Socialist Worker

Taxing time for the poor as rich get off scot free

by Simon Basketter
Issue No. 2128

Poor people pay too much tax, rich people pay too little, and really rich people and companies pay hardly any tax at all.

The poorest 20 percent of people lose nearly 40 percent of their total income in direct and indirect taxes, compared to 34.8 percent for the richest 20 percent. And that figure is for the rich who do pay tax.

Indirect taxation, such as VAT, hurts the poor most as workers spend a far higher proportion of their income on buying consumer goods.

At every point in the tax system the rich do better. For instance, national insurance contributions paid on weekly incomes in excess of £770 are taxed at just 1 percent.

The government admits that abolishing that limit would raise around £8.5 billion a year.

City firms used to cut their national insurance bill by paying staff bonuses in gold and antiques rather than cash. Once that was stopped, accountants set up trust funds to cut tax bills.

Salaries and bonuses are paid into an offshore trust. The trust then lends the cash, often interest-free, to the employee. There is no tax payable on a loan.

Rich individuals and companies use a myriad of mechanisms to avoid tax. Even though tax on profits is only 28 percent, corporations may be avoiding over £100 billion of taxes each year.

That's enough to double funding for the NHS, or to give every worker in the country £4,000. Or it could be used to abolish income tax for everyone who earns less than £34,000 a year.

One popular way of dodging tax is to register companies in offshore tax havens. This allows the rich to get away with paying minimal tax, if any.

Richard Branson's Virgin Group is based in the Caribbean, yet Virgin Rail gets a £500 million annual subsidy.

The most serious tax avoidance technique is transfer pricing, a dubious area where purchases and sales take place within the same company. Items are sold from high-tax countries to low ones, so cutting the amount of tax paid.

Many of the world's tax havens are British-run overseas territories, such as the Cayman Islands, Bermuda and British Virgin Islands, and crown dependencies such as Jersey, Guernsey and the Isle of Man.

The government isn't just doing nothing about offshore tax scams – it now owns some of the companies among them.

All of the banks that Gordon Brown bailed out have offshore ways of avoiding tax.

The Royal Bank of Scotland owns at least 128 companies in tax havens. And Lloyds TSB, a bank that is in the process of taking over HBOS, has more than 100 firms in tax havens.

Brown will announce tax cuts that will inevitably mean the wealthy will do better. Most hard-pressed workers would simply see any cut in their income tax disappear into their debts and bills.

The one thing he won't do is force the wealthy to pay tax that could fund our services and save our jobs.

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Article information

Tue 18 Nov 2008, 19:32 GMT
Issue No. 2128
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