Sunday, 17 April 2016

Transparency of ownership and taxation

I’ve been very busy lately with my day job and doing teaching preparation but I’ve been trying to follow the #panamapapers information and commentary as best I can.

I have only managed to tweet a few things about it but I wanted to outline how I think there should be hugely more transparency about who owns what around the world, but a few limits on this.  

Transparency of company ownership

The system of property ownership is a human institution and should be organised in a fair way. The only way to know if it is fair is to know who owns what and to be sure that everyone is paying as much tax on it as they should. This is never going to be a perfect system – criminals and corrupt officials will always find ways to launder their ill-gotten gains. However, the system should be such that it is made difficult for them to do so and that there is a chance they will be caught out later on.

Many of the resources in the world are owned by corporate enterprises, which is perfectly understandable. Corporations go about the business of producing the goods and services that we all need and want.

But who owns the companies? Companies exist to benefit their ultimate owners, which is again perfectly fine. However, this means that the benefits are going to one or a mixture of the following:
·         Individuals (or family units) – could be sole-owners, partners, shareholders or workers with a stake in the company.
·         Governments
·         Sovereign wealth funds for the benefit of future generations within a country
·         Non-governmental Organisations (non-profit organisations)

The ultimate beneficial owners of corporate entities should be public information. The same should apply to trusts.

Transparency of personal tax records

After the Panamanian revelations politicians in the UK have been reluctantly releasing their tax records in order to prove that they are not receiving funds that undermine their credibility.

Some people are now suggesting that the UK should follow a Scandinavian model whereby tax records are publicly available.

I am in favour of greater transparency of personal tax records but not making full records available as politicians have been. The limited records I would suggest is simply gross income and tax paid in the last year and gross income and tax paid in their lifetime.

My suggestion is that there should be a website in which anyone can find out certain headline information about the taxpayers at
·         Any given address (but without specific names, so it would just list taxpayer 1, taxpayer 2 etc.)
·       The information for any given individual if three or more can be provided to anyone with the following pieces of information can be entered:
First Name
Address/Post code
Date of Birth
Tax number (National Insurance number in the UK)

This means that journalists or the public could find out information about well-known people as their date of births. 

Are there downsides to this transparency?

Public figures might feel forced to give further information to show where they got their income from. This might be intrusive, but on the other hand it seems important if people have disproportionately more cultural or political power in a society that the public is aware of their financial situation.

Self-employed people might not be happy that their competitors and clients can find out their income and possibly gain an advantage in negotiations as a result. However, I’ve said headline summary figures should be provided about companies and individuals so this wouldn’t necessarily tell you everything required in order to draw absolute conclusions.

Could it put people in danger?

The following groups could be in danger, but I will suggest ways around this:
·         Spies
But these could presumably be designated civil servants and self-employed business people as they no doubt already are to some degree to cover their identities.
·         Political refugees
Could be given new legal identities or have their addresses supressed under UN orders.
·         People whose lives are threatened (for example people who have stalkers/subject to religious persecution and fatwa’s/ in witness relocation)
Could also receive special protection on their information.

Overall, I think the benefits of greater transparency outweigh the downsides, but I'm keen to hear if there are any strong arguments I haven't considered.


Ben Jamin' said...

It's only fair that produced factors remain private and untaxed, while the value derived from natural resources are shared equally.

For that, we only need a Land Registry.

It's also fair we pay compensation for negative externalities. Like a Carbon Tax, or road pricing.

We don't need the details of anyone's income/bank account details for that.

If we want to receive a share of land rents via a Citizens Income, then you be registered at birth, and will only not get it upon change of citizenship/death.

In other words, unless you commit a crime, there is little or not reason to ever get mix up with State bureaucracy from the moment to are born until the day of your death.

dougbamford said...

Ben Jamin' - you're talking about nationalising all land on the basis that it stolen goods (or a similar argument). Effectively that is a wealth tax as I argued here :

That would generate everlasting returns for government, but it doesn't seem to fair to take from millionaire landowners but not millionaire share owners.

Ben Jamin' said...

A "tax" is a coercive deduction of value created by your own efforts, or compensation you've paid for the efforts of others, for benefits the payer may or may not receive.

As Land, by definition is everything not created by human effort, it's rental value collected and equally shared, is not a "tax". It is a user fee, or compensation paid for the burden caused to those excluded from a scarce natural resource.

For this reason, it is morally and therefore economically different from a "tax". When we pay for goods and services, we do not base the price on "ability to pay" ie a tax. Prices are set by the market, as they are when we pay rent/selling prices or an LVT.

This is about basic property rights, and nothing to do with the State or nationalising land (although you appear to think that nationalising peoples earned private property is ok for some reason).

If we chose to pool our compensation to pay for public services, thats a separate topic.

Would you say returning stolen goods to their rightful owners is a "wealth tax" on thieves? Or the emancipation of slaves was an attack on private wealth? Plenty of people did at the time.

Multimillion pound land owners didn't create the land their property occupies. They thus have no moral claim to it as their property whatsoever.

Multimillion pound shareholders, by taking risk and adding liquidity to the market, most certainly can claim the return on that risk to be theirs and theirs alone. Their capital created more capital/incomes, after all.

Moral right to call something private property does not come from use, discovery, payment or legal title. It only comes from the creation of value and it's Provence.

From this it's easy to deduce that taxes turn private property into common property, and unequal distribution of land rents from common property to private property.

Because our current system of property rights is immoral, it leads to an unfair distribution of the factors of production(inequality), and distorted incentives (inefficiency).

Fairness and efficiency are merely two sides of the same coin.

You appear to suffer from the affliction that just because someone has a lot of income/wealth, that must be unfair.

Well, in some cases if will be, but in others not. But two wrongs don't make a right, and taxing income/capital is never justifiable.

If you are vexed about inequality, as you should be, then it's important to establish whether current levels are excessive or not.

As the precise amount of compensation we owe the community is the rental value of land our property occupies, then we know you are a net contributor if your current tax liabilities(as a % of total tax) exceed the rental value of land your property occupies(as a % of total land values). Likewise you are a net burden if the reverse is true.

What we find is, is the UK tax system as a whole is pretty flat. The top 1% of households earn about 12% of all income and pay 14% of total taxes.

However, they own 40-50% of land by value. Thus their liabilities would treble under a fair, and optimally efficient system of financing public services.

I don't blame you for being so wedded to the idea that taxing peoples earned property is somehow justifiable. It's how we've all been brought up, and exposed to as normal.

But, it's not the bigger picture, and as such has lead everyone to entirely the wrong conclusions and policy

As far a economics goes, basic questions should get asked, but they never do.

Only when we have a clearly established set of morally grounded property rights can we have economic justice, peace and prosperity.

Oh, I did read and leave comments on your blog entries to do with libertarianism, wealth taxes, LVT etc.

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