I agree, Splintered Cell. The governments of almost all major western nations are controlled by privelidged elites who will never do very much to combat tax avoidance / evasion because the very people conniving and scheming to avoid paying tax are their relatives, friends, and cronies.

Take David Cameron, the UK Prime Minister. He's a millionaire. His father was a millionaire. He is directly descended from King William IV. He was educated at Eton. And when he makes savage cuts to public spending at the same time as letting his business buddies off with £millions in unpaid tax, he tells the British people that we're "all in this together".

Cunt.

The question I have is whether the amount of money includes both legal and illegal tax evasion. Legal tax evasion would be to redirect your money to another country to avoid taxes, but within the (narrowest) legal framework of the two countries concerned.

Even "legal" tax avoidance is harmful to society and should be stopped.

Something is either legal or it isn't. If for example you give money to charity for can set this whole amount off against tax. That seems fair. But when you look closely this allows people to spend millions on say elite educational establishments instead of paying their taxes which go to all schools.

This avoidance goes on because the government wanted to encourage charitable giving but ended up being abused to such an extent that the rich can choose how much tax to pay. There are many examples, tax schemes to help the film industry or research and development etc.

The only way to stop avoidance is to sweep away all tax breaks.

"Legal" behavior should be stopped? Jamie intended to say that laws need to be changed to stop tax avoidance that is currently legal?

It's legal in that it abuses the letter of legal loop-holes to enable them to pay less tax than they should be paying. The loop holes should be closed.

And it goes without saying that only rich people can abuse these loop-holes in this way, because only they can afford to employ specialised tax accountants who make a sordid living out of identifying the loop holes and hatching convoluted schemes to exploit them.

I think you might be misunderstanding. What is happening here is a very legal tax planning issue. The money offshore was taxed when it became income. These people then use a section of most income tax acts that i pretty clear regarding tax treaties to move this income income generating asset to a new jurisdiction where tax laws are more favorable.

If Jamiet99uk's problem was really with tax dodging (or even just deductions) then the solution would be simple. Simplify the code so that there are basically no deductions at all and lower the rates to make up the difference, with possible exceptions like mortgages, big enough charitable contributions, and state and local taxes. So instead of having a 35% rate and hiring a clever accountant to find deductions which essentially make it 17%, you'd make the rate 17% (or even in the twenties, say) to begin with and not have deductions. Money that these people could have spent on that accountant or other tricks now goes to a yacht or whatever, and that money is then in the economy. And if the government is itself clever enough about the rates they get what they have coming to them and perhaps a bit more without the ponderous bureaucracy of the taxman as we know him. Shockingly enough, this is almost the Ryan Plan.

But it's the very idea that rich people exist that upsets him and people that far to the left. They're not upset that the rich aren't paying their taxes, they're upset the rich are still rich after they do.

THE TAX SYSTEM EXPLAINED IN BEER

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100...

If they paid their bill the way we pay our taxes, it would go something like this...

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7..
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do..

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20". Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes.. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

"I only got a dollar out of the $20 saving," declared the sixth man. He pointed to the tenth man,” but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more benefit than me!"
"That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"
The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics.

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible

Thanks Kent for explaining how the system works. Your analogy is actually a very good one. The reason your final argument falls down however is because we live in a world where the bar owners are not reducing he bar bill. What is happening is hat he bar bill is staying he same or increasing and the richest people are saying, "hey if I pretend not to be so rich I cold pay a lot less" hey then always go on to say, "and if you don't like it I'll drink elsewhere."

My answer is let hem go. We will find other people to kick footballs around for a lot less, or other comedians to entertain us or other bankers to steal our money. The places the rich want to go to will get fed up of he soon enough.

That analogy is very, very good except one thing: the bill is not decrasing. In fact, it is doing the opposite. So, does this mean then that as we should raise the tax rates on the rich more than on the poor?
Also, one last flaw: for the bar known as the US, you can't stop paying. The US government expects tax to be filled by all citizens no matter where they live.

Kent explained nothing, he merely copy and pasted an email chain dating back ten years signed by a professor who claims no association with the writing. Not to mention, the US has one of the lowest costs of a beer per pint in the world.

You do not need a "clever accountant" to find deductions. Taxes are something everyone needs to do every year. Put in a little due-dilligence - it is your money, why wouldn't you spend a couple nights studying the act - and you will be able to get all the deductions you're entitled to. Further, deductions are generally implemented to motivate behaviour. It is a good economic tool that you are all proposing governments abandon.

Guys, don't forget these super rich are the people who actually run this planet. They are not sitting on their money, most of them invest in risk capital joint ventures, many which fails and you never hear about.

The luxury they buy leads to innovation. Whom do you think will buy Porche's new hibrid car, the most expensive ever, full of innovatonal solutions? Who do you think put the money into SpaceShipOne or supporting many foundations and academic research.

My point is, you can be angry at these guys, and you can demand justice :), but there's always an other side of each story. The amounts of money is not missing from the economy, it's still there, keeping it in motion. And the price of taxing them, giving it to the governments, who, for sure, use it very well less effective way, is not supporting the common interest I'm afraid.

That we need the super rich/a capital system to inspire innovation is a completely false logic.

Leonardo da Vinci was poor for the majority of his life - this did not stifle his creativity in any way.

Ideas can come from anywhere, but implementation requires significant amounts of capital.

Sarg: well, it's not that black and white, of course, but someone has to pay for innovation and research. And goverment generally is the worst investor. So if you have to decide whether goverment, or Steve Jobs should manage a $1bln innovation fund, whom would you choose?

Of course. Implementation requires financing - that is basic stuff. That does not mean the current system is the best means of doing that and it does not mean that having a 'super rich' is the best model either.

I agree, all I was saying is the idea of "taxing the rich" is not neccerarily beneficial for the society as much as people like to think. It's sound nice in the TV but it's far not that simple.

If the goverment earns twice as much he will spend twice as much, the deficit will be the same and world will not move ahead a single inch. The poors always whine about having more money, but the fact is most of them would just spend it for nothing useful instead of investing into sg. that might actually help their and others' life.

A good example is Africa. People protest to give them aid, food, debt release, and so on.

And what happens? Nothing, if you give them a million tons of food they will eat it up, and in a few months/years we are back to square 1, with the only difference we have spent a shitload of money. Instead we should teach them agriculture, build schools, give them tools, factories. But people whining for aid, is the best what the Western goverments can have. They can say in the TV they gave aid, hippies are happy, and Africa is in worse position at the end.

Having more money doesn't solve anything. Solutions solve thing, not money. Taxing the rich is not a solution for anything.

"but the fact is most of them would just spend it for nothing useful"

Define 'useful,' if you don't mind. I'd argue that a poor person spending an extra $100 a month on more food and a better place to live is hardly useless and quite a bit more useful than, say, a fourth Xbox for my second yacht. Also, sweeping generalizations like this is why tax arguments always fail, for both sides.

2wl: the more you spend on food the more people on this planet will be. The easier to get food, the easier to raise a child. It's all unsustainable.

Poor people are the result of constant government support, aids, debt releases and so on.

Also, those XBoxes gave a lot of job to many engineers, developers software and marketing people. The usefulness for society and the usefulness for an individual are two different things. But if you spend $100 extra on food, hardly will be the world be a better place.

Also you have to build machines for agriculture effectiveness as well, but when you are poor you don't have the capacity to invest into innovation because you are in the need of eating.

I'm not in the position to decide what other people should do with their money, but poor people are neither in the position to demand more money from anyone based on the fact they are poor.

If you have $1000 to give away, whom would you give it to? Who buys food on it, or who starts a little garden in his backyard so he will have some food next year as well?

The moment you give your money to the latter one, is the moment when you demand sg. in exchange for your money. That exchange is what usually poor people don't want to give, they just whine for more money.

"Sarg: well, it's not that black and white, of course, but someone has to pay for innovation and research. And goverment generally is the worst investor. So if you have to decide whether goverment, or Steve Jobs should manage a $1bln innovation fund, whom would you choose?"

I don't know enough about the way Steve Jobs ran his business or finances to make a decision on him in particular, roka. Steve Jobs is famed as an innovator but I would be weary of anyone juxtaposing him against democratic governmence. That kind of logic sounds driven by the hyped personality cult that surrounded him and, if anything, would be akin to a form of despotism. No one 'super rich' person can have all the answers.

Whilst governments are not perfect that does not make them useless. I would much rather have an elected team of people finding solutions and generating improvements than capital venturists motivated by profit.

Of course though, a simple 'tax the rich!' strategy is too primitive, will never work effectively, and would never be implemented under the current world system. The complication of taxation specifics is not a part of this discussion I particularly wanted to involve myself - and was not the line I was entering upon.

But it cannot be right, as others have said, that there are individuals that hold more capital, wealth, financial assets, than the entirety of African nations. It cannot be right that wealthy individuals in London fuss over which £25,000 designer fridge to buy when people in India starve.

If a group of people came together and decided how the world would run this is not the system they would decide. No one would say "I know! Let's have a system where 1% of the world is really prosperous and the other 99% pay for it." It's ludicrous.

Why do we all accept free market capitalism as 'the' way of life when we never chose it? Why should we accept increasing electricity prices when providers are rolling in increasing revenues? Why do we accept buying pints of milk from which disproportionate amounts of the profit goes to supermarket chains and the farmer at the bottom of the supply chain is barely able to scratch a living? We shouldn't have to accept any of this - it does not have to be how life 'is', just because it is presented as such.

If the 'system' is not working, if the vast majority of the population are not fulfilled or made happy by it, then something is clearly wrong. 99% of society should not work hard all their lives for little reward only to make life disproportionately comfortable and luxurious for 1% of society. You talk about Porsche's new hybrid car and SpaceShipOne, roka, but these are far from essentials - I would rather have everyone on the planet provided with clean water than a new model of a Porsche.

If everyone unhappy with the current system - anyone who thinks that society should be where everyone has an equal quality of life and that wealth and class should not determine your success in life - stopped accepting that this system was fate or 'the way life is' then things would (and can) actually change. Everyone in this conversation agrees that the system is flawed, that things could be better - all it will take is everyone who thinks that to turn these complaints in to unified action. If the system is failing, we should not accept it.

" the more you spend on food the more people on this planet will be. The easier to get food, the easier to raise a child. It's all unsustainable.

Poor people are the result of constant government support, aids, debt releases and so on."

That sounds very Dickensian Scrooge. If you give them food, they will carry on going, so don't give them food than poor people will die? Wow.

Poverty and 'poor people' are not the "result" of bad governance. They are the result of centuries of exploitation. Africans are poor because of the centuries of colonial oppression that raped their continent of people and resources, and ensured that they were poorly educated so as to make them dependent to their colonial rulers. Most African nations only received independence between the 60s-80s. It is pure ridiculousness to suggest that it purely their own fault that African nations are poor. Exploitation is the problem. Both their history of being exploited and the current system that further exploits their vulnerable position: cheap labour, flatline payment for resources sold with high profit margins in the west.

Far from essentials???? Microwave came from NASA, the very first CCD camere was in Hubble space telescope, biological research is done on international space station to make better medicines.
Hybrids and more effective engines come from formula 1, HTML, the world wide web itself was implemented in CERN, one of the most expensive research facilities on this planet.

And you think all this is useless??? You use them daily.

People in india starve because they make a pile of children. Why do you make another child when you are poor???? Until poor people don't stop making more and more childrend on others' expense noone should aid them. It's totally irresponsible and a way of blackmailing the rich.

Nor you, neither me works for supporting indian children. You work for your own children. And giving money to anyone, from goverment to big families, who handle money irresponsibly is just a waste of resources. Where's the limit? Where's the line when you, personally will say, it's enough dear indians and Africans, and if you don't stop populating yourself now we have to cut aiding???

The West is aiding Africa for decades, the population has doubled at best, the economies hardly grew. Where's the end? If you continue aiding them all you achive is they make more children and you have to aid more people in a few years? From what? Where will you get the money for that one?

My point is, aid and taxing the rich is not neccesarily bad, but when the money goes for irresponsible entities then we make bigger problems in our future than we solve now.

I said specifically those two things you cited weren't essentials, roka. You are getting excited and including things like the internet and telescopes - none of which we have previously spoken about.

As I said, I am not talking about taxing the rich. I have never said anything about providing free aid handouts. You are hyperventilating about that but it is not something I have raised or discussed.

Sarg: just make it very simple. You give food for any poor people today, what will he eat tomorrow? And if those people double themselves, because they get used to your aide, will you feed them as well?

You may sleep better by the fact people don't starve and die somewhere, but you haven't solved the problem at all, and you will just create a bigger one later.

Sarg: you are right, I'm hyperventillating, sorry. I finished. I just can't stand the demagogue issue of "tax the rich aid the poor". It just creates a bigger mess.