Tax Break

Who said tax is boring?

Rocket tax

Where is the Higgs Boson when you need it?

At the dawn of my career when I would flit from audit client to audit client, red and green pens at the ready, every accounting department would resonate at least once each day to the gravelly voice of Bonnie Tyler singing  “Every now and then I fall apart”.

Well, last week scientists finally proved (almost) that she was talking rubbish and people and things and the universe don’t fall apart. This is  because of something called the Higgs Boson. What really got up my nose were  all those goofy scientists, whose parents were too tight to pay for orthodontic treatment, coming down off Mount Olympus to explain to us mere mortals the significance of the discovery of the “God Particle” in a multitude of idiots guides, guides for dummies, table-tennis balls on trays of sugar and impossible cartoons.

Who, in heaven’s name, do these physicists think they are? It occurred to me that I should return the compliment, so if any scientists read this blog – this post is meant for you.

The cost to the American taxpayer was $170 billion.

Everybody knows that taxation is rocket science. It is full of equations and graphs that mean nothing to the scientist in the street but make people with doctorates in taxation feel that they have not wasted their lives.

The European Union is currently facing a major crisis among the countries that make up the Eurozone. As I have pointed out  in previous posts, the only way the Euro has a future is if the countries achieve fiscal unity, a significant level of political unity and there is cultural convergence. Following negotiations last week, the first two are looking increasingly likely in the medium term – but nobody is talking about the last. This is complex stuff and invites a plethora of  courses in Euro for Dummies. To try and make it simple, I will use the analogy of the Higgs Boson to explain.

It is no coincidence that the countries causing Euro problems are predominantly in Southern Europe (Greece, Spain, Italy, Portugal, Cyprus – Ireland is a special case). It is a fact of life that the weather around the Mediterranean is a lot more clement than in the North. There is incontrovertible empirical evidence to show that when the weather is good and you have a Mediterranean coast down the road, there is a desire to spend less hours in the office. The incontrovertible empirical evidence stems from my experience of having spent half of my life so far (hopefully only a half-life) in the smog of London and the other half with a view of the Mediterranean from my office window.

No escape – 24/7

As mentioned in my last post there is a widespread belief among tax professionals in “Tax Neutrality” – that tax should not affect the allocation of economic resources. One of the many divergences from this rule is the tax treatment of leisure. When people’s work income is taxed their desire to work diminishes and their desire for leisure increases. Ever since Corlett and Hague (1953) it has been recognized that, to rectify this disequilibrium, leisure should be taxed. However, since governments cannot tax something intangible, they should tax leisure “complements” while, possibly, offering tax relief for tax substitutes.

Getting difficult? Let’s shoot over to the Higgs Boson. Scientists have known for eons that atoms are made up of electrons and a nucleus. The nucleus is made up of protons and neutrons which, themselves are made up of quarks and lots of other bits and pieces. But it was not clear what gave all these particles mass – in other words what kept everything together. Peter Higgs (and others) developed a theory in 1964 that the missing ingredient was an invisible particle of force which came to be called the Higgs Boson. As particles went flying madly around they collided with the Higgs Field (made up of Higgs Bosons) which permeates the whole universe. Depending on the nature of the particles these were slowed down at various rates and success by the Higgs Bosons. Some particles, such as photons, are so aerodynamic, that they shoot through the Higgs field at the speed of light. The existence of the Higgs Boson was (almost) proven this week by crashing protons head-on in the 27km Large Hadron Collider spanning the Swiss-French border near Geneva.

Southern European compromise?

Now let’s imagine that the citizens of the Eurozone are particles and that tax is the Higgs Field. The workers of Northern Europe are slowed down by taxation, making them more interested in leisure but it takes such effort and money to create meaningful leisure in most of the miserable months of the year that they are not slowed down significantly. The workers of  the Mediterranean Basin, on the other hand, are slowed down totally by the tax because their leisure in outdoor activities such as the beach and  barbeques at the back of the house, is cheap. 

It follows, therefore, that for the Eurozone to survive – through, among other things, increased productivity in Southern Europe – leisure needs to be taxed. The way to achieve that is by increasing consumption taxes (VAT) and other charges on the products that complement cheap leisure. Examples would be charging for using beaches, banning outdoor cooking on weekdays, increased VAT on swimsuits (wouldn’t help much in parts of Greece) as well as deodorant (which would encourage people to stay in air-conditioned offices).

Sounds pretty horrible. Agreed. The alternative would be for the Southern European populations to behave responsibly. The prognosis is not good. It would require a quantum leap in behavioural patterns. In the meantime the Eurozone crisis is a case of an irresistible force (Germany) meeting an immovable object (Southern Europe).

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