income tax for a few years, and let me know what they say. :wink:

Besides, with the two companies presently going head-to-head for market share, it would seem that Costa is at an unfair disadvantage in having to pay a greater current share of the public infrastructure that benefits both. Even if your theory is correct, and even if (in theory) it balances out in the long run, it could be said that in the meantime Costa is indirectly subsidizing Starbucks' expansion. As Keynes put it, "In the long run, we're all dead." :)

Ron Webb
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Re: Modern economics

#1367 Postby Ron Webb » May 5th, 2015, 3:52 am

Nick wrote:
Alan H wrote:+1
Seriously, Alan? Seriously? :sad2:

Well, like you said, Nick, you don't get much respect on this forum. But you're used to it, eh? :D

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Alan H
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Re: Modern economics

#1368 Postby Alan H » May 5th, 2015, 10:16 am

Nick wrote:
Alan H wrote:+1

Seriously, Alan? Seriously? :sad2:

Yep. I really don't understand why you seem to have such a problem with this idea of 'fairness' and your apparent inability to understand that no one has ever said that Starbucks et al. are breaking the law, and that that totally misses the point. I thought Ron gave a good explanation of the issues.
Alan Henness

There are three fundamental questions for anyone advocating Brexit:

1. What, precisely, are the significant and tangible benefits of leaving the EU?
2. What damage to the UK and its citizens is an acceptable price to pay for those benefits?
3. Which ruling of the ECJ is most persuasive of the need to leave its jurisdiction?

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Nick
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Joined: July 4th, 2007, 10:10 am

Re: Modern economics

#1369 Postby Nick » May 5th, 2015, 10:36 am

Ron Webb wrote:It was never my intention to give Starbucks in particular a hard time. My comments are directed at those who argue, as you do, that it's okay for successful companies like Starbucks to avoid their fair share of corporate taxes, just because current tax law allows them to do so.
In what parallel universe is it a good thing for the government to lay down the tax law, but for companies not to comply with it, but to have someone else somehow concoct their own idea of what the tax should be? Who, in a democracy, should have the power to decide that money is taken off you other than the government?

So when is making a loss on an investment, just to save 20% of the amount lost, a business strategy?
When that investment will pay off down the road, either in future earnings and/or higher net worth.[/quote]In which case, it would not be making a loss on the investment would it? It would be making a profit!

By the way, I'm not sure it's reasonable to describe an investment as a "loss".
Oh dear. An investment can make a profit or a loss. You seemed to be claiming that companies would rather make a loss making investment than pay any tax. Companies may make bad decisions, but why would they invest if they thought they would make a loss?

Don't be daft!
So much for "all due respect", eh? :D (Plonker!)
:laughter:

Governments of all stripes go to great lengths to encourage companies to invest, not to deter them from doing so!
Indeed. Sometimes they go too far, as perhaps in this case.
I doubt that very much of Starbucks' investment decisions are based on tax breaks. Rather it is based on the most basic of principles, that profits are assessed by taking sales figures and subtracting costs. How would you like to change that? Without damaging the economy?

This is just lunacy! We keep on hearing that greedy capitalists invest to make more profits. Which are taxed. And here we have someone complaining that we should cripple the future economy, just to generate a little more corporation tax in this current year. It is by investing that the profit levels, from which future corporation tax can be drawn, can be increased.
Somehow I don't think that the UK economy would be "crippled" if Starbucks only opened 600+ new outlets instead of 700+. Among other things, whatever Starbucks lost in sales would probably be picked up by Costa et al.
Are you really saying that Starbucks should be singled out for this malicious treatment? If so, then you have definitely been taken in by the loons. If not, and it applies to every company, then investment in every sector would be crippled, and with it the economy. And tax receipts will fall too.

*sigh* It is the level of profit achieved by competing companies which has nothing to do with fairness, not the tax laws. What is fair about the tax law, is that all companies are taxed in the same way on their profits, vis a vis their competitors. If, as you seem to be suggesting, corporation tax should be based on some unique idea of "fairness" dreamed up in your imagination, that would be totally unfair, as it would have nothing to do with profit, would it? And its effect on business confidence, to investment, job creation, tax revenue.... in fact the whole economy, would be devastating.
Is it written somewhere in holy scripture that profit, and specifically profit as defined in the current tax laws, is the only fair scale by which tax should be assessed? As you pointed out (and I'll take your word for it), there are already more than 1000 exemptions to the basic formula already. Perhaps net worth, or changes in net worth, should be a part of the equation too.
:laughter: Just have another look at that sentence! Net worth, you say? So the way to reduce your net worth would be to increase your liabilities by borrowing and investing, just like Starbucks!

In any case we already do tax changes in the worth of assets via capital gains tax when the asset is realised. Are you really suggesting that growing but loss-making companies should be forced to divest themselves of assets? How could that be a good thing?

Because you are not comparing like with like. When Costa was growing they paid little tax, as Starbucks is now doing. But as Starbucks grows, it will slow, and their corporation tax bill will rise. So overall, their fiscal contribution to the country will be equivalent; it will be a tax on their profits. All you see are timing differences.
But timing differences do matter. I'm not sure that HMRC has such a nonchalant attitude about it, for instance. Try asking them if they wouldn't mind your putting off paying your personal income tax for a few years, and let me know what they say. :wink:
As a self-employed person, who has invested his own money in his own business, that is exactly what I have done, and to which HMRC agreed. Because that is what the law says, and what the law intends. Just how much tax should be paid if a loss is made by a self-employed person?

Besides, with the two companies presently going head-to-head for market share, it would seem that Costa is at an unfair disadvantage in having to pay a greater current share of the public infrastructure that benefits both.
No, no, no! Costa got there first, and had just the same benefits as Starbucks. What you are asking for is that any company trying to compete with one that has established itself already has to trade at a disadvantage, by having some completely arbitrary sum of money taken off its hands, just because it is in business! There is no disadvantage to Costa as a result of its paying tax. It is only doing so, because it has already covered the costs, and received the off-set against tax, which Starbucks is now claiming.

Even if your theory is correct, and even if (in theory) it balances out in the long run, it could be said that in the meantime Costa is indirectly subsidizing Starbucks' expansion. As Keynes put it, "In the long run, we're all dead." :)
The long run? we are talking about investments making a return within a reasonable period. A more common complaint against these entrepreneurial, risk-bearing, job creating, tax-paying capitalist bastards, is that they don't invest for the long term. A new outlet for a Starbucks or Costa is likely to require investment (including, ahem! liquid assets) of many thousands of pounds. And it would be odd (and would make coffee totally unaffordable) if all that outlay needed to be recovered in a year or so. Hence the low tax liability for expanding companies.

So no, I see no tax-dodging by Starbucks, only normal business practice, exactly as intended.

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Nick
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Re: Modern economics

#1370 Postby Nick » May 5th, 2015, 6:07 pm

Alan H wrote: I really don't understand why you seem to have such a problem with this idea of 'fairness' and your apparent inability to understand that no one has ever said that Starbucks et al. are breaking the law, and that that totally misses the point.
So, Alan, some questions. How would define "fair"? How would you assess how much tax Starbucks should pay to make it "fair"? If Starbucks are not breaking the law, but following it as intended, what should Starbucks do (without breaking other laws)? What mechanism would you use to assess how much tax Starbucks should pay? And how would this transfer across to other companies and industries in the UK?

I thought Ron gave a good explanation of the issues.
So what do you make of my criticisms of his posts?

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Alan H
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Re: Modern economics

#1371 Postby Alan H » May 5th, 2015, 6:30 pm

Nick wrote:
Alan H wrote: I really don't understand why you seem to have such a problem with this idea of 'fairness' and your apparent inability to understand that no one has ever said that Starbucks et al. are breaking the law, and that that totally misses the point.
So, Alan, some questions. How would define "fair"? How would you assess how much tax Starbucks should pay to make it "fair"?
Ha! Finally, getting closer to the crux of the matter.
Alan Henness

There are three fundamental questions for anyone advocating Brexit:

1. What, precisely, are the significant and tangible benefits of leaving the EU?
2. What damage to the UK and its citizens is an acceptable price to pay for those benefits?
3. Which ruling of the ECJ is most persuasive of the need to leave its jurisdiction?

Ron Webb
Posts: 289
Joined: May 9th, 2009, 11:21 pm

Re: Modern economics

#1372 Postby Ron Webb » May 5th, 2015, 7:44 pm

(With apologies for the lengthy reply. I am trying to edit myself, but it's a struggle.)
Nick wrote:In what parallel universe is it a good thing for the government to lay down the tax law, but for companies not to comply with it, but to have someone else somehow concoct their own idea of what the tax should be? Who, in a democracy, should have the power to decide that money is taken off you other than the government?

And who, in a democracy, is the government? We all are, Nick. That's the whole idea. It's people like you and me, having discussions just like this one, who decide what is fair, and what the tax laws should be to best capture that sense of fairness.

In which case, it would not be making a loss on the investment would it? It would be making a profit!

I'm not suggesting that Starbucks would make a bad investment merely in order to avoid tax on it. I'm suggesting that the tax implications would be one factor influencing whether the investment is ultimately good or bad. I have no doubt Starbucks takes that into account.

I doubt that very much of Starbucks' investment decisions are based on tax breaks. Rather it is based on the most basic of principles, that profits are assessed by taking sales figures and subtracting costs. How would you like to change that? Without damaging the economy?

The more we discuss this, the more I am becoming of the opinion that changes in net worth should be considered "income" for tax purposes. But I'm not sure of the details. Maybe with your accountancy background you can help me think this through.

If I cut your grass a few times, and you pay me $200 (sorry, I'm Canadian :smile: ), then that is taxable "income", right? If instead you give me a lawnmower that is worth $200, does that still count as income? Okay, how about if you pay me the $200 and I use that money to buy a new lawnmower? Income, or not? Why should any of these three scenarios be treated differently for tax purposes?

Are you really saying that Starbucks should be singled out for this malicious treatment? If so, then you have definitely been taken in by the loons. If not, and it applies to every company, then investment in every sector would be crippled, and with it the economy. And tax receipts will fall too.

I'm not singling out Starbucks. I'm saying that the tax laws should be adjusted in some way to ensure that successful corporations cannot avoid paying corporate tax. Including investments or changes in net worth would be one way to do that. There may be other ways, but I don't want to complicate the discussion.

I'm not sure that tax receipts would fall. As I said, the lost revenue from those 100 additional Starbucks locations would probably be picked up by Costa and other coffee shops. Perhaps they would open new locations themselves. I don't think Brits would stop drinking coffee.

Is it written somewhere in holy scripture that profit, and specifically profit as defined in the current tax laws, is the only fair scale by which tax should be assessed? As you pointed out (and I'll take your word for it), there are already more than 1000 exemptions to the basic formula already. Perhaps net worth, or changes in net worth, should be a part of the equation too.
:laughter: Just have another look at that sentence! Net worth, you say? So the way to reduce your net worth would be to increase your liabilities by borrowing and investing, just like Starbucks!

Sorry, I'm not following you. Who wants to reduce their net worth? Starbuck increases their net worth (and reduces their taxable income) by investing their profits, not by borrowing.

In any case we already do tax changes in the worth of assets via capital gains tax when the asset is realised. Are you really suggesting that growing but loss-making companies should be forced to divest themselves of assets? How could that be a good thing?

I'm saying that maybe it should be taxed when profits are invested, rather than when the assets are "realized" (an odd word, don't you think?). That way companies cannot use investments as a means of deferring taxes. They would have to pay for the public infrastructure that supports those new locations before (or at least while) the new locations are built. That seems a good thing to me.

As a self-employed person, who has invested his own money in his own business, that is exactly what I have done, and to which HMRC agreed. Because that is what the law says, and what the law intends. Just how much tax should be paid if a loss is made by a self-employed person?

Interesting. Maybe the law is different in Canada; or more likely, business tax is different from personal tax. I can tell you that the Canada Revenue Agency expects payment of any balance that I owe by May 1 of the following year, and imposes penalties on those who fail to meet the deadline. And that is as it should be, IMHO. CRA is not a lending institution.

No, no, no! Costa got there first, and had just the same benefits as Starbucks. What you are asking for is that any company trying to compete with one that has established itself already has to trade at a disadvantage, by having some completely arbitrary sum of money taken off its hands, just because it is in business! There is no disadvantage to Costa as a result of its paying tax. It is only doing so, because it has already covered the costs, and received the off-set against tax, which Starbucks is now claiming.

It is in the nature of things that new start-ups have an uphill battle. They incur many costs and expenses up front, before they even start earning revenue. Among those costs is the purchase or construction of a building, and the public infrastructure that supports the building. I see no reason in principle why they shouldn't have to pay for the latter on the same terms as the former, i.e. payment is due when goods and services are delivered.

You may be right that Costa had a similar advantage when it first started, by being able to defer those public costs for several years. And I'll grant you that there may be legitimate reasons to provide public assistance to start-ups. I'm just not sure that the tax system (which I think we both agree is already too arcane and complex) is the right way to provide that assistance; and I don't know if an international giant like Starbucks ought to qualify as a "start-up" for public assistance anyway.

The long run? we are talking about investments making a return within a reasonable period. A more common complaint against these entrepreneurial, risk-bearing, job creating, tax-paying capitalist bastards, is that they don't invest for the long term. A new outlet for a Starbucks or Costa is likely to require investment (including, ahem! liquid assets) of many thousands of pounds. And it would be odd (and would make coffee totally unaffordable) if all that outlay needed to be recovered in a year or so. Hence the low tax liability for expanding companies.

They don't need to recover it all in a year or so. That's what loans are for. But as I said, HMRC is not a lending institution.

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Nick
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Re: Modern economics

#1373 Postby Nick » May 6th, 2015, 1:31 am

Alan H wrote:
Nick wrote:
Alan H wrote: I really don't understand why you seem to have such a problem with this idea of 'fairness' and your apparent inability to understand that no one has ever said that Starbucks et al. are breaking the law, and that that totally misses the point.
So, Alan, some questions. How would [you] define "fair"? How would you assess how much tax Starbucks should pay to make it "fair"?
Ha! Finally, getting closer to the crux of the matter.
I haven't moved at all, but still no answer from you.... :sad2:

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Alan H
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Re: Modern economics

#1374 Postby Alan H » May 6th, 2015, 9:47 am

Nick wrote:
Alan H wrote:
Nick wrote:So, Alan, some questions. How would [you] define "fair"? How would you assess how much tax Starbucks should pay to make it "fair"?
Ha! Finally, getting closer to the crux of the matter.
I haven't moved at all, but still no answer from you.... :sad2:
Yeah. I realised after I posted that.
Alan Henness

There are three fundamental questions for anyone advocating Brexit:

1. What, precisely, are the significant and tangible benefits of leaving the EU?
2. What damage to the UK and its citizens is an acceptable price to pay for those benefits?
3. Which ruling of the ECJ is most persuasive of the need to leave its jurisdiction?

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Nick
Posts: 11027
Joined: July 4th, 2007, 10:10 am

Re: Modern economics

#1375 Postby Nick » May 6th, 2015, 11:49 am

Ron Webb wrote:(With apologies for the lengthy reply. I am trying to edit myself, but it's a struggle.)
No apology necessary, Ron. It makes a change to discuss any economics at all! :D

Nick wrote:In what parallel universe is it a good thing for the government to lay down the tax law, but for companies not to comply with it, but to have someone else somehow concoct their own idea of what the tax should be? Who, in a democracy, should have the power to decide that money is taken off you other than the government?

And who, in a democracy, is the government? We all are, Nick. That's the whole idea. It's people like you and me, having discussions just like this one, who decide what is fair, and what the tax laws should be to best capture that sense of fairness.
Er, no. In our democracy, we the people, elect MPs to represent us. We are a representative democracy, not a universal democracy. It is Parliament who decides what is fair. I'm not saying that people can't express and promote their views (that's what I am doing, after all) but we wouldn't get very far if we consulted the people on everything. They couldn't be arsed. It's difficult enough getting them to go t the pub, let alone getting them to study and understand political and economic matters at hand. So yes, taxation is rightly decided in parliament, not on self-selecting fora like this one.

In which case, it would not be making a loss on the investment would it? It would be making a profit!

I'm not suggesting that Starbucks would make a bad investment merely in order to avoid tax on it. I'm suggesting that the tax implications would be one factor influencing whether the investment is ultimately good or bad. I have no doubt Starbucks takes that into account.
Agreed. So Starbucks, just like any other company or individual, are more likely to make a growth-producing investment, if profit is higher, rather than lower. So any extra tax will depress the level of investment, and hence its associated benefits, such as employment and rising living standards. And given the arbitrary nature of the tax you are implying, possibly kill it off altogether.

I doubt that very much of Starbucks' investment decisions are based on tax breaks. Rather it is based on the most basic of principles, that profits are assessed by taking sales figures and subtracting costs. How would you like to change that? Without damaging the economy?

The more we discuss this, the more I am becoming of the opinion that changes in net worth should be considered "income" for tax purposes. But I'm not sure of the details. Maybe with your accountancy background you can help me think this through.
Indeed I can.

If I cut your grass a few times, and you pay me $200 (sorry, I'm Canadian :smile: ), then that is taxable "income", right?
It is gross income. There may or may not be allowable expenses to deduct before calculating taxable income. Whose mower is it? Who is paying for the petrol to power it? If it is me, then it is (keeping it simple) taxable income. If it is you, then you are entitled, in law, to deduct the cost of the petrol and a proportion of the asset value of the mower, in order to arrive at taxable profit.

If instead you give me a lawnmower that is worth $200, does that still count as income?
Yes.

Okay, how about if you pay me the $200 and I use that money to buy a new lawnmower? Income, or not?
Yes, it is taxable.

But in both these cases, if you use the mower in your business as a grass cutter, you are entitled to capital allowances (the fiscal approximation for depreciation in the value of the mower over its useful life) which would reduce your taxable income accordingly.

Why should any of these three scenarios be treated differently for tax purposes?
They aren't.

Are you really saying that Starbucks should be singled out for this malicious treatment? If so, then you have definitely been taken in by the loons. If not, and it applies to every company, then investment in every sector would be crippled, and with it the economy. And tax receipts will fall too.

I'm not singling out Starbucks. I'm saying that the tax laws should be adjusted in some way to ensure that successful corporations cannot avoid paying corporate tax.
But they don't avoid tax. They pay what is due. When it is due.

Including investments or changes in net worth would be one way to do that. There may be other ways, but I don't want to complicate the discussion.
We already have Capital Gains Tax which traps the conversion of income into capital growth. And it would be ridiculous to tax companies based on their size. The company could be owned by a whole variety of people, from billionaires to small holdings owned by people of modest means. There is no consistency (or fairness) in taxing them (for they will bear the cost, not the company) for the value of their shares. Nor does it have anything to do with Starbucks or any of their alleged tax avoidance. As you say, this is something of a diversion.

I'm not sure that tax receipts would fall. As I said, the lost revenue from those 100 additional Starbucks locations would probably be picked up by Costa and other coffee shops. Perhaps they would open new locations themselves. I don't think Brits would stop drinking coffee.
I was referring to tax in the economy overall. All over the world, governments are trying to get companies to invest and grow, in order to increase the tax base. And here you are, advocating the precise opposite. And what is the difference between Starbucks opening a coffee shop and paying no tax, and a small independent coffee shop, paying no tax? If the costs are the same, and the revenue is the same, then the tax (or lack of it) will be the same. It just looks like pure spite.

Is it written somewhere in holy scripture that profit, and specifically profit as defined in the current tax laws, is the only fair scale by which tax should be assessed? As you pointed out (and I'll take your word for it), there are already more than 1000 exemptions to the basic formula already. Perhaps net worth, or changes in net worth, should be a part of the equation too.
:laughter: Just have another look at that sentence! Net worth, you say? So the way to reduce your net worth would be to increase your liabilities by borrowing and investing, just like Starbucks!

Sorry, I'm not following you. Who wants to reduce their net worth? Starbuck increases their net worth (and reduces their taxable income) by investing their profits, not by borrowing.
OK, slight misunderstanding. Though borrowing is probably involved (I don't know for certain), it is the investment which would decrease net worth, at least to start with.

Example: Starbucks acquires a property in a high street for £500,000. Add to that purchase costs, stamp duty, refurbishment costs, maybe some alterations. Result: decrease in cash, but no certainty of an increase in value. A decrease in net worth. If the site proves unprofitable as a coffee shop (and don't forget, Starbucks has closed dozens in recent years) then it might even decrease its value. Staff training and upfront employment costs. A further possible decrease. And don't forget that any sale would cost several percent of the value. And a forced sale would cost even more. Any tax at this stage would be entirely arbitrary, and completely unworkable.

In any case we already do tax changes in the worth of assets via capital gains tax when the asset is realised. Are you really suggesting that growing but loss-making companies should be forced to divest themselves of assets? How could that be a good thing?

I'm saying that maybe it should be taxed when profits are invested, rather than when the assets are "realized" (an odd word, don't you think?). That way companies cannot use investments as a means of deferring taxes. They would have to pay for the public infrastructure that supports those new locations before (or at least while) the new locations are built. That seems a good thing to me.
Governments have been falling over themselves to get companies to invest. Especially profitable ones. So a company makes a profit. The government wants them to invest. But you want to take that money away from them, making the investment, the jobs, the future tax, less likely. Hmmm... that would work. Not. And all you have done is to shift the tax by a few years. That tax taken today would just mean that that tax could not be collected later, as the costs of the investment would have been raised by the amount of the tax. Bonkers, if you want companies to invest.

As a self-employed person, who has invested his own money in his own business, that is exactly what I have done, and to which HMRC agreed. Because that is what the law says, and what the law intends. Just how much tax should be paid if a loss is made by a self-employed person?

Interesting. Maybe the law is different in Canada; or more likely, business tax is different from personal tax. I can tell you that the Canada Revenue Agency expects payment of any balance that I owe by May 1 of the following year, and imposes penalties on those who fail to meet the deadline. And that is as it should be, IMHO. CRA is not a lending institution.
No, no, no! You have completely misunderstood! The CRA expects the payment of tax when payment of tax is due, (in the case of a self-employed person, when s/he has net taxable income). CRA does not issue tax demands before profits have been made. CRA is not lending anyone any money!

If you are an employed person, as far as you are concerned, your "profit" arises as the income is earned, even if your employer is making a loss. So you are taxed at the time. Just like the UK. And just about anywhere else.

No, no, no! Costa got there first, and had just the same benefits as Starbucks. What you are asking for is that any company trying to compete with one that has established itself already has to trade at a disadvantage, by having some completely arbitrary sum of money taken off its hands, just because it is in business! There is no disadvantage to Costa as a result of its paying tax. It is only doing so, because it has already covered the costs, and received the off-set against tax, which Starbucks is now claiming.

It is in the nature of things that new start-ups have an uphill battle. They incur many costs and expenses up front, before they even start earning revenue. Among those costs is the purchase or construction of a building, and the public infrastructure that supports the building. I see no reason in principle why they shouldn't have to pay for the latter on the same terms as the former, i.e. payment is due when goods and services are delivered.
Oh dear. This is getting surreal! You are already making the creation of jobs and taxable incomes more difficult, and here you are, saying that people should contribute before they have earned any money from it!! So children should pay tax, then, eh? Because they are receiving medical care, education, protection, etc., etc. Seriously? And my investment in my business: where did that money come from? Answer: from income I had earned in a previous job, on which I had already paid tax. Should I be taxed on the capital, as if it were income?

You may be right that Costa had a similar advantage when it first started, by being able to defer those public costs for several years. And I'll grant you that there may be legitimate reasons to provide public assistance to start-ups.
We already give some financial assistance. Are you saying that is a good thing? In which case, it goes against everything you have been saying, or a bad thing? In which case we should scrap every measure which is supposed to encourage investment. Hmmm... I don't see that as being popular with the Left, who think that government action is the right way to go to get the economy moving.

I'm just not sure that the tax system (which I think we both agree is already too arcane and complex) is the right way to provide that assistance;
So what is this "assistance"? Tax-payers money? Hmmm... that's not increasing the tax-take in any way, is it?

and I don't know if an international giant like Starbucks ought to qualify as a "start-up" for public assistance anyway.
It doesn't now, nor is it asking for it.

The long run? we are talking about investments making a return within a reasonable period. A more common complaint against these entrepreneurial, risk-bearing, job creating, tax-paying capitalist bastards, is that they don't invest for the long term. A new outlet for a Starbucks or Costa is likely to require investment (including, ahem! liquid assets) of many thousands of pounds. And it would be odd (and would make coffee totally unaffordable) if all that outlay needed to be recovered in a year or so. Hence the low tax liability for expanding companies.

They don't need to recover it all in a year or so. That's what loans are for.
That's my point! They don't recover it in a year or so! And loans would further decrease their taxable income!

But as I said, HMRC is not a lending institution.
which is why it has never lent anyone a penny, or even a cent.

Any clearer? :D

Ron Webb
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Re: Modern economics

#1376 Postby Ron Webb » May 6th, 2015, 9:17 pm

Nick wrote:
Ron Webb wrote:(With apologies for the lengthy reply. I am trying to edit myself, but it's a struggle.)
No apology necessary, Ron. It makes a change to discuss any economics at all! :D

But without some restraint, these exchanges tend to grow indefinitely longer.

Er, no. In our democracy, we the people, elect MPs to represent us. We are a representative democracy, not a universal democracy. It is Parliament who decides what is fair. I'm not saying that people can't express and promote their views (that's what I am doing, after all) but we wouldn't get very far if we consulted the people on everything. They couldn't be arsed. It's difficult enough getting them to go t the pub, let alone getting them to study and understand political and economic matters at hand. So yes, taxation is rightly decided in parliament, not on self-selecting fora like this one.

Taxation is decided by parliament, and parliament is decided by us. So we are involved, and any parliamentarian who thinks they can make decisions without regard for our opinions will not be a parliamentarian for long. (At least that's the theory, and I acknowledge that it doesn't always work that way in practice.)

If I cut your grass a few times, and you pay me $200 (sorry, I'm Canadian :smile: ), then that is taxable "income", right?
It is gross income. There may or may not be allowable expenses to deduct before calculating taxable income. Whose mower is it? Who is paying for the petrol to power it? If it is me, then it is (keeping it simple) taxable income. If it is you, then you are entitled, in law, to deduct the cost of the petrol and a proportion of the asset value of the mower, in order to arrive at taxable profit.

Let's assume that the mower is an old one of negligible value, and it is electric so I'm using the customer's electricity.

If instead you give me a lawnmower that is worth $200, does that still count as income?
Yes.

Okay, so either way I'm taxed on $200, right?

Okay, how about if you pay me the $200 and I use that money to buy a new lawnmower? Income, or not?
Yes, it is taxable.

But in both these cases, if you use the mower in your business as a grass cutter, you are entitled to capital allowances (the fiscal approximation for depreciation in the value of the mower over its useful life) which would reduce your taxable income accordingly.

So to be clear, if I earn $200 and use the money to buy a new lawnmower, I am taxed on $200 less the amount of depreciation on a lawnmower for one year?

So if Starbucks uses their earnings to buy a new building, would they be taxed on the value of that building, less a year's depreciation?

I'm not singling out Starbucks. I'm saying that the tax laws should be adjusted in some way to ensure that successful corporations cannot avoid paying corporate tax.
But they don't avoid tax. They pay what is due. When it is due.

They avoid having any tax due, then. They avoid being assessed any tax. Let's not quibble over semantics. You know what I mean (I hope).

We already have Capital Gains Tax which traps the conversion of income into capital growth.

But it doesn't trap it until the gain is "realized", which may be years after most normal humans would recognize that it exists.

And it would be ridiculous to tax companies based on their size. The company could be owned by a whole variety of people, from billionaires to small holdings owned by people of modest means. There is no consistency (or fairness) in taxing them (for they will bear the cost, not the company) for the value of their shares.

I'm not suggesting that we tax them on their absolute size, although we certainly could. I'm suggesting that we tax them on the change in their size, i.e. the change in net worth. We already tax them on the value of their dividends, and eventually on their capital gains, both of which are also proportional to their shares. Why is that any different?

I was referring to tax in the economy overall. All over the world, governments are trying to get companies to invest and grow, in order to increase the tax base. And here you are, advocating the precise opposite.

Not necessarily. If we collect more tax from expanding companies, we could take less from those whose net worth remains the same. The total tax base is a separate matter.

And what is the difference between Starbucks opening a coffee shop and paying no tax, and a small independent coffee shop, paying no tax? If the costs are the same, and the revenue is the same, then the tax (or lack of it) will be the same. It just looks like pure spite.

Yup, ideally the same tax rules would apply. We might want to consider some mechanism to assist small independent startup companies, whether via low/no interest loans or outright subsidies, but that would ideally be separate from the already overly complex tax system. And hopefully it would not apply to giant multinationals.

Call it spite if you want, but lots of us think that smaller is better. For one thing, small independent coffee shops offer more consumer choice than having a Starbucks on every corner. Plus, a small independent is less likely to be siphoning profit (sorry, "intellectual property rights") off to other countries.

Example: Starbucks acquires a property in a high street for £500,000. Add to that purchase costs, stamp duty, refurbishment costs, maybe some alterations. Result: decrease in cash, but no certainty of an increase in value. A decrease in net worth.

Where did they get this £500,000? I'm assuming it is part of their gross income. Whether they spend the money on new property, or keep it as retained earnings, it represents an increase in their net worth.

The other option is to distribute that £500,000 among the shareholders, in which case it becomes taxable in their hands. But the reality is that the money was always in their hands, as owners of the company. I don't see why it should only become taxable now, and not when it was actually earned by the company, perhaps years earlier.

(I wonder if I could set up my own corporation, hire myself as a contractor at $1/year, and then contract my services to my current employer. (Okay, I'm actually already retired, but work with me here!) That way virtually all my earnings as a contractor could be retained by my corporation and I wouldn't pay a dime in taxes until I dissolve the corporation! Of course, I would have one massive tax bill on that dividend, but it would still be less than what I'm paying now in personal taxes, plus I've managed to defer my taxes perhaps for decades!)

If the site proves unprofitable as a coffee shop (and don't forget, Starbucks has closed dozens in recent years) then it might even decrease its value. Staff training and upfront employment costs. A further possible decrease. And don't forget that any sale would cost several percent of the value. And a forced sale would cost even more. Any tax at this stage would be entirely arbitrary, and completely unworkable.

If they sell it at a loss, then their net worth would decrease. This would reduce their total income (by my definition, where changes in net worth count as income) and thus reduce their total tax bill. I don't see why this is arbitrary or unworkable.

Governments have been falling over themselves to get companies to invest. Especially profitable ones. So a company makes a profit. The government wants them to invest. But you want to take that money away from them, making the investment, the jobs, the future tax, less likely. Hmmm... that would work. Not. And all you have done is to shift the tax by a few years. That tax taken today would just mean that that tax could not be collected later, as the costs of the investment would have been raised by the amount of the tax. Bonkers, if you want companies to invest.

You could make that argument about any tax. There is a school of thought that suggests corporations should not be taxed at all.

Oh dear. This is getting surreal! You are already making the creation of jobs and taxable incomes more difficult, and here you are, saying that people should contribute before they have earned any money from it!! So children should pay tax, then, eh? Because they are receiving medical care, education, protection, etc., etc. Seriously? And my investment in my business: where did that money come from? Answer: from income I had earned in a previous job, on which I had already paid tax. Should I be taxed on the capital, as if it were income?

Parents are responsible for their children, and pay tax on their behalf. More to the point, children are persons, and are treated differently from corporations (notwithstanding the rather bizarre legal fiction that increasingly treats corporations as persons too). Any person who cannot look after him/herself and pay their own way, whether due to infancy or infirmity or other reasons, should be supported by the state. Any corporation that cannot look after itself should be terminated.

We already give some financial assistance. Are you saying that is a good thing? In which case, it goes against everything you have been saying, or a bad thing? In which case we should scrap every measure which is supposed to encourage investment. Hmmm... I don't see that as being popular with the Left, who think that government action is the right way to go to get the economy moving.

It's arguable either way. I don't want to digress.

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Nick
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Re: Modern economics

#1377 Postby Nick » May 21st, 2015, 3:47 pm

Hodge the Dodge is not standing for Chair of the PAC! Yay!! :scorepoint:


Maybe she wants to spend more time with her trust funds.... :wink:

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Alan H
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Re: Modern economics

#1378 Postby Alan H » June 1st, 2015, 11:48 am

Alan Henness

There are three fundamental questions for anyone advocating Brexit:

1. What, precisely, are the significant and tangible benefits of leaving the EU?
2. What damage to the UK and its citizens is an acceptable price to pay for those benefits?
3. Which ruling of the ECJ is most persuasive of the need to leave its jurisdiction?

jdc
Posts: 516
Joined: January 27th, 2009, 9:03 pm

Re: Modern economics

#1379 Postby jdc » June 3rd, 2015, 2:25 am

I'm saying that instead of opening 700+ new locations, maybe they should have settled for 600+, so that they would have some money left over to pay their fair share of the road maintenance, policing, etc. -- just like Costa. Yes, I understand that current tax laws allow them to invest the whole of their profit and then plead poverty to the tax man, but I'm saying maybe that isn't fair.

I'm a bit perplexed by this. There'll likely be more future profit from 700+ new locations than from 600+ and so more corporation tax.

Surely it's better to have a higher long-term tax take?
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Alan H
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Re: Modern economics

#1380 Postby Alan H » June 16th, 2015, 12:52 pm

Is the Humanity Missing from Economics?
Behavioural economist Richard Thaler, author of the book 'Misbehaving', on how traditional economics thinks we're all perfect.
Alan Henness

There are three fundamental questions for anyone advocating Brexit:

1. What, precisely, are the significant and tangible benefits of leaving the EU?
2. What damage to the UK and its citizens is an acceptable price to pay for those benefits?
3. Which ruling of the ECJ is most persuasive of the need to leave its jurisdiction?

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Nick
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Joined: July 4th, 2007, 10:10 am

Re: Modern economics

#1381 Postby Nick » June 16th, 2015, 9:43 pm

...which it doesn't. :sad2:

It's as daft as saying "Physics says we know what absolute zero is, but it's useless because my air conditioning doesn't work."


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