The Lebowski Blog: The Tax-Man Cometh for Rich People

"Where's the f'ing money, Lebowski?"

Nothing is certain but death and taxes…unless you're rich.  Then it's probably just death.  

Since the 1970's the rich have successfully had taxes reduced across the board to historic lows.  They've sold this as the best thing to do to the public under various arguments: that governments waste money, that low taxes reduce investment and competitiveness, that governments should be able to operate with the revenue that they have, etc.

Of course, it's all BS.  Take a look at the countries with the highest quality of life indicators and you'll usually find a host of Northern European countries there.  These countries also have some of the highest relative taxes and the most stable economies.

But the rich want taxes down and have employed a variety of tactics to do so, from teaming up with Grover Norquist in the US to sign a "No Tax pledge", to using their clout to back governments in Canada that promote a low tax regiment.  

Low taxes benefit the rich in a variety of ways.  First, a 1% tax cut means a lot more in real dollars for someone paying a million dollars in taxes ($10,000) than it does for someone paying ten thousand dollars ($100).  Secondly, the reduced revenue for governments made it more difficult for them to enforce regulations and maintain assets.  This has led to the rich being able to run amok while also allowing them to benefit from the fire sale in state assets (privatization) that they are able to snap up.

Even with Canadian groups warning that cutting taxes could really put the squeeze on government balance sheets, governments cut them anyway (and balance sheets went into deficit).  Other have argued that this is actually planned.

Not paying taxes has become so common place for the rich that they're even flaunting the minimal rules that exist anyways or devising complicated schemes to get out of it.  

The best example of this recently was Wall Street giant JPMorgan.  After hiding bonus payments in Jersey trust funds for 20 years, the company has been ordered to pay $500 Million in back taxes (infuriatingly this was about half of what they really owed).  According to the Financial Times:

"Trust schemes typically offer twin tax breaks by allowing companies and their employees to avoid paying, respectively, employer’s national insurance contributions and income ‍taxes.

The trust holds bonus payments, which cannot be repatriated without triggering a tax payment.

But employees can take interest-free loans from the trust on an unsecured basis."

This kind of weasely tax avoidance has been big in the UK, and though JP Morgan is one of the biggest, it's definitely not the only one.  According to the Guardian who launched a major investigation into tax avoidance in 2009, over 14,000 avoidance schemes exist to allow companies and people to not pay taxes….legally.

This cause has been taken up by UK advocacy group UK Uncut, which has been bringing attention to individual and corporate tax avoiders for years.  Recently, they've pressured Starbucks into making a voluntary tax 'donation' of  $20 Million, after paying ZERO in taxes for two years.  Facebook, Google, Apple and a host of others have also now been targeted after it was revealed they were claiming the profits they made in the UK were actually made elsewhere with a lower tax rate.

To see that schemes for individuals are being used overwhelmingly by rich people look no further than Ontario.  After the NDP won concessions from the Liberals on raising taxes on the wealthy, many economists predicted revenues would not go up because the rich would just hide their money in schemes.

Yup, avoiding the certainty of taxes has been humming along smoothly for a number of years.  But thanks to the financial crisis, chickens are coming home to roost.

For the public, after seeing banks, companies and the rich bailed out, many are keen to see corporations pay their fair share.  Meanwhile, politicians who have been swallowing snake oil for decades have also woken up to the fact that they are being blackmailed by lenders due to a lack of revenue.

And now the fight is on to push taxes back up to higher levels.

Pressure generated by UK Uncut in Britain is causing a host of companies to up their tax payments, but reform of the overall system also appears to be gaining some momentum.

In the US, the imminent fiscal cliff approaches with the express aim of raising taxes.  The president has backed Republicans into a corner - either they agree to raise taxes for the wealthy or taxes go up for everyone.  

Below this junk-news story that hides massive tax evasion through schemes, the US has been also trying to crack down on tax havens where the rich have been shielding about 30% of global wealth from taxation, by closing loopholes and getting info about US account holders in tax havens.  They are losing, but still trying to set up agreements with other countries to share information.

Meanwhile back in Canada, the Canada Revenue Agency is trying to crack down on lying speculative condo investors through a new auditing program aimed at getting those taxes back.  Enforcing payments of taxes and fines by the rich has been an ongoing problem for agencies that are encouraged to focus on the easier targets - the poor.

But the issue, thankfully, keeps coming up.  The Ontario auditor general just announced that people not paying their taxes (wonder who that could be) is costing the Ontario treasury $1.4 billion a year.  

With Ontario and the federal government looking hard for new revenues, one would hope that they will take rich and corporate tax avoidance seriously.  

Sadly, that is far less certain than death and taxes…the ones that the rest of us actually pay.

The Lebowski blog tracks big piles of money.  It appears regularily on the Toronto Media Co-op.