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Tax evasion doesn’t destroy wealth

Tax evasion does not, of course, whatever Ritchie says, cost the world anything. We are still a closed system. That less money goes to governments does not mean that that money ceases to exist. It still gets spent or invested somewhere or other. Indeed, dependent upon what happens to that money, and how badly the government that didn’t get it would have spent it, tax evasion could, conceivably, result in an improvement in the human condition. But even leaving aside such an extreme (for example, someone takes the loot from tax evasion and invests it in a malaria vaccine, as opposed to the British Government which would have used £10 billion to build an NHS computer system that does nothing at all) it’s still true that tax evasion does not mean a loss for the world. Only a different distribution of the cash.

Tim Worstall

The “Richie” he refers to is Richard Murphy, a self-styled campaigner against offshore financial centres, state-supporting socialist and champion of a fascistic-sounding concept, the “courageous state”.

One of his standard lines is attacking firms for obeying the letter of the law by registering in low-tax locations, such as, say, Luxembourg (a member of the European Union) and claiming that this is wicked, thereby demonstrating a strangely elastic concept of what is considered legitimate business practice. He is taken quite seriously on parts of the left, so I hear, and if we have another Labour-led government, he might be influential. Come to that, some of his ideas are even taken quite seriously by the Tories, so the partisan point should not be pressed too far.

21 comments to Tax evasion doesn’t destroy wealth

  • Eric

    Holy Moses that “Courageous State” stuff is just rebranded totalitarianism.

  • Whangadude

    Oh wow that Courageous State sounds terrible

    And that means a Courageous State is populated by politicians who believe in government and in the power of the office they hold. They believe that office exists for the sake of the public good. They know what that public good is. They think it is their job to help each and every person in their country to achieve their potential, sustainably, in a strong mixed economy. And they believe they can command the resources to fulfil this task – whether through tax or other means.

    (emphasis mine) They know do they? What other means? Even the colour of that website tooks fascist.

  • Sam Duncan

    And that means a Courageous State is populated by politicians who believe in government and in the power of the office they hold. [...] They think it is their job to help each and every person in their country to achieve their potential, sustainably, in a strong mixed economy. And they believe they can command the resources to fulfil this task – whether through tax or other means.

    Yeah, and there are people who believe they’re Queen Victoria. It doesn’t mean we should put them on the throne.

  • Regional

    Politicians should fear the people

  • CaptDMO

    But…but….then those taxes can’t be used to pay “the little people” to refurbish the defensive security moat around the villas of the “privileged” folk in gub’mint.

  • It is not just fascistic ‘sounding’ JP…

  • RRS

    However, this might be a good time to go back and re-read Daniel Bell’s The Coming Post Industrial Society ( the 1993 ed. and Intro of the 1975 work)to think about the functions that have been assigned to or arrogated into governments.

    It’s people, people!

  • Rob

    “They think it is their job to help each and every person in their country to achieve their potential, sustainably, in a strong mixed economy.”

    What if your potential cannot be achieved because that union-dominated, corporatist sewer of nepotism, corruption and incompetence you whimsically label as “the Courageous State” gets in the way?

    I advise you to read his site. It is a living example of Doublespeak. You will get one chance to make a critical comment before you are banned. His courage does not extend to engaging in debate with the rational world.

  • Pardone

    But many of the corporations who tax evade simultaneously sponge off the taxpayer via subsidies. The corrupt Yakuza linked welfare parasite Lockheed Martin being a famous culprit, gleefully raping the taxpayer at both ends with the tacit consent and approval of the equally parasitic, incompetent and corrupt Pentagon.

    Witness the same banks who got colossal welfare handouts from Goldmanite scumbag Skank Paulson and Federal Reserve crook Ben Bernanke dodging taxes, thus further screwing over the very taxpayers who bailed the ungrateful sponger’s out.

  • Regional

    Big business doesn’t need unions but unions need big business whom they regard with contempt.

  • Regional

    You want to see suicide:
    “As the motor industry analyst Joshua Dowling observed after reading Bromberg’s judgment: “The fate of Toyota Australia’s manufacturing operations has effectively been sealed by a decision in the Federal Court today. The court’s decision to block Toyota from asking its factory workers to vote tomorrow on changes to shift flexibility and overtime bonuses means … the entire Australian car industry is likely to grind to a halt after Ford’s factory shutdowns in 2016, Holden’s closures in 2017 and a likely end to Toyota’s operations in 2018, when the current Camry ends its run”
    The Strayan car industry is propped up by the taxpayer at $50,000 per employee and when the car makers close an employee on $90,000 p.a. putting on wheel nuts will get severance pay 3.1 weeks for every years ‘service’ so after 30 years he’ll receive well $300,000 redundancy pay. Would you set up business in Astraya?

  • Rich Rostrom

    Tax avoidance generally requires suboptimal fiscal and investment practices. The cost of these practices is economic deadweight – destroyed wealth. The responsibility is on lawmakers who create these perverse incentives – and sometimes on crony capitalists who lobby lawmakers to do so.

    Tax evasion by fraud or forgery is another kettle of fish. There are obvious deadweight costs to that. If government has any legitimate functions at all, it has costs to be paid. Tax evaders undermine the ability of society to distribute those costs in an equitable way.

  • Classicist

    Worstall is very generous to government here. It is not hard to use money more productively than government. You wouldn’t have to invest in a malaria vaccine to do so.

    Given that government is a huge misallocation of resources, tax avoidance and evasion would surely make us all more prosperous.

  • a_random_guy

    Oh, those evil tax havens: Luxembourg, Switzerland, the Bahamas, the Channel Islands…wait…

  • If government has any legitimate functions at all, it has costs to be paid. Tax evaders undermine the ability of society to distribute those costs in an equitable way.

    Rich, that is only true under a certain level of taxation on the one hand, and level of government expenditure on the other. Currently there are very few countries – if any – to which this may realistically apply.

  • Laird

    I agree with Alisa. I am perfectly aware of the legal distinction between avoidance and evasion, but from a purely economic perspective they are identical.

    Both tax avoidance and tax evasion make sense only if the costs of implementation (the “deadweight” cost) is less than what the tax itself would have been. Once that threshold has been achieved it’s a net economic benefit in either case. A rational government (one interested in maximizing its revenues) would set its tax rates lower than the average cost of avoidance/evasion.

  • Fraser Orr

    @Laird
    > from a purely economic perspective they are identical.

    True, but the distinction is important with respect to the OP, or more specifically Richard Murphy. I think tax avoidance is a beautiful example of that Shakespearean expression “hoist on one’s own petard.”

    There are no doubt functions that the government need to fund, however the the vast majority are unnecessary or ersatz replacements for private functions. As an American I’d mock you Brits for a government run health system, but I won’t because it could well come back to bite me in the ass.

    I favor a flat national retail sales tax (or VAT) at 10%, perhaps with a right to claim the tax back on basic necessities — so you can, if you want, register to have the government send you a check of $300 per month of your taxes back. Really how can they not survive on that much money?

  • Jaded Voluntaryist

    There are implications for tax evasion when the state has forbidden you from purchasing certain essential goods and services privately. The net effect could be people being compelled to go without police, healthcare and fire brigades.

    This is of course deliberate. They bind up just enough of what you need with all the crap so that you’ll be reluctant to see them starved financially.

    If everything the government does could be easily and cheaply purchased privately, there would be no incentive to pay taxes at all.

    There are a few functions of government that are not easily replicated privately. Load management on the national grid for example – although even there in hopeful a solution could be found. But ultimately the reason people pay taxes is because they believe they need to, both to access things they need and to avoid punishment.

  • Richard Thomas

    If we assume that the state is going to loot $X (Sorry, don’t know how to do UKP on this keyboard) then if someone evades tax to the sum of, say, $100k, then that $100k will come from elsewhere. Now, this is simply redistribution as stated earlier but it is fair discussion as to whether that $10k would be better spent by the evader or by the law-abiding contributors. Then again, there are external factors such as whether the evader contributes to the collapse of the bandit state. Down the rabbit hole for sure.

  • Paul Marks

    The very idea that the government stealing less money (sorry taking money by extortion – the technical definition of taxation) “destroys wealth” (rather than promotes economic development) is so absurd that I do not know where to start.

    I feel like one of the four people (all Roman Catholics by the way( on the Wall Street Journal “Journal Editorial Report” panel on Fox News when confronted with some of the bizarre statements of the gentleman from Argentina. They were left grasping at the idea that the statements might have been mistranslated from the Latin – which is all one can say as a defence of the gentleman.

  • Paul Marks

    By the way the only head of state I know of that has written (or said) anything that even vaguely makes sense about the role of government is the Prince of Liechtenstein (by the way he is a Roman Catholic – which balances my previous comment) – and he thinks even the government in Liechtenstein has got far too big over the last century (doing things it really should not be doing).

    Now a lot of libertarians (including all the anarcho capitalists) would say that the Prince of Liechtenstein gives far too much power to government, but he has made a reasonable effort (in his book – published, I think, in 2009) to explain what he believes are the legitimate functions of government, so there might be an argument for paying him taxes (I did say “might be” I know there are arguments against this position).

    But as Alisa has pointed out, all the other governments of independent nations in the world are headed by people who give no evidence of even thinking about what the legitimate functions of government might be – the best (and I do mean best) heads of government in various major nations just have a vague idea that government may be a bit too big (as it consumes about HALF of entire output, and saturates the rest with regulations) – but they have not got a clue what (from first principles) government should or should not be doing.

    Do these people (the various heads of government around the world) sound like people you should be entrusting your money to?