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Opinion: Hearts and minds. By Simon Sweetman

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16th Apr 2007
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I went to Cambridge this weekend to the IFS conference on the Mirrlees Review: the review, lest we forget, is about Reforming the Tax System for the 21st Century. The review was set up as it is 30 years since the Meade Review of the direct tax system, credited by some with having led the way to the increased importance of consumption taxes (in the UK’s case VAT) and the flattening of rates in direct tax. I have my doubts about these claims, but at any event the intention is there for the Mirrlees Review. It is supposed to make a difference. And James Mirrlees is a Nobel laureate in economics.

The people attending the conference were in fact a mixed bunch of economists and tax practitioners, many of them tax practitioners of the better known and highly regarded sort (John Whiting, Anne Redston, John Andrews). The papers, which at this point are drafts headed towards finality next summer, were almost all delivered by economists. To a considerable extent they were American economists and in many cases with no great knowledge of the UK’s tax system, but well prepared not to let the facts get in the way of a good theory. I admit to having a considerable bias against the subject, which I might sum up by saying that economists are the ones who have to ask why poor people don’t save money.

They were, in the main, the kind of papers that economists deliver to each other at academic seminars (I admit that is a supposition, since I think I’d rather go to see an Arctic Monkeys tribute band at Butlins) : which is to say that they were wholly incomprehensible to the rest of the audience. When this was gently pointed out it made no difference. They continued to speak of Atkinson-Stiglitz and Chamley-Judd (though not of Duckworth-Lewis, that dangerous intervention of economists into the real world). It may be that there are households where they speak of little else (not of course Little Else, the Norwegian Nightingale). Here they spoke of optimal taxation theory (or how to extract the most bacon with the least squealing).

Tax, though, is not just about economics. It is about society, and it is about politics. And a new tax structure is not going to happen unless some people other than economists can understand what is supposed to be going on. The more difficult a tax is to understand, the further it departs from concepts that people can deal with, the less chance there is of its being adopted, and still less of it being complied with. If the arguments being put forward were incomprehensible to those of us who deal with tax day by day, how can they win the hearts and minds of those with less knowledge ? Einstein said that if you can’t explain something to a twelve year old, then you don’t understand it yourself. Until you try to explain it then, you don’t really know whether you understand it properly. The problem at Cambridge was that to a large extent (and honourably excepting Judith Freedman on small business) nobody tried to explain.

Also see Simon's thoughts before he went to the conference in We'll meet again.

AccountingWEB Tax Tutorials - Extracting profits from a small business

Simon Sweetmanwill will look at both trading and investment companies and examine tax extraction of funds by proprietors/directors as well as the various myths and unsound practices concerning tax efficiency.

14 June - Newcastle

3 July - Southampton

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Richard Murphy
By Richard Murphy
16th Apr 2007 18:09

Bang on the nail
Simon is bang on the nail about economists.

All economics is a faith system, based on a series of assumptions. In the case of market economics one of those assumptions is that all corporations are run solely in the interests of members. Another is that management maximises profit on members behalf. A third is that corporations can't pay tax. They only do so as agent for their members.

All of these assumptions are wrong. It doesn't work like that, as we all know. In the last case it's because a) corporations retain profits and so members don't pay tax on that part of the income - only the corporation does b) corporations are used to divert profits between locations and therefore change the tax rate suffered by members and so change the tax take and c) the income tax and corporation tax systems of the world are not, and cannot be perfectly aligned and as such corporations have to pay tax or double non-taxation will occur.

But economists assume otherwise. Prof Mike Devereux said so recently on the world service. It's why economists should not be part of this debate. They live in another world.

Richard Murphy


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By NeilW
16th Apr 2007 19:05

Richard is right
Richard is spot on here. These chin stroking events get us nowhere.

Until we have a conference including Joe Tradeperson, Bob businessman and Eric the Employee then we are going to get nowhere.

The overwhelming requirement of a tax system is that it is understandable by the average person with average intelligence and a full diary.

NeilW

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