UBB.classicTM 6.5.0
quote:One obvious feature of a "fair" tax is a level playing field - if you are taxed at a similar level to your competitors, the government isn't providing any of you with an unfair advantage.
Originally posted by Sipech:
So what do shipmates think constitutes fair tax (or is the idea not as good as low tax)?
quote:No, most seem to be complaining that Google seems to be able to determine its own tax rate.
Originally posted by *Leon*:
The debate about corporation tax payment in the UK annoys me a lot. As far as can see, most people seem to be complaining that Corporation Tax isn't VAT.
quote:Not sure I follow this: Google as a corporation is not based in the UK, therefore the question is how much business is done in the UK and therefore how much tax should be paid on that business. It seems pretty obvious that Google is getting paid for advertising British companies to British customers, so I'd think that the proportion of business advertising to British customers from companies outside of the UK would be quite small.
It's fairly obvious that a lot of the value Google generates form the UK is as a result of real work being done outside the UK. therefore it seems quite obvious that a lot of the profit can legitimately be booked outside the UK. Specifically, Google's ability to make loads of money from advertising is dependent on a search engine and advert platform that are largely developed in California. Now, I know that in Google's case those profits end up in Bermuda, not California, but that's a matter for American taxmen to worry about, not UK ones. The change is they're now booking the work involved in selling advertising to the UK, not to Ireland. Most people who are arguing for Google paying more tax seem to ignore the possibility that any of the value should be booked outside the UK.
quote:As I understand it, the problem with Amazon/Ebay is that Chinese companies send packets of products to be sent to customers via British warehouses. These are often significantly cheaper even than online retailers who have bought the products from Chinese factories because they're not paying VAT or corporation tax in the UK - they certainly should be paying VAT and probably should be paying corporation tax if they're supplying customers with products which are already in the UK rather than sending them from China to order.
Another target, Amazon, has a very obscure tax structure. However all the strange products that are exchanged between different parts of the company to make this work are actually successful products that are sold to the general public.
quote:This seems to discount the fact that the corporations want to pay as little tax as possible whilst benefiting from the supply of services by the state. At some point they have to realise that supplying products to British customers (for example) is a drain on British public finances (for example paying for the roads they use to distribute products) so having a sneaky nominal "head office" in Luxembourg to avoid paying tax isn't going to wash any longer.
In general, I feel there needs to be a sensible debate about what kinds of taxes multinationals are expected to pay. Working out what, simplistically, is the correct level of corporation tax for a multinational to pay is not obvious even assuming they aren't doing anything that could be described as tax avoidance. We should either come up with taxes where the amount to be paid makes sense, or put up with the fact that the amount paid doesn't make sense.
quote:In a lot of these cases, the company is incorporated within the tax jurisdiction, but offshores its profits by purchasing image and branding rights, supplies etc. from an offshore parent at what are essentially arbitrary prices.
Originally posted by Doc Tor:
The only way to avoid the turnover tax is to incorporate within the tax jurisdiction. Then it's profits that get taxed, and to encourage companies to do that, you could make the overall tax-take lower.
quote:But to rule the offshoring of "profits" illegal, you have to determine a reasonable purchase price for the thing that the domestic company is importing from its foreign sibling. Which isn't always easy.
Originally posted by Doc Tor:
Then they're not really incorporated in the country. A General Anti-Avoidance Rule would rule the off-shoring of profits illegal, and levy a tax bill based on turnover.
quote:Would that mean that off-shoring turnover would also be illegal? Once that is in place could the amount on which tax is due be calculated fairly?
Originally posted by Doc Tor:
Then they're not really incorporated in the country. A General Anti-Avoidance Rule would rule the off-shoring of profits illegal, and levy a tax bill based on turnover.
quote:The EU has rules regarding the level of state aid a country can give as 'sweeteners'.
Originally posted by Leorning Cniht:
We often see examples of a big multinational company intending to build a new factory to build cars, or semiconductors, or whatever other widget they have. Said company could build the factory in one of several localities, and so the local governments fall over themselves offering tax breaks and subsidies to attract the new factory.
quote:I'm pretty sure that if Ricardus UK Ltd exports nasal hair tweezers to Poland, then although I am technically making money out of Polish people, I am not liable to pay Polish corporation tax. While I can quite believe that Google doesn't pay enough UK tax, I don't think the amount of products sold to British people can be counted as evidence for what it should pay.
Originally posted by lilBuddha:
*Leon*,
There is no difference between selling a camera on Amazon and selling advertising on Google. Neither product was made in the UK, but both generate revenue from the sale in the UK. Google has its expenses in the US and that is where it can deduct those, but it generates profit elsewhere as well and it is not unfair to pay tax on that.
quote:Well, I choose not to take full advantage of the tax system and so pay more than I could probably get away with - I'm in the position of being a reluctant landlord of a house where the rental income is less than the mortgage interest so could technically offset the extra loss against my tax liability from my employment but I choose not to because it feels like cheating. I wouldn't be able to do it if the house was empty and I was eating the whole loss but can if I'm recouping some of it by renting the house out? It's nonsense. Plus the government is already paying the rent as the tenants are getting LHA.
Originally posted by Gee D:
As far as I know, there's no obligation on anyone to arrange their affairs to pay more tax.
quote:I'm sure that I couldn't arrange to have my salary paid other than through PAYE (ie, deduction by employer). Most in the UK are in this situation. Successive governments have closed loopholes for individuals and done nothing about those used by corporations.
Originally posted by Gee D:
As far as I know, there's no obligation on anyone to arrange their affairs to pay more tax. I certainly don't and I'd be very surprised if anyone on these boards does either. If a government considers that a particular method should not be allowed, the answer is to pass amending legislation.
quote:Even if labour is their biggest cost (I have no idea) this is irrelevant. Employees pay income tax on their income, whether a company makes a profit or not. Whilst there might be a tangential link between employee costs and profitability (possibly a higher proportion of labour costs when a company is more profitable, but not necessarily), corporation tax is paid on profits. Therefore if Evil Corp is not paying corporation tax on the profits they are earning in the UK, then there is a loss to the public exchequer over-and-above what Evil Corp employees are paying in income tax.
Originally posted by hatless:
I agree that Google should pay more tax, and we should, together with other countries, find accurate ways to measure what they earn and owe. But, there are many ways of paying tax.
Google's biggest bill must be its wages, and every employee pays income tax. Much of their wages will be spent, incurring sales tax and various excise duties as well as profits at the supermarket, pub and taxi rank, on which further taxes are paid. The government gets to tax money nearly every time it changes hands.
quote:Not really. What matters is that some large corporations want the benefits of trading in particular jurisdictions without the full costs of doing so. They're playing a game, and you're seeking to let them off the hook whilst our NHS hospitals struggle to pay their bills.
Arguably tax rates matter less than the velocity of money.
quote:Bullshit. This is about an attitude by some a the very top of our society that asserts they're too rich/important/prestigious to dirty themselves with paying tax.
But tax also has a symbolic function. We tax bad things like fags, and give relief for good things like being a friend of the schools orchestra. We like the new rich kids at Google to be made to pay. I think that's what this is really about.
quote:...is probably the stupidest philosophy I've ever heard, because it incentivises people to maximise their needs while minimising their ability.
Originally posted by Adeodatus:
"From each according to their ability, to each according to their need." - Louis Blanc, 1839
quote:Around here, many such things are paid for by local councils. Now, I live in one council area where the council tax rate is quite low, but work in another where the council tax rate is comparatively high (for an otherwise identical house). So I'm not contributing any tax money towards the council-funded facilities that enable me to earn my money.
Originally posted by Adeodatus:
Some questions for companies "arranging" their tax affairs:
Who paid for the roads and rail that get your employees to work?
Who paid for the drains and sewers that run under your buildings?
Who paid for the basic education of your employees?
Who pays for the police and armed forces that give you a secure environment to work in?
quote:I think you're imputing an attitude that doesn't really exist in the head offices of large corporations.
Originally posted by mr cheesy:
This is about an attitude by some a the very top of our society that asserts they're too rich/important/prestigious to dirty themselves with paying tax.
quote:...is probably the stupidest interpretation of an eminently reasonable maxim I've ever heard, because it assumes people are simply suckling pigs looking for a teat to drain.
Originally posted by Marvin the Martian:
quote:...is probably the stupidest philosophy I've ever heard, because it incentivises people to maximise their needs while minimising their ability.
Originally posted by Adeodatus:
"From each according to their ability, to each according to their need." - Louis Blanc, 1839
quote:Corporations are not above the (tax) law. An individual who attempted to do this may well find that they're charged under tax evasion laws, there is no reason why a corporation should not also have the law properly applied to them.
Originally posted by Sipech:
I think you're imputing an attitude that doesn't really exist in the head offices of large corporations.
The key concern for management is the return to shareholders. That is enshrined in law (Companies Act 2006, s172t). Whether or not one likes to engage in sophistry about the nature of tax, it remains an expense. It is on the face of the income statement and higher tax reduces the return to shareholders.
quote:Corporations may indeed attempt to bend, break, rewrite or ignore laws in particular jurisdictions. This doesn't mean that we should let them.
So along with trying to increase revenue and gross profit margins, it is standard to try to look to reduce overhead costs, of which tax is just one.
quote:That's one law. Other laws apply. In this case, the law relating to paying of tax.
That's the law as it stands. I don't agree that that's the way it should be, but when we discuss tax reform and ways to make it better, it helps to be able to diagnose the problems precisely.
quote:No, sorry, this is very clear. The corporations do not want to pay the taxes on profits earned in the UK by trying on clever corporate structures designed only to avoid it. They're not the victims here, they're the ones trying to get the benefits from trading in the UK without having to pay their way.
This is why I don't find Adeodatus' comment of "pay your sodding taxes" to be constructive. It would only be appropriate if there was a single, clear number that a company would have paid had they not taken any measures to reduce their liability which could then be compared to the amount actually paid.
quote:Even if things were absolutely clear, they'd be looking for ways to pay less than they should - because as you say they're only accountable to their shareholders and are looking for ways to reduce externalities. Which in this case includes finding ways to avoid paying for the things they use - like roads.
But the start of the problem is not even with the amounts paid, it is the lack of clarity that prevents such a calculation even being done.
quote:Ridiculous nonsense.
Plus, as hatless rightly points out, tax can be used as an incentive (either to pay less tax) or a disincentive (to pay more). For example, I've advocated encouraging companies, when employing people, to favour those who are currently unemployed rather than those moving from job to job.
quote:You are at risk here of conflating avoidance with evasion. I engage in tax avoidance personally by paying into a pension, having an ISA and giving by gift aid. I doubt I'm the only one here. Where there is evasion, of course an individual or a company is liable to prosecution. The issue at hand is how far does avoidance (which is absolutely legal, nomatter how much one may find it immoral or distasteful) go, before it becomes evasion. It's a grey area.
Originally posted by mr cheesy:
Corporations are not above the (tax) law. An individual who attempted to do this may well find that they're charged under tax evasion laws, there is no reason why a corporation should not also have the law properly applied to them.
quote:I never advocated not paying the taxes that are due. It simply remains the case at the moment that there a number of legal ways in which you can reduce the amount that is due. In fact, quite a significant part of tax legislation exists to close previous loopholes. For example, when an individual is subject to capital gains tax on shares, the shares they are deemed to have sold first are those that they buy in the next few days. It sounds bonkers at first, but it's designed to curb short-selling.
That's one law. Other laws apply. In this case, the law relating to paying of tax.
quote:Then please show your workings which tells you exactly how much Google would have paid had they not avoided any tax. If it is as clear as you say, this should not be a problem for a tax genius such as yourself.
No, sorry, this is very clear.
quote:Would you care to elaborate on why you think this is so?
Ridiculous nonsense.
quote:Until the Coalition started slashing council grants in 2010, more than 50% of what councils spent was paid for by grants from central government (and therefore from national-level taxation), and only 25% was raised by council tax, so I'm afraid your argument doesn't hold water.
Originally posted by Marvin the Martian:
quote:Around here, many such things are paid for by local councils. Now, I live in one council area where the council tax rate is quite low, but work in another where the council tax rate is comparatively high (for an otherwise identical house). So I'm not contributing any tax money towards the council-funded facilities that enable me to earn my money.
Originally posted by Adeodatus:
Some questions for companies "arranging" their tax affairs:
Who paid for the roads and rail that get your employees to work?
Who paid for the drains and sewers that run under your buildings?
Who paid for the basic education of your employees?
Who pays for the police and armed forces that give you a secure environment to work in?
Do you think the council where I work should have the right to tax me as well as the one where I live? I am, after all, earning my money there. Am I freeloading off their provision while taking all of my earnings to a different council area where the tax take is lower?
quote:Ability does not equal whether one can be bothered to work; need does not equal want.
Originally posted by Marvin the Martian:
quote:...is probably the stupidest philosophy I've ever heard, because it incentivises people to maximise their needs while minimising their ability.
Originally posted by Adeodatus:
"From each according to their ability, to each according to their need." - Louis Blanc, 1839
quote:It also ignores the basic reality of our society and the nature of humanity. We live in a cooperative society which depends on multiple levels and types of work and interaction. It is reasonable to expect that those whose situation* and/or abilities allow them greater reward share with those whose situation* and/or abilities do not.
Originally posted by Doc Tor:
quote:...is probably the stupidest interpretation of an eminently reasonable maxim I've ever heard, because it assumes people are simply suckling pigs looking for a teat to drain.
Originally posted by Marvin the Martian:
quote:...is probably the stupidest philosophy I've ever heard, because it incentivises people to maximise their needs while minimising their ability.
Originally posted by Adeodatus:
"From each according to their ability, to each according to their need." - Louis Blanc, 1839
quote:It doesn't take a genius to deduce that 3% is less a rate than what the vast majority of people pay and less than we could possibly arrange to pay without being completely destitute.
Then please show your workings which tells you exactly how much Google would have paid had they not avoided any tax. If it is as clear as you say, this should not be a problem for a tax genius such as yourself.
quote:No I'm not and no it isn't.
Originally posted by Sipech:
You are at risk here of conflating avoidance with evasion. I engage in tax avoidance personally by paying into a pension, having an ISA and giving by gift aid. I doubt I'm the only one here. Where there is evasion, of course an individual or a company is liable to prosecution. The issue at hand is how far does avoidance (which is absolutely legal, nomatter how much one may find it immoral or distasteful) go, before it becomes evasion. It's a grey area.
quote:Google is trying to use clever lawyers to negotiate the tax that is due. In other words, they think they can pay less than the tax rate everyone else pays.
]I never advocated not paying the taxes that are due. It simply remains the case at the moment that there a number of legal ways in which you can reduce the amount that is due. In fact, quite a significant part of tax legislation exists to close previous loopholes. For example, when an individual is subject to capital gains tax on shares, the shares they are deemed to have sold first are those that they buy in the next few days. It sounds bonkers at first, but it's designed to curb short-selling.
quote:It isn't about being a "tax genius", it is purely about the facts as as they're reported - which suggest that Google should have paid multiple times what they've negotiated. Given that they pay a lot more in other countries it seems reasonable to think that these estimates are somewhere near the truth.
Then please show your workings which tells you exactly how much Google would have paid had they not avoided any tax. If it is as clear as you say, this should not be a problem for a tax genius such as yourself.
quote:What, you want me to comment on why I think your idiosyncratic suggestion to penalise corporations for employing people who are already in work in preference to those who are unemployed is nonsense?
quote:Would you care to elaborate on why you think this is so?
Ridiculous nonsense.
quote:It used be called PAYE here, but is now PAYG (for Pay As You Go). Now doubt, someone was paid to think of the new name and acronym. But of course that only applies to employees, not to those of us who are self employed. Even for employees, those who have investments need to pay tax on the income from investments and are of course under no obligation to pay any more tax than the law requires.
Originally posted by Sioni Sais:
quote:I'm sure that I couldn't arrange to have my salary paid other than through PAYE (ie, deduction by employer). Most in the UK are in this situation. Successive governments have closed loopholes for individuals and done nothing about those used by corporations.
Originally posted by Gee D:
As far as I know, there's no obligation on anyone to arrange their affairs to pay more tax. I certainly don't and I'd be very surprised if anyone on these boards does either. If a government considers that a particular method should not be allowed, the answer is to pass amending legislation.
quote:Or the difference is a matter of opinion, and the company concerned can hire more lawyers than the budget HMRC have to expend on the case.
Originally posted by Gee D:
I am not aware that the UK tax authorities are any less diligent than those here and if no proceedings have been taken against Evil Corp, I'd assume that tax is not being evaded, but legitimately avoided. Big difference, and not all that subtle.
quote:You may be right in your first paragraph about the UK tax authorities, but that is certainly not the case here. The difference between the concepts of avoidance and evasion is very straightforward; agreed that in particular instances it can become difficult to determine just which side of the line a particular course falls. Settling is not common here, seeking a court ruling is the preferred course for both sides.
Originally posted by chris stiles:
quote:Or the difference is a matter of opinion, and the company concerned can hire more lawyers than the budget HMRC have to expend on the case.
Originally posted by Gee D:
I am not aware that the UK tax authorities are any less diligent than those here and if no proceedings have been taken against Evil Corp, I'd assume that tax is not being evaded, but legitimately avoided. Big difference, and not all that subtle.
In which case the company may well make an offer, and HMRC may chose to take it.
quote:Well, Google's argument is that the shop is based in America, because that's where the coders are.
Originally posted by lilBuddha:
Exporting an item is different than setting up shop to sell that item, which is essentially what Google does.
quote:Factually incorrect - there are Google programmers working in many different places around the world. And, AFAIU, none in Bermuda where the corp is apparently registered for tax purposes.
Originally posted by Ricardus:
ell, Google's argument is that the shop is based in America, because that's where the coders are.
quote:I think there is a difference, but not a massive one. Google does not provide tangible products, but it doesn't really matter: if they were producing widgets from factories in the USA (or as with their model from components assembled in various factories around the world), they are still seeking to provide those widgets to British customers for use in the British market. If they were selling tangible widgets, it wouldn't be much different to Starbucks.
FWIW I do think this argument is qualitatively different from the Vodafone and Starbucks cases, in that coders are real people who draw real quantifiable salaries, whereas Starbucks' case was based on buying 'branding' from other bits of the group at arbitrary prices, and Vodafone's case was IIRC based on intra-group lending at arbitrary interest rates which were then offset against tax.
quote:So if the individual cannot decide what his abilities and needs are, who can? Should the State decide what work we do and how much we will get paid for it? And in what world is that a better solution than the one we have now?
Originally posted by Adeodatus:
quote:Ability does not equal whether one can be bothered to work; need does not equal want.
Originally posted by Marvin the Martian:
quote:...is probably the stupidest philosophy I've ever heard, because it incentivises people to maximise their needs while minimising their ability.
Originally posted by Adeodatus:
"From each according to their ability, to each according to their need." - Louis Blanc, 1839
quote:The one where people starve for the want of a job.
Originally posted by Marvin the Martian:
And in what world is that a better solution than the one we have now?
quote:At the moment HMRC say that because it operates at a net loss (just on the basis of rental income minus mortgage interest) I don't need to fill in a self-assessment form. I don't pay any tax on it, but I don't offset any of the losses against my tax liability for other things. Basic fairness seems to me that if I run any sort of attempted profit making venture then I should pay tax if it makes a profit but I don't see why the tax man should help me out if it loses money
Originally posted by Gee D:
Arethosemyfeet, that is your choice. Do you depreciate the consumable fittings (eg carpet, blinds, paint, fences, dishwasher, hot water system) you supply with the rental property, or deduct the agent's commission? If so, why not depreciate the cost of the money you have borrowed to finance your investment?
quote:I'm not sure where 'here' is so couldn't possibly comment. Suffice to say that a lot of these sorts of cases tend to circle around which jurisdictions profits are booked in - and I know of no major economy in which this hasn't been an issue.
Originally posted by Gee D:
You may be right in your first paragraph about the UK tax authorities, but that is certainly not the case here.
quote:This is fine and entirely correct, assuming that the government are unbiased and not influenced by one group over another.
Originally posted by Gee D:
As far as I know, there's no obligation on anyone to arrange their affairs to pay more tax. I certainly don't and I'd be very surprised if anyone on these boards does either. If a government considers that a particular method should not be allowed, the answer is to pass amending legislation.
quote:You'd get a lot of businesses claiming that they're herdsmen and dressers of sycamore trees.
Originally posted by alienfromzog:
In general, I think it right to tax prophet rather that turnover
quote:Better to starve as a free man than eat as a slave.
Originally posted by Doc Tor:
quote:The one where people starve for the want of a job.
Originally posted by Marvin the Martian:
And in what world is that a better solution than the one we have now?
quote:And what gives you the right to decide this for someone else?
Marvin the Martian: Better to starve as a free man than eat as a slave.
quote:I think you're struggling with the concept of a 'job' here, which is usually defined as a set amount of labour given in return for monetary remuneration.
Originally posted by Marvin the Martian:
quote:Better to starve as a free man than eat as a slave.
Originally posted by Doc Tor:
quote:The one where people starve for the want of a job.
Originally posted by Marvin the Martian:
And in what world is that a better solution than the one we have now?
quote:You want to tax dividends in place of profits? But then you say that you're not allowing companies to pay zero dividend. I think none of this makes any sense, but I could be missing your point.
Originally posted by Doublethink.:
What if shareholder dividend had to be calculated gross annually (you could not pay 0 dividend unless you were declared bankrupt), but paid net annually, after a percentage corporate tax e.g. 10% ? This doesn`t solve your geography problem but it removes the competition between tax and dividend.
quote:What most us who own companies do is keep money in a company and get a tax accountant to tell us how to pay it out. Thus realising the lowest tax. Some lower tax is justified if you take risks and provide jobs. But how much. I got 13% tax net last year on income if it was personal would have been more than three times this.
Originally posted by lilBuddha:
One problem with taxing profit is that profit is very easy to hide.
quote:Some might be, but rarely is that actually assessed.
Originally posted by no prophet's flag is set so...:
quote:What most us who own companies do is keep money in a company and get a tax accountant to tell us how to pay it out. Thus realising the lowest tax. Some lower tax is justified if you take risks and provide jobs. But how much. I got 13% tax net last year on income if it was personal would have been more than three times this.
Originally posted by lilBuddha:
One problem with taxing profit is that profit is very easy to hide.
quote:as those they helped enrich lock the golden gates against them.
Originally posted by Doc Tor:
But that's the problem with libertarians: they always think they're included in the chosen few, whereas the only freedom they'll really ever have is the freedom to starve at the side of the road.
quote:Is it? Fucking easy to say when one isn't starving.
Originally posted by Marvin the Martian:
quote:Better to starve as a free man than eat as a slave.
Originally posted by Doc Tor:
quote:The one where people starve for the want of a job.
Originally posted by Marvin the Martian:
And in what world is that a better solution than the one we have now?
quote:The dividends paid on the small number of shares I own (de-mutualised building society) get taxed as income. I'm not sure why it would make a difference if those were paid annually rather than 2 or 4 times a year.
Originally posted by Doublethink.:
What if shareholder dividend had to be calculated gross annually (you could not pay 0 dividend unless you were declared bankrupt), but paid net annually, after a percentage corporate tax e.g. 10% ? This doesn`t solve your geography problem but it removes the competition between tax and dividend.
quote:I can't think of any reason why business taxes and income taxes need to be comparable. Though, for a small business (especially the self-employed) where profits made effectively form the income for the owner(s) the line is blurred.
Originally posted by no prophet's flag is set so...:
quote:What most us who own companies do is keep money in a company and get a tax accountant to tell us how to pay it out. Thus realising the lowest tax. Some lower tax is justified if you take risks and provide jobs. But how much. I got 13% tax net last year on income if it was personal would have been more than three times this.
Originally posted by lilBuddha:
One problem with taxing profit is that profit is very easy to hide.
quote:
Originally posted by Dafyd:
quote:You'd get a lot of businesses claiming that they're herdsmen and dressers of sycamore trees.
Originally posted by alienfromzog:
In general, I think it right to tax prophet rather that turnover
![[Killing me]](graemlins/killingme.gif)
![[Hot and Hormonal]](icon_redface.gif){kind=icon}
quote:Perhaps I should have said a frequency of not less than once per year.
Originally posted by Alan Cresswell:
quote:The dividends paid on the small number of shares I own (de-mutualised building society) get taxed as income. I'm not sure why it would make a difference if those were paid annually rather than 2 or 4 times a year.
Originally posted by Doublethink.:
What if shareholder dividend had to be calculated gross annually (you could not pay 0 dividend unless you were declared bankrupt), but paid net annually, after a percentage corporate tax e.g. 10% ? This doesn`t solve your geography problem but it removes the competition between tax and dividend.
quote:In the context of me arguing against a system whereby nobody would have the right to decide for themselves, that's a pretty silly objection.
Originally posted by LeRoc:
And what gives you the right to decide this for someone else?
quote:I'd change it to "freely given". If you don't have a choice about doing the labour, it doesn't matter how much you're getting paid - and in a "From each according to their ability, to each according to their need" society where "Ability does not equal whether one can be bothered to work; need does not equal want" that choice would not exist.
Originally posted by Doc Tor:
I think you're struggling with the concept of a 'job' here, which is usually defined as a set amount of labour given in return for monetary remuneration.
quote:If the government was forcing them to do that work with no possibility of them deciding that they'd rather do something else at any point in their lives, then it's no reach at all.
I mean, I suppose you could classify tens of thousands of civil servants, and many tens of thousands more who work for local government, as 'slaves', but personally I'd find that a bit of a reach.
quote:I currently have the freedom to decide which line of work I want to be in, and if I wanted to I could walk out of this office right now and spend the rest of my life painting pictures of gerbils and trying to sell them to other people. If that qualifies me as one of "the chosen few" then so be it, because that's all I'm advocating here.
But that's the problem with libertarians: they always think they're included in the chosen few, whereas the only freedom they'll really ever have is the freedom to starve at the side of the road.
quote:When you argue that everyone should be able to decide for themselves, but at the same you're happy to decide on behalf of other people, that seems rather inconsistent to me. I might even say hypocritical.
Marvin the Martian: In the context of me arguing against a system whereby nobody would have the right to decide for themselves, that's a pretty silly objection.
quote:Actually, we are. It's just that if we choose to do something that nobody else wants to pay us for (painting pictures of gerbils, say) then we won't earn any money.
Originally posted by Alan Cresswell:
None of us is entirely free to choose what we do to make a living
quote:It seems to me that this is where laissez-faire economics fails to match reality. In principle, all economic actors in a given situation would make the best possible economic choices. In practice they don't for many different reasons.
Originally posted by Alan Cresswell:
None of us is entirely free to choose what we do to make a living, and none of us is entirely forced into a particular job. I would love to continue doing what I'm currently doing, I'm good at it, I enjoy it, but I'm not free to do that when government cuts makes obtaining the money to pay my salary and cover other costs is next to impossible.
I could, of course, find another similar job. But, even then I'm not free to do any job I want. There needs to be a vacancy, it needs to be in a location that is reasonably convenient for family life, it needs to pay enough for me to live on.
I'm not free, neither am I a slave.
quote:No, we absolutely are not. I'm not free to be a fighter pilot, because I'm very short-sighted. I'm not free to be a surgeon, because I have no medical qualifications.
Originally posted by Marvin the Martian:
quote:Actually, we are. It's just that if we choose to do something that nobody else wants to pay us for (painting pictures of gerbils, say) then we won't earn any money.
Originally posted by Alan Cresswell:
None of us is entirely free to choose what we do to make a living
Freedom of choice doesn't mean freedom from the consequences of those choices, and considering said consequences when choosing doesn't make the choice any less free.
quote:But, though we may be free to do that are we also then free to allow our kids to starve to death? You're right. We aren't free from the consequences of our choices, and that in itself constrains our choices. Which gives us freedom within boundaries (and, those boundaries are a combination of legal ones, not being free to earn a living robbing banks, and personal ones).
Originally posted by Marvin the Martian:
quote:Actually, we are. It's just that if we choose to do something that nobody else wants to pay us for (painting pictures of gerbils, say) then we won't earn any money.
Originally posted by Alan Cresswell:
None of us is entirely free to choose what we do to make a living
Freedom of choice doesn't mean freedom from the consequences of those choices, and considering said consequences when choosing doesn't make the choice any less free.
quote:When working as a contractor there are other reasons for incorporation - including limited liability, genuine business expenses as well as pension arrangements.
Originally posted by Sipech:
That said, I'm never in favour of it from a moral perspective, though quite a few people I know (including christians) do opt to be contractors and send invoices, rather than join the payroll.
quote:The consequences only constrain our choices to the extent that we care about them. There are plenty of people who do, in fact, earn a living through crime - and as long as they accept the risk of arrest and imprisonment as an occupational hazard they are free to do so.
Originally posted by Alan Cresswell:
But, though we may be free to do that are we also then free to allow our kids to starve to death? You're right. We aren't free from the consequences of our choices, and that in itself constrains our choices. Which gives us freedom within boundaries (and, those boundaries are a combination of legal ones, not being free to earn a living robbing banks, and personal ones).
quote:Whether you want to or not? What would be the consequences of a choice not to generate income to the best of your ability?
Within the context of the "from each according to his ability" this means that there are constraints in which there is an expectation to use that ability to generate income
quote:I'm not entirely sure I understand what you mean here.
(reinforced by not getting included in the "to each according to his need" in the same way as those without ability).
quote:But who gets to decide which people can be artists? And at what stage of their lives?
If I was in charge of the world I would define "income" in this context more broadly than just making money - so, for example, an artist should be able to contribute to society without an expectation of making monetary profit on the art he produces.
quote:And you Marvin, are free to decide for yourself to pay no tax at all. Just turn in your job today and you'll have no income that can be taxed. That's a free choice and no one is stopping you taking it.
Originally posted by Marvin the Martian:
quote:Actually, we are. It's just that if we choose to do something that nobody else wants to pay us for (painting pictures of gerbils, say) then we won't earn any money.
Originally posted by Alan Cresswell:
None of us is entirely free to choose what we do to make a living
Freedom of choice doesn't mean freedom from the consequences of those choices, and considering said consequences when choosing doesn't make the choice any less free.
quote:This is true. And frankly, when I woke up at 6am on this grey Monday morning I briefly considered it!
Originally posted by Sioni Sais:
And you Marvin, are free to decide for yourself to pay no tax at all. Just turn in your job today and you'll have no income that can be taxed. That's a free choice and no one is stopping you taking it.
quote:Longevity is no guarantee of worth.
The whole concept of "From each according to his ability, to each according his need" can goes back to "No man is an Island" by John Donne nearly 400 years ago, although it is there in the Means Test too.
quote:Ok, I had missed the Bermuda connection. I withdraw my comments ....
Originally posted by mr cheesy:
quote:Factually incorrect - there are Google programmers working in many different places around the world. And, AFAIU, none in Bermuda where the corp is apparently registered for tax purposes.
Originally posted by Ricardus:
ell, Google's argument is that the shop is based in America, because that's where the coders are.
quote:One thing I was wondering was whether it would be feasible to tax on the basis of return on investment rather than profit - for the reasons you describe.
Originally posted by Doublethink.:
If you were taxing dividend not profit, then it would make sense to require some form of minimum dividend to be paid.
I am not saying this is a fully worked out idea, I was merely trying to think through a way of trying to create a system where maximising shareholder return did not automatically result in reducing the tax take. Also, taxing dividend side steps the issue of artificially created losses.
quote:Well, yes, that's the reason. A lot of self-employed people look quite similar to employees. The existence of IR35 and so on is testament to this.
Originally posted by Alan Cresswell:
I can't think of any reason why business taxes and income taxes need to be comparable. Though, for a small business (especially the self-employed) where profits made effectively form the income for the owner(s) the line is blurred.
quote:This is all true - some people go to the same desk every day in the same building and are treated as self-employed rather than employed.
Originally posted by Leorning Cniht:
Well, yes, that's the reason. A lot of self-employed people look quite similar to employees. The existence of IR35 and so on is testament to this.
If all you had were big companies and workers, with nobody in the middle, then you could make your argument, but that's not the case. There's almost a continuum of economic activity between a normal employee on the one hand and a large company on the other. If no prophet's tax bill changes by a factor of two or three depending on the details of how he structures his paperwork, it suggests to me that there's a problem there.
quote:So if the government were to decide what job you could do, and imprison anyone who did something other than their allocated job, then as long as you accept the risk of arrest and imprisonment as an occupational hazard you're free to do whatever job you like?
Originally posted by Marvin the Martian:
The consequences only constrain our choices to the extent that we care about them. There are plenty of people who do, in fact, earn a living through crime - and as long as they accept the risk of arrest and imprisonment as an occupational hazard they are free to do so.
quote:It is for this reason that I would advocate the rate at which a company pays tax as being dependent on their revenue, even though I don't agree with the likes of Nigel Lawson about that tax being levied on the profits chargeable to corporation tax (PCTCT).
Originally posted by Leorning Cniht:
quote:Well, yes, that's the reason. A lot of self-employed people look quite similar to employees. The existence of IR35 and so on is testament to this.
Originally posted by Alan Cresswell:
I can't think of any reason why business taxes and income taxes need to be comparable. Though, for a small business (especially the self-employed) where profits made effectively form the income for the owner(s) the line is blurred.
If all you had were big companies and workers, with nobody in the middle, then you could make your argument, but that's not the case. There's almost a continuum of economic activity between a normal employee on the one hand and a large company on the other. If no prophet's tax bill changes by a factor of two or three depending on the details of how he structures his paperwork, it suggests to me that there's a problem there.
quote:I suppose so, in the same way that every slave in history has been free to try to escape their situation. But it would be a pretty limited form of freedom. Would you want to live in such a society?
Originally posted by Dafyd:
quote:So if the government were to decide what job you could do, and imprison anyone who did something other than their allocated job, then as long as you accept the risk of arrest and imprisonment as an occupational hazard you're free to do whatever job you like?
Originally posted by Marvin the Martian:
The consequences only constrain our choices to the extent that we care about them. There are plenty of people who do, in fact, earn a living through crime - and as long as they accept the risk of arrest and imprisonment as an occupational hazard they are free to do so.
quote:Consider two shops. One sells staple goods in a mature, competitive market and has a wafer-thin profit margin on each item sold. The second sells a luxury good with a factor of two or so markup on each item sold, but makes few sales.
Originally posted by Sipech:
i.e. if you have two companies who have a PCTCT of £50k, but one had £0.5m revenue and the other had £100m revenue, it doesn't seem right that they pay the same rate of tax.
quote:A mature, competitive market has, by definition, high barriers to entry. So the bulk goods retailer is benefitting from a society that allows them to make a large turnover. That benefit should have a cost associated with it.
Originally posted by Leorning Cniht:
quote:Consider two shops. One sells staple goods in a mature, competitive market and has a wafer-thin profit margin on each item sold. The second sells a luxury good with a factor of two or so markup on each item sold, but makes few sales.
Originally posted by Sipech:
i.e. if you have two companies who have a PCTCT of £50k, but one had £0.5m revenue and the other had £100m revenue, it doesn't seem right that they pay the same rate of tax.
Both shops make the same profit. The bulk retailer has much more revenue. Why should the bulk merchant pay more tax?
quote:A competitive market will reduce profits. If Tesco, say, has huge revenue but little profit, it isn't so much because of mismanagement as because of Sainsbury's, Asda, Aldi and Lidl. People who buy staples from supermarkets tend to be price sensitive.
Originally posted by Sipech:
The general principle I had in mind was that if a large corporation (say, Tesco) had huge revenues, but made very little profit it, I'm not sure it's right that they should effectively be rewarded for poor management.
quote:Tesco have had some specific issues recently but generally supermarkets operate on small margins for their core business.
Originally posted by Leorning Cniht:
quote:A competitive market will reduce profits. If Tesco, say, has huge revenue but little profit, it isn't so much because of mismanagement as because of Sainsbury's, Asda, Aldi and Lidl. People who buy staples from supermarkets tend to be price sensitive.
Originally posted by Sipech:
The general principle I had in mind was that if a large corporation (say, Tesco) had huge revenues, but made very little profit it, I'm not sure it's right that they should effectively be rewarded for poor management.
People who frequent boutique cheesemongers, on the other hand, aren't. If they were price-driven, they'd be in the supermarket rather than buying hand-crafted speciality cheeses.
quote:Dividends are already paid after tax - because they are paid from retained earnings, which has already been taxed in the hands of the corporation. That is why shareholders pay less tax on dividends than employees do on salaries and wages.
Originally posted by Doublethink.:
What if shareholder dividend had to be calculated gross annually (you could not pay 0 dividend unless you were declared bankrupt), but paid net annually, after a percentage corporate tax e.g. 10% ? This doesn`t solve your geography problem but it removes the competition between tax and dividend.
quote:You were maintaining that some forms of constraint aren't really constraints at all. The only principle I could see that determined which was which was whether they supported your argument.
Originally posted by Marvin the Martian:
I suppose so, in the same way that every slave in history has been free to try to escape their situation. But it would be a pretty limited form of freedom. Would you want to live in such a society?
quote:Longevity is the foundation of the average rich person's wealth. Longevity of one's family wealth, of one's connections, one's company, etc. For all the rubbish of "personal" achievement, longevity is a primary factor.
Originally posted by Marvin the Martian:
Longevity is no guarantee of worth.
quote:It is so commonplace that it ceases to amaze me that so many Christians argue against these Christ like words.
From each according to his ability, to each according his need
quote:OTOH, I actually give up my time and the fruits of my labour to earn a wage. What do shareholders do? Typically a shareholder in one corporation is another corporation, but in the UK at any rate the majority of individual wealth invested in shares in inherited rather than earned.
Originally posted by sharkshooter:
quote:Dividends are already paid after tax - because they are paid from retained earnings, which has already been taxed in the hands of the corporation. That is why shareholders pay less tax on dividends than employees do on salaries and wages.
Originally posted by Doublethink.:
What if shareholder dividend had to be calculated gross annually (you could not pay 0 dividend unless you were declared bankrupt), but paid net annually, after a percentage corporate tax e.g. 10% ? This doesn`t solve your geography problem but it removes the competition between tax and dividend.
quote:The Office for National Statistics has some interesting figures for this. Over half of the UK stock market is owned by overseas investors, with UK individuals (who I assume are the heirs you refer to) owning 12% of the £1.7tn pot.
Originally posted by Sioni Sais:
Typically a shareholder in one corporation is another corporation, but in the UK at any rate the majority of individual wealth invested in shares in inherited rather than earned.
quote:That is just direct holdings, include holdings via companies incorporated in the UK and that figure goes up to 46%. There will also be plenty of inherited wealth that owns shares via companies incorporated in other countries and often indirectly via investments in hedge funds and the like.
Originally posted by Sipech:
Over half of the UK stock market is owned by overseas investors, with UK individuals (who I assume are the heirs you refer to) owning 12% of the £1.7tn pot.
quote:I guess the bottom line is that no one knows who owns these shares, and moreover no one's asking. Would it be rash to deduce that some "overseas investors" are our own dear "Non-Doms"?
Originally posted by chris stiles:
quote:That is just direct holdings, include holdings via companies incorporated in the UK and that figure goes up to 46%. There will also be plenty of inherited wealth that owns shares via companies incorporated in other countries and often indirectly via investments in hedge funds and the like.
Originally posted by Sipech:
Over half of the UK stock market is owned by overseas investors, with UK individuals (who I assume are the heirs you refer to) owning 12% of the £1.7tn pot.
You can see an allusion to this here:
"The majority of shares by value are held in multiple-ownership pooled accounts"
and compare the statements about unit trusts (9%) and pension funds (3%).
quote:Have read with interest so far. My tuppenceworth as follows:
Originally posted by Sipech:
So what do shipmates think constitutes fair tax
quote:Which is clearly bollocks at the first examination, since everyone benefits from roads, whether they use them personally or not (since food and services are delivered down them), and everyone benefits from an educated workforce (since we all see a doctor at some point).
Originally posted by Russ:
The only fair system is a road fund with charges based on road use, an education fund where everyone pays over their working life for the years for education that they've individually received, and similar separate funds, charged appropriately, for each element of government expenditure that is for the good of those paying.
quote:The system I'm suggesting would divide the "public purse" into a set of smaller purses, and one of those - the social security fund - would (being about helping others rather than about buying services for oneself) operate on something like an ability/needs basis, being explicitly redistributive. Aiming for mercy as well as justice, if you will.
Originally posted by Alan Cresswell:
It would be "fair". But, it would also be a social disaster, undermining any element of social cohesion to be replaced by rampant individualism. And, it would be an injustice to the poor for whom the increase in costs would not be matched by reduced tax demands.
quote:The government should be us. Us acting collectively to do what we can't do individually.
hatless said:
The government is us.
What is mine is the school across the road, the police who guard the street, and the pharmacy with drugs for free or cheapish, as much as the stuff on my house insurance or the numbers in my bank account.
Tax is one of the ways we shift wealth around. Paying tax shouldn't be thought of as a loss.
quote:This is the problem with such schemes as you propose. Right now, we have the government involved and private, voluntary contribution and the need is not met. So voluntary contribution is neve going to be sufficient.
voluntary charitable donations
quote:You were doing quite well up to this point. The problem with the above statement is that (despite being oft repeated) it is simply and demonstrably untrue. For reference, I would highly recommend Mark Blyth's book - chapter 3, I think.
Originally posted by Russ:
Much of the debt crisis of recent years was caused by governments borrowing to maintain the illusion that we can have both low taxes and a high level of services and welfare payments.
quote:Nope, this has as much basis in fact as the MMR vaccine scare if you just want to go on debt levels in this country alone the debt/GDP ratio was lower at the start of the crisis than it was when Labor took power.
Originally posted by Russ:
Much of the debt crisis of recent years was caused by governments borrowing to maintain the illusion that we can have both low taxes and a high level of services and welfare payments.
quote:Actually, no, it is not a zero-sum game. There is evidence that solutions in which the richer contribute more than the poorer do, and are therefore closer to equality, result in more overall benefit. The rich do not lose as much as the poor gain.
Originally posted by Russ:
But I agree that the question of how to split the costs of a government service is an essentially divisive question. A zero-sum game.
quote:Hi Dafyd. Could you explain this a little more ? If we're talking about a spending programme (roads, education, whatever) that is of an agreed size and whose cost needs to be paid from taxes/charges in some way, it seems obvious that the first-order effect is that every €1 more that one person pays is €1 less that another has to pay. Is that not a zero-sum situation ?
Originally posted by Dafyd:
quote:Actually, no, it is not a zero-sum game. There is evidence that solutions in which the richer contribute more than the poorer do, and are therefore closer to equality, result in more overall benefit. The rich do not lose as much as the poor gain.
Originally posted by Russ:
But I agree that the question of how to split the costs of a government service is an essentially divisive question. A zero-sum game.
quote:If you're looking only at the first-order effects like that, then, yes, but that would be silly.
Originally posted by Russ:
quote:Could you explain this a little more ? If we're talking about a spending programme (roads, education, whatever) that is of an agreed size and whose cost needs to be paid from taxes/charges in some way, it seems obvious that the first-order effect is that every €1 more that one person pays is €1 less that another has to pay. Is that not a zero-sum situation ?
Originally posted by Dafyd:
quote:Actually, no, it is not a zero-sum game. There is evidence that solutions in which the richer contribute more than the poorer do, and are therefore closer to equality, result in more overall benefit. The rich do not lose as much as the poor gain.
Originally posted by Russ:
A zero-sum game.
quote:The main effect of putting more money in the pockets of those who have month left at the end of the money is that they spend more, stimulating demand and that acts as an economic multiplier, because those involved in producing the goods and providing the services also have more in their pay packets. A *very* beneficial effect of that, which Mr Osborne has missed consistently and spectacularly, is that extra wages generates extra tax for the Treasury. Zero-hours contracts and part-time jobs don't do that.
Originally posted by Doc Tor:
The second-round effects are the effects.
Simply put: poor people spend their money, rich people save it. The more money poor people have, the more goods and services they buy. The more money rich people have, the more they save and invest in non-productive goods and services.
quote:I find hard to believe that rich people commonly take money out of circulation by hiding it under the mattress. Doesn"t putting money into stocks and shares (or on deposit in banks which then loan it out to small businesses) lead to knock-on second-order benefits in the same way ?
Originally posted by Doc Tor:
The second-round effects are the effects.
Simply put: poor people spend their money, rich people save it. The more money poor people have, the more goods and services they buy. The more money rich people have, the more they save and invest in non-productive goods and services.
quote:The problem is that it's becoming more and more difficult for the very rich to find out what to do with their money. Since the people on the lower end aren't earning more, they aren't buying more, so there isn't much money to be made in stocks or small businesses.
Russ: I find hard to believe that rich people commonly take money out of circulation by hiding it under the mattress. Doesn"t putting money into stocks and shares (or on deposit in banks which then loan it out to small businesses) lead to knock-on second-order benefits in the same way ?
quote:The flip side of a lack of consumer led growth is that the 'best' place for the rich to invest is assets - which lead to asset bubbles (Alan's point is technically correct, art is one very small sink - the bigger store of money becomes increasingly unsustainable property bubbles - see prices in London, Dubai and so on).
Originally posted by Russ:
]I find hard to believe that rich people commonly take money out of circulation by hiding it under the mattress.
quote:To a point, however these businesses can only grow in response to customer demand, which means they are dependent on money in the pocket of consumers growing year on year, or they are effectively competing for a increased piece of a fixed pie.
Doesn"t putting money into stocks and shares (or on deposit in banks which then loan it out to small businesses) lead to knock-on second-order benefits in the same way ?
quote:It is to the people they're buying it from.
Originally posted by Alan Cresswell:
Maybe not cash in the mattress, but using excess wealth to buy works of art isn't really all that different (especially if it's then locked up in a vault somewhere).
quote:Case in point: Google. They make billions in profit. Do they pay tax in the country where they make their profit? No. Do they take their profit back to the US where they pay tax on it? No. Do they take their profit back to the US where they pay dividends on their shares with it? No.
Originally posted by Russ:
I find hard to believe that rich people commonly take money out of circulation by hiding it under the mattress.
quote:SCOTUS/ Citizen's United would apparently opine otherwise.
Originally posted by Doc Tor:
"But Google's not a person," I hear you opine.
quote:You can't hang Google.
Originally posted by cliffdweller:
quote:SCOTUS/ Citizen's United would apparently opine otherwise.
Originally posted by Doc Tor:
"But Google's not a person," I hear you opine.
quote:It depends.
Originally posted by Russ:
I find hard to believe that rich people commonly take money out of circulation by hiding it under the mattress. Doesn"t putting money into stocks and shares (or on deposit in banks which then loan it out to small businesses) lead to knock-on second-order benefits in the same way ?
quote:There are other things that act on individuals when they decide what actions to take in life. It's not all about the tax system. I find social status is quite a powerful motivator for some people, for example.
Originally posted by Marvin the Martian:
quote:So if the individual cannot decide what his abilities and needs are, who can? Should the State decide what work we do and how much we will get paid for it? And in what world is that a better solution than the one we have now?
Originally posted by Adeodatus:
quote:Ability does not equal whether one can be bothered to work; need does not equal want.
Originally posted by Marvin the Martian:
quote:...is probably the stupidest philosophy I've ever heard, because it incentivises people to maximise their needs while minimising their ability.
Originally posted by Adeodatus:
"From each according to their ability, to each according to their need." - Louis Blanc, 1839
quote:So how does a rich man buying a work of art from an artist, or from a middleman (a gallery or dealer), or from another collector (a private individual) stop the money from circulating ? Why is a poor man buying meat or beer from the producer, or from a supermarket or other retailer, any different ?
Originally posted by Alan Cresswell:
Usually other very rich people, who use that money to buy another work of art from some other rich guy.
quote:I'm struggling with the idea that you don't realise that there are exponentially more poor people than there are rich people.
Originally posted by Russ:
quote:So how does a rich man buying a work of art from an artist, or from a middleman (a gallery or dealer), or from another collector (a private individual) stop the money from circulating ? Why is a poor man buying meat or beer from the producer, or from a supermarket or other retailer, any different ?
Originally posted by Alan Cresswell:
Usually other very rich people, who use that money to buy another work of art from some other rich guy.
quote:Except they're not doing that now. If they were making money through investment, they'd offer higher interest rates in order to get more money to invest.
lilBuddha: They make money with the money you store there, they make money with the money you invest through them.
quote:Not how it works. What banks want is to manage rich folks investments.
Originally posted by LeRoc:
quote:Except they're not doing that now. If they were making money through investment, they'd offer higher interest rates in order to get more money to invest.
lilBuddha: They make money with the money you store there, they make money with the money you invest through them.
quote:Doc Tor did not refute anything I said. He added to it.
Originally posted by LeRoc:
I think Doc Tor has it. LilBuddha is talking gobbledigook.
quote:They bundled bad debt with "good" debt and gave the bundles the credit rating of the good debt. The ratio of bad to good increased to the point where it was no longer sustainable.
Originally posted by Doc Tor:
The banking crisis happened because the value of those debts was artificially inflated and traded amongst each other for more debt, until it was realised that the debt they were trading was worthless. The banks collapsed.
quote:In this scenario, though, there's still a million in cash out there - it's just in the hands of the seller of the last asset. It's not any more "locked up" than when it fell into the hands of the first rich person.
Originally posted by lilBuddha:
Typically, a person selling one investment property will then put that money into another. There may be some transfer loss, but the bulk stays locked up. The rich don't stay rich by letting go of that money.
quote:This conversation is shifting around a bit too much. An investment like a painting isn't the same as an investment in a stock market. But both of them keep money in higher economic circles. And that is the basic point.
Originally posted by Dave W.:
quote:In this scenario, though, there's still a million in cash out there - it's just in the hands of the seller of the last asset. It's not any more "locked up" than when it fell into the hands of the first rich person.
Originally posted by lilBuddha:
Typically, a person selling one investment property will then put that money into another. There may be some transfer loss, but the bulk stays locked up. The rich don't stay rich by letting go of that money.
quote:The 'cash' that a bank holds is the profit they've made from lending other people's money, and that is a small fraction of the total 'assets', most of which is made up of debt.
Originally posted by Dave W.:
an asset is either something the bank holds (like cash) or is owed (like an outstanding loan to a home or business owner, or a government bond) and a liability is something the bank owes (like the value of customer deposits or money the bank itself has borrowed from somewhere else.)
quote:I think you're mixing up categories here. Cash on a balance sheet isn't necessarily profit, it's just the amount of cash the bank has at any given time. If I deposit $20 cash in my checking account at Bank of America today, they'd increase the cash amount in their assets column by $20, but they'd also increase the deposit amount in their liabilities column by $20. They'd clearly have more cash, but it doesn't represent any kind of profit. BoA had $582B in cash at the end of 2014, but their net income for the year was only $4.8B.
Originally posted by Doc Tor:
quote:The 'cash' that a bank holds is the profit they've made from lending other people's money, and that is a small fraction of the total 'assets', most of which is made up of debt.
Originally posted by Dave W.:
an asset is either something the bank holds (like cash) or is owed (like an outstanding loan to a home or business owner, or a government bond) and a liability is something the bank owes (like the value of customer deposits or money the bank itself has borrowed from somewhere else.)
So, yes. That's pretty much what I said.
quote:I agree - this is what I was attempting to describe in the last part of my previous post.
It's not depositors who bring a bank down by suddenly demanding all their money back (though that eventually happens). It's that the bank suddenly finds itself with worthless debts.
quote:If a "bad" debt is one that isn't paid back, it seems to me that a "good" debt is one that is paid back; by this view, most debts are good debts - i.e., debts that borrowers make good on.
Also, there is no 'good' debt: the worth of the debt is entirely dependent on the asset used to back it, which may go tits up at any time. It's always a gamble. It was once thought that property was a safe bet. Oh, how we laughed.
quote:Actually, I would expect that people buying shares for dividend income would be very unusual. I've just received the dividend statement for the small number of shares I own in a de-mutualised building society. The share value is currently about £2.70, on which I have dividend of 3.7p per share (out of which the taxman took his share). So, someone buying shares would need to receive about 100 dividend payments before they've recovered the purchase price. Even with 2 or 3 dividend issues per year that would need to be a very long term investment.
Originally posted by Dave W.:
On rich peoples' investments - actually, I think investing in art has a lot in common with most investment in stocks. Cash moves from buyer to seller, and the ownership of an asset moves the other way. In both cases the buyer hopes for future appreciation (and in the case of stocks, often for dividend income, though there are prominent exceptions) but the change in ownership doesn't have anything to do directly with economic activity (in the GDP sense).
quote:Doing exactly this is a known investment strategy known as "dividend dogs", and can often - in the long term - beat any rise in share price (since there are also falls in any portfolio).
Originally posted by Alan Cresswell:
Actually, I would expect that people buying shares for dividend income would be very unusual.
quote:Something I suspect that many posters here have forgotten. A very high proportion of the monies invested by funds, lent by banks and used to finance trade are the superannuation funds and bank accounts created by the people pushing their trolleys around the supermarkets, sitting next to you on the train to work and so forth. They are much more responsible to the population at large than were the privately wealthy of past years.
Originally posted by Alan Cresswell:
That's probably why, with the exception of those shares I was given when my bank de-mutualised, my very limited investments have been through managed funds where I don't need to worry about such things.
quote:You'd like to think that. In reality, they don't give a shit, and just see us as blood bags to drain at will.
Originally posted by Gee D:
They are much more responsible to the population at large than were the privately wealthy of past years.
quote:Oh no they are not just the opposite.
Originally posted by Gee D:
They are much more responsible to the population at large than were the privately wealthy of past years.
quote:We already had this one page back, see Sipech's post.
Originally posted by Gee D:
Something I suspect that many posters here have forgotten. A very high proportion of the monies invested by funds, lent by banks and used to finance trade are the superannuation funds
quote:
Originally posted by Dave W.:
On rich peoples' investments - actually, I think investing in art has a lot in common with most investment in stocks.
quote:Except that as a greater proportion of money flows into inflating assets rather than the pockets of consumers we end up with asset bubbles and debt crisis' (as some sectors over-borrow and then are unable to grow).
In either case, the cash hasn't been locked up or destroyed - it's no less available for any other use than before the trades occurred.
quote:There is a difference - having a ready market in its shares and a decent valuation is useful for a company if it wishes to raise funds by an additional equity offering, for example.
Originally posted by Dave W.:
actually, I think investing in art has a lot in common with most investment in stocks. Cash moves from buyer to seller, and the ownership of an asset moves the other way.
quote:And who are these banks? The capital for most came originally from the super-wealthy of the day, then trickled down. But since WW II there have been enormous changes. The majority of the shareholding now is by such bodies as your superannuation fund. Chris Stiles reminds us that Sipech made this point pages ago. Most seem to have forgotten that.
Originally posted by Doc Tor:
quote:You'd like to think that. In reality, they don't give a shit, and just see us as blood bags to drain at will.
Originally posted by Gee D:
They are much more responsible to the population at large than were the privately wealthy of past years.
Almost every transaction we do, whether it's paying into a pension, or life insurance, or a mortgage, or a bond, or some other investment or loan is automatically top-sliced to the bank's benefit. If they don't think they're making enough money from us, they simply increase the charges.
quote:I think you should read that link again - which kind of undermines your point even before you get to the problems of accountability raised in previous posts [*] - 54% of UK shares are held by entities outside the UK, a lot of the rest is held by hedge funds (pension and insurance funds make up 3 and 6% respectively, unit trusts are another 9%).
Originally posted by Gee D:
Chris Stiles reminds us that Sipech made this point pages ago. Most seem to have forgotten that.
quote:All the statistics say otherwise. The top 1% own just as much wealth (in the US) as they did in 1922. Globally, the top 1% own fully one half of the world's wealth. We are going backwards in terms of wealth equality.
Originally posted by Gee D:
And who are these banks? The capital for most came originally from the super-wealthy of the day, then trickled down. But since WW II there have been enormous changes.
quote:But this isn't especially relevant to the question of "what happens to the money when a rich person buys stock". I haven't seen statistics of the volume of FPOs (follow-on public offerings) but I'm pretty sure it's tiny compared to the total volume of trades. For example: the number of GE shares outstanding increased by 70 million in the year to the end of 9/15, but the total volume traded was nearly 10 billion shares - about 140 times as much.
Originally posted by Leorning Cniht:
quote:There is a difference - having a ready market in its shares and a decent valuation is useful for a company if it wishes to raise funds by an additional equity offering, for example.
Originally posted by Dave W.:
actually, I think investing in art has a lot in common with most investment in stocks. Cash moves from buyer to seller, and the ownership of an asset moves the other way.
quote:The link I provided was to an article about overdraft fees and how they are a multi-billion pound/dollar industry. They intentionaly structure fees to generate revenue. Let us take overdraft fees. Where they can, banks will arrange withdrawals to maximise those fees.
Originally posted by Gee D:
The link lilBuddha gives does not work for me,
quote:"Insurance companies held an estimated 6% and pension funds an estimated 3% by value at the end of 2014, continuing the downward trends in these sectors seen in recent years."
Originally posted by Gee D:
Most likely to the managers of the fund into which Henry and his employer pays his superannuation money.
quote:Would that it were as clean as that.
Originally posted by Alan Cresswell:
Which impersonal bodies do you mean?
If it's pension funds then they have a clear aim - to maximise returns to provide cash to members on retirement. Insurance schemes are similar. Also investment funds (in the UK, ISAs and similar) exist to grow for the benefit of those who have invested in them.
quote:Will they? Investing is gambling and gamblers don't tend to truly see odds as much as they do potential reward. And there are always more suckers, erm, investors being born.
Originally posted by Alan Cresswell:
Aye, nothing is simple. But there are checks in the system. A financial institution where trading practices increase profits for the firm but result in lower returns for investors compared to similar products offered by other institutions will lose customers as investors choose the products with the better record in gains for them.
quote:Given that most people are saving for their pensions for 30-40 years, and the costs of closing one pension, opening another, and transferring the money between them are so punitive as to virtually wipe out any gains made, no one I know has ever changed providers midstream.
Originally posted by Alan Cresswell:
Aye, nothing is simple. But there are checks in the system. A financial institution where trading practices increase profits for the firm but result in lower returns for investors compared to similar products offered by other institutions will lose customers as investors choose the products with the better record in gains for them.
quote:And, a lot of people invest very cautiously. My financial advisor spent a lot of time working out what products best fitted my requirements - which included how much of a risk taker I was (not very!), so my ISA portfolio contains a fairly safe balance of UK shares, non UK shares, government bonds and cash. I could have gone for higher risk options, with more shares and less cash/bonds, or vice versa. Each individual transaction carries a fairly high risk, but for a fund investing in a range of shares it is possible to minimise the impact of one of the transactions going belly up (though, it also means you water down the benefit of shares in a company going through the roof).
Originally posted by lilBuddha:
quote:Will they? Investing is gambling and gamblers don't tend to truly see odds as much as they do potential reward. And there are always more suckers, erm, investors being born.
Originally posted by Alan Cresswell:
Aye, nothing is simple. But there are checks in the system. A financial institution where trading practices increase profits for the firm but result in lower returns for investors compared to similar products offered by other institutions will lose customers as investors choose the products with the better record in gains for them.
quote:Yes, some do.
Originally posted by Alan Cresswell:
And, a lot of people invest very cautiously.
quote:But what fund strategy is safest changes. Indexed funds, once sold as nearly bulletproof, have proven susceptible to failure.
Originally posted by Alan Cresswell:
Each individual transaction carries a fairly high risk, but for a fund investing in a range of shares it is possible to minimise the impact of one of the transactions going belly up (though, it also means you water down the benefit of shares in a company going through the roof).
quote:I agree with you - the funds are legal persons but not natural, is the point I was making.
Originally posted by Alan Cresswell:
Which impersonal bodies do you mean?
If it's pension funds then they have a clear aim - to maximise returns to provide cash to members on retirement. Insurance schemes are similar. Also investment funds (in the UK, ISAs and similar) exist to grow for the benefit of those who have invested in them. There will be particular features of each individual scheme that will direct the choices fund managers make to meet those demands (eg: whether a scheme has an ethical policy against investing in some industries, or for investing in others, etc), but overall their purpose, their motive, is defined.
It's the personal investors that may be harder to pin down in terms of motive. Why do some people hold onto the shares received when building socities demutualised, and others sold them on as quickly as possible? Do people with the option of buying shares choose those with highest dividends, those with what htey expect to be biggest chance of significant increase in value, because they want to support a particular company, or maybe get to be at the company AGM and have a say in the way it's run?
quote:Well, there's a crucial sense in which investment isn't gambling. The average return for a gambler will always be zero, if there are no overheads and no house, or negative. Conversely in the long-term stocks have not only risen on average, but risen more than the average of any other investment.
Originally posted by lilBuddha:
Will they? Investing is gambling and gamblers don't tend to truly see odds as much as they do potential reward. And there are always more suckers, erm, investors being born.
quote:In the long term, stock markets have risen, not every single stock.
Originally posted by Ricardus:
in the long-term stocks have not only risen on average, but risen more than the average of any other investment.
quote:Which is an important qualifier in itself - the US market took nearly 25 years to recover from the crash of 1929 - so depending on where you invested and cashed out you would have got differing results as an individual investor in the index.
Originally posted by lilBuddha:
In the long term, stock markets have risen, not every single stock.
In the long term markets have risen, but inside that long term there are dips. And if you need you money during one of those dips, you are SOL.
quote:That was my sense of it - that money circulates regardless.
Originally posted by Dave W.:
When a rich person (or anyone) buys stock, nearly all the time the cash is just going to the previous owner of existing shares. The money isn't going to the company for economically productive investment (like buildings or equipment), but neither is it "locked up" as a result of the trade.
quote:Who shot it down? I seem to have missed it crashing in a small fireball, quite the opposite in fact (unless you mean redistribution that takes from the poor to give more to the rich).
Originally posted by Russ:
But having shot down the idea that redistribution boosts the economy
quote:I am not seeing how Dave W's point has shot down the idea that redistribution boosts the economy. Indeed, I rather think his point supports the idea, in that money circulating between the already wealthy does not stimulate any new production.
Originally posted by Russ:
But having shot down the idea that redistribution boosts the economy, presumably there are other ways in which a tax system can be designed to support economic growth for the benefit of all ?
quote:
... no economy can continue to function when the vast middle class and everybody else don’t have enough purchasing power to buy what the economy is capable of producing without going deeper and deeper into debt. Seventy percent of the entire economy is basically consumer spending. And if consumers don’t have the wherewithal to spend because all the money’s going to the top, and the people at the top only spend a very small fraction of what they earn, then the economy is almost inevitably destined to slow.
quote:You're right, it wasn't a drag on the economy. On the other hand it doesn't contribute one jot to economic growth. In the last few years Britain has seen increased income inequality and little or no economic growth.
Originally posted by Dave W.:
So for the most part it seems to me that money received by rich people should get spent one way or another; I don't see a drag on the economy due to a "locking up" mechanism. There are plenty of other arguments for why having a high level of income inequality is bad, but low growth doesn't seem to be a persuasive one.
quote:I've seen similar things, but I'm not convinced this explains slow growth (outside of specific contractionary conditions) and I'd like more details about how this is supposed to work. What is it that the rich do with their money which doesn't get translated into economic activity? (I'm not saying there isn't an answer - I just haven't seen one yet.)
Originally posted by RuthW:
Robert Reich interview on PBS:quote:
... no economy can continue to function when the vast middle class and everybody else don’t have enough purchasing power to buy what the economy is capable of producing without going deeper and deeper into debt. Seventy percent of the entire economy is basically consumer spending. And if consumers don’t have the wherewithal to spend because all the money’s going to the top, and the people at the top only spend a very small fraction of what they earn, then the economy is almost inevitably destined to slow.
quote:
I’ve been using the case of research on inequality and growth as an example of an issue where liberals need to be careful not to let wishful thinking drive their conclusions; it would fit perfectly with our world view if inequality were not just a bad thing but also bad for the economy, which is a reason to bend over backwards to avoid accepting that conclusion too easily.
[...]
It’s important to realize that the absence of any clear relationship is a big win for progressives: right-wingers always claim that any attempt to reduce inequality will hurt the feelings of job creators and kill growth, but there’s not a hint of that problem in the data. But not much evidence that failure to reduce inequality kills growth, either. And I personally am making an effort not to be greedy — not to claim that a drive against inequality, which I view as crucially important for social and political reasons, is also the cure for lots of other things.
quote:Of course it gets translated into economic activity of some kind - the question is what kind. Additionally, the speed at which moves is important - money funnelled into a series of asset bubbles can move quite slowly, whilst only really generating fractional service fees (paid out in wages to the managers and so on).
Originally posted by Dave W.:
I've seen similar things, but I'm not convinced this explains slow growth (outside of specific contractionary conditions) and I'd like more details about how this is supposed to work. What is it that the rich do with their money which doesn't get translated into economic activity?
quote:OK, what's inferior about the "kind" of economic activity supported by rich people's spending?
Originally posted by chris stiles:
quote:Of course it gets translated into economic activity of some kind - the question is what kind.
Originally posted by Dave W.:
I've seen similar things, but I'm not convinced this explains slow growth (outside of specific contractionary conditions) and I'd like more details about how this is supposed to work. What is it that the rich do with their money which doesn't get translated into economic activity?
quote:On the contrary, money used to purchase financial assets moves nearly instantaneously. One moment rich person A has cash and rich person B has stocks; seconds later, their situations are reversed. The cash is still as available to support productive economic activity as it would be in the hands of poor person C; the stock purchase did nothing to slow that down.
Additionally, the speed at which moves is important - money funnelled into a series of asset bubbles can move quite slowly, whilst only really generating fractional service fees (paid out in wages to the managers and so on).
quote:[Ignoring for a moment the fact that asset bubbles in recent years have typically been in commodities and property rather than stocks] How does the cash get into the hands of C, you appear to have handwaved over that step.
Originally posted by Dave W.:
On the contrary, money used to purchase financial assets moves nearly instantaneously. One moment rich person A has cash and rich person B has stocks; seconds later, their situations are reversed. The cash is still as available to support productive economic activity as it would be in the hands of poor person C;
quote:I can't have handwaved over a step to an endpoint I never proposed. I'm saying I haven't heard an explanation for why rich people's income does less to support economic growth than poor people's income.
Originally posted by chris stiles:
quote:[Ignoring for a moment the fact that asset bubbles in recent years have typically been in commodities and property rather than stocks] How does the cash get into the hands of C, you appear to have handwaved over that step.
Originally posted by Dave W.:
On the contrary, money used to purchase financial assets moves nearly instantaneously. One moment rich person A has cash and rich person B has stocks; seconds later, their situations are reversed. The cash is still as available to support productive economic activity as it would be in the hands of poor person C;
quote:Because they spend less than poor people would in aggregate. Their excess income being used to increase over time their share of economic assets (of which the most obvious years has been property) which they are then able to use to further increase their income via rent seeking.
Originally posted by Dave W.:
[QB]
I'm saying I haven't heard an explanation for why rich people's income does less to support economic growth than poor people's income.
quote:That's just it - I don't see how the excess income is "used" to buy assets, in the aggregate sense. In aggregate, rich person A and rich person B haven't used rich person A's income to buy assets - and that seems to be the case for nearly all transfers of assets.
Originally posted by chris stiles:
quote:Because they spend less than poor people would in aggregate. Their excess income being used to increase over time their share of economic assets [snip]
Originally posted by Dave W.:
[QB]
I'm saying I haven't heard an explanation for why rich people's income does less to support economic growth than poor people's income.
quote:You're right. The money may well move on faster.
Originally posted by Sioni Sais:
It's fair to say that money "just circulates" but the people involved can change and the pace at which money circulates can change ..
..if money moves faster, as a consequence of more people buying goods and paying for services, which increases demand for goods and services, then the economy grows.
I'm not sure how often this needs to be stated.