Yves here. It’s hard to imagine that a speech like this would get any kind of hearing in the US. And in the US, lawyers serve as liability shields; “My lawyer said it was OK, so I’m not to be blamed.” So for any serious tax-dodger-busting regime to be serious here, the laws would need to allow attorneys who walk on the wild side to be targeted too.
This post does focus, correctly, on the distributional uses of taxes. Even though the Federal budget processes still operate as if the US were on the gold standard, the uses of Federal tax are really to manage inflation, determine the distribution of wealth and income, and create incentives and disincentives. Targeting monopolies and oligopolies through taxes might be easier and faster than using anti-trust, for instance.
By John Passant, a former Assistant Commissioner of Taxation, former tax academic and is currently a PhD candidate in the School of Politics and International Relations at the ANU. This is an edited version of a speech he gave at the National Law Reform Conference at the ANU on 15 April. You can follow John on Twitter @JohnPassant. Originally published at Independent Australia
Has the time come to consider criminalising tax avoidance and making boards and senior officers liable for prison sentences, asks former ATO Assistant Commissioner, John Passant.
In a speech in 2013, Barack Obama labelled inequality “the defining challenge of our time”.
Oxfam has argued that 85 people own as much of the world’s wealth as the bottom 50%, i.e. about 3.5 billion people. In Australia, according to ACOSS, there are about 2.5 million Australians living in poverty, including over 660,000 children.
Australia’s inequality is above the OECD average and has been growing above average over time. Two processes are in play. One is the growing income disparity between the top and the rest of us. The increases in real wages and other income for example have gone disproportionately to those in the top ten percent of income earners, and even more so to those in the top 1%.
Our tax system has also become less progressive. This is because of reductions in top marginal rates, legislated tax havens for the rich like superannuation tax concessions and capital gains tax discount and our focus on regressive consumption taxes.
The revenue forgone from tax concessions such as superannuation and capital gains tax and the losses from negative gearing is about $40 billion a year. About $17 bn of that goes to the top ten percent.
So one task of tax reform would be to restrict these benefits to those in need, or to abolish them and use the extra revenue for socially useful purposes.
Another task should be to reverse the reductions in income tax progressivity by increasing income tax rates on higher income earners, those for example earning more than $130,000.
The top 10% of wealth holders in Australia own 45% of all the wealth, or about $3 trillion. A one percent annual wealth tax on them would raise by my back of the envelope calculations about $30 billion annually from them.
An alternative would be for the Commonwealth to tax net wealth transfers, for example, by reintroducing estate and gift duties.
The Panama Papers have re-ignited debate about the tax avoidance activities of high wealth individuals and big business. In two recent ATO tax transparency reports on big business, the Commissioner of Taxation revealed that 36% of those entities did not pay any income tax in 2013-2014. On top of that one third of ASX 200 companies have an effective tax rate of less than ten percent. More than half those ASX companies also have subsidiaries in tax havens.
Maybe the time has come to consider criminalising tax avoidance and making Boards and senior officers liable for prison sentences for any tax avoidance their companies undertake.
More prosaically, it might be time to consider a minimum company tax, based not on actual taxable income but gross revenue. A tax of three percent on the $454 billion gross untaxed revenue of big public businesses alone would yield more than $13 billion. That is before we tax those companies whose effective tax rates are well below the company tax rate of 30%.
There are many other taxes we could consider that could reintroduce equity to the tax debates. Levying rent taxes on the monopolists and oligopolists making super profits, taxing the big greenhouse gas emitters, (while denying them the ability to pass on the costs to consumers,) investigating financial transaction taxes, considering land taxes, and urging the A.C.T. Labor/Greens government to do a Colorado and legalise the personal use of marijuana and tax the cultivation and sale, are but a few other options we could debate.
That no serious systemic progressive tax options are on the agenda is indicative of a wider political problem. The ruling elite and their major parties are keen to make the tax system less progressive. This is part of the wider 33 years to date neoliberal program in Australia of shifting wealth from labour to capital to address what Marx identified many years ago as the tendency inbuilt into capitalism of the rate of profit to fall.
That further regressive tax proposals such as increasing the GST are now off the table is a response to an untapped underlying anger with politics as usual that ordinary working people feel. Therein lies our hope. It is time to put progressive tax reform back on the agenda. Growing inequality threatens our democracy. It is time to tax the rich.