Tax Break

John Fisher, international tax consultant

Archive for the month “April, 2013”

Brussels Sprouts

Quiz: Name the President and Foreign Minister of the EU. Clue: He was Belgian Prime Minister. Second Clue: Belgium is a country next to France

Quiz: Name the President and Foreign Minister of the EU. Clue: He was Belgian Prime Minister. Second Clue: Belgium is a country next to France

“I never forget a face, but in your case I will be glad to make an exception”.

Groucho Marx’s famous line haunted me the other day as I tried, in vain, to remember  the name, face or other distinguishing feature of the first (and only) person I ever met who worked in Brussels with the European Commission. All I recall is that he was a smooth-talking, post-pubescent All American Boy  wearing khaki trousers, a blue Oxford shirt and navy blazer. He spoke with the confidence of a young man who had been to enough college lectures about Europe to know he could teach it a thing or two. C’est tout, as they say  at the epicentre of European folly  and promptly translate it into 22 other languages. With 27, going on 28, countries to cherry-pick its people from, I have never been able to fathom how this New World imposter managed to elbow his way into the bastion of the Old.

I admit that I have no time for the faceless bureaucracy of Europe. Those guys would give the Circumlocution  Office in Dickens’s Bleak House a real run for its money. Legislation starts its life at the European Commission where 27 individuals, whose main claim to their position is that their national governments needed to be rid of them,  churn out competition choking ideas by the kilometer. The Commission sends its proposals to the directly elected European Parliament together with the ever-changing Council of Ministers (made up of 27 ministers who fancy a day-trip to Brussels) for them to mull over.

While both the Parliament (directly elected) and the Council (constituting representatives of national governments) can put a tick in the box on the form that says “democratic” , in reality that democracy has virtually no meaning. Whether followers of Hobbes, Rousseau or Locke, the raison d’être (when I think of the waste in the EU, those French expressions just keep on coming) of any system of government is the organization of civil society. The European Union is not (at least, yet) a civil society. It is at least 27 civil societies (some more civil than others). 27 civil societies cannot produce a representative government. What they CAN produce is a serious irritation to the skins of their societies – and that they have done very effectively.

End of world domination?

End of world domination?

The respected contemporary historian, Niall Ferguson, points out in his recent book “Civilization”, that one of the main reasons that “The West” completely eclipsed “The East”  over the last 500 years was the competition between the myriad of States in Europe. The Industrial Revolution was led by Britain not because the Greatest Nation in the History of the World (sorry, I had to get that in) invented everything (it didn’t), but because labour costs in Britain were comparatively high, which encouraged innovation to improve productivity.

Well, after the better part of a century of a world dominated by Communism, National Socialism and Socialism, over the last 30 years it has looked like we are finally getting back on track with the word competition making a comeback in the lexicon of polite English, and the East not overcoming the West but joining it.

Did I forget something?

With the collapse of Planet Earth’s financial system a few years back the world’s governments realized (once again) that, while competition is a grand thing and the financial sector is a critical part of world growth, that same financial sector has the power to really screw things up for everybody bigtime so it needs regulating.

The Dodd-Frank Act in the US and the UK’s Financial Services Act 2012 represented the verbose but fairly measured responses of the two most significant financial sector nations.  The Basel Committee, established originally by Central Bankers, came up with Basel III revisiting the capital adequacy of the international banking system – which, while inevitably attracting a degree of controversy, is the most appropriate response  for bankers to a crashed financial system.

With the rational responses safely on the road, it was inevitably time for the We-Want-To-See-Blood Brigade to get going. The British Government had briefly, and ignominiously, flirted with a super tax on bankers’ bonuses (it would have been much more fun to burn them at the stake), but soon realized that revenge maketh not sound economics. Meanwhile, across La Manche (there I go again) President Folies Bergere still insists he wants to bury his nation with a 75% top income tax rate even though the courts have struck it down (who cares – when there have been 5 Republiques, what’s the big deal going for a 6th?). But, these, at least are anti-competitive responses of national governments pandering to the blood-lust of their electorates.

The EU, on the other hand, exercising what Rudyard Kipling’s cousin Stanley Baldwin once called “power without responsiblity, the prerogative of the harlot through the ages”, is left to run havoc with its bureaucratic chainsaw through the back streets of Europe.

Following a mad agreement in February to limit bankers’ bonuses which will just lead to higher fixed salaries and less flexibility in a downturn (the EU , to its chagrin, has not yet managed to sink its fangs into national tax systems), in March the EU Parliament decided to go after investment managers. And not just any investment managers –  the investment managers of Mutual Funds. These funds, which are generally not leveraged, do not cause any systemic risk to the economy. Furthermore, the Parliament wants the managers to receive at least half of their bonuses as investments in their funds – which ignores the fact that US investors are banned from investing in such vehicles so “Good Night, and Good Luck” to American Fund Managers; they could always, I suppose, get work in Brussels. In short, this is a load of piffle. The good news is that, in order for it to become law, it needs the agreement of the 27 National Governments  which is about as likely as World War III breaking out (which is what the EU was designed to prevent). Meanwhile, the Members of the European Parliament will be able to keep spending taxpayers hard-earned cash commuting between Brussels and Strasbourg (not to mention, their home countries). A far better idea than limiting investment managers’ bonuses would be to limit MEPs’ salaries – to zero, and send them home.

Weapon in next European War

Weapon in next European War

Groucho may have another lesson for us regarding EU bureaucrats. Following a luncheon interview with the legendary Alastair Cooke at Marx’s golf club, they were queuing at the till to pay. The middle-aged Jewish matron in front of them was taking her time finding the cash in her handbag to settle her bill. His signature cigar revolving in his mouth like an anti-aircraft gun, Marx finally fired a salvo at the cashier: “When you see the whites of her eyes – shoot!”.

Europe has fought several of its wars on Belgian soil. Could the next one be over free markets and competition? C’est la guerre.

In God (Alone) We Trust

Business Card

Business Card

When the news broke last Sunday that a Boeing 737 had inexplicably missed the runway at Bali airport and ended up in the sea without, miraculously, any loss of life, I couldn’t resist a sardonic smile. In the closing pages of Swedish author Jonas Jonasson’s improbably titled “The 100-year-old man who climbed out the window and disappeared”, an elephant laden, privately chartered Boeing 747 is trying to get permission from air traffic controllers to land at Bali airport. The gist of the conversation goes like this:

“My name is Dollars, One Hundred Thousand Dollars.”

“Excuse me, what is your first name, Mr Dollars?”

“One Hundred Thousand and I want permission to land at your airport”

“Excuse me Mr Dollars. The sound is very poor. Could you be so kind as to say your first name once more?”

“My first name is Two Hundred Thousand.”

“You are most welcome to Bali, Mr Dollars”.

It does make you wonder. In fact, my knowledge of Indonesia (of which Bali is a part) is founded entirely  on the above-mentioned novel and Barack Obama’s positively embarrassing “The Audacity of Hope” in which he frighteningly bases his concept of foreign policy on his childhood experiences with his mother and autocratic stepfather in that country. What is interesting is that both authors take the existence of corruption there for granted and, in the case of Jonasson, he is clearly aware of his readers’ subconscious expectation that, in that part of the world, bribery will always be involved.

But that begs a question about the West.

Why is it that every time somebody in authority puts his hands in the till (or elsewhere) we freeze in indignation and shock, adopting the facial pose of someone in desperate need of the bathroom, and fast? Indignation has some logic to it. But why shock? Shouldn’t we expect it? Just look at the shenanigans in high places of only the last few months:

Starting with monarchies. There is the King of Spain’s son-in-law facing fraud charges (with his wife Princess  Christina being required to appear in Court). Meanwhile, there are accusations of a political slush fund that may have benefited some of the King’s highest democratically elected political servants. And then there is the widow of King Baudouin of Belgium (who shared first place with General Franco in my childhood stamp collection) who has been siphoning off part of her considerable State pension to a foundation for the benefit of her Spanish nephews so as to avoid Estate Tax.

"Who loves ya, baby?"

“Who loves ya, baby?”

Republics have not been faring any better. Berlusconi’s antics in the boardroom and the bedroom do not  need repeating here but even he is being outshone by the political heirs of the Sun King. The French establishment seems to be guillotining itself with the disclosure that  the treasurer of President Zeropopularityrating’s party invested illegally in the Cayman Islands  followed by the resignation of his Budget Minister for a similar iniquity.

Furthermore – and not because I want to be fair to the French but because I want to make a point –  if we go back a few short years, a large number of MPs, constituting  the rump of the British Parliament, were caught inflating their expenses, claiming for such necessities as the cleaning of a moat.

For the life of me, I cannot understand why intelligent, educated people in their millions are still shocked by these antics. There are simply too many of these good people to assume that they are the same poor souls who still believe in Santa Claus and saunter down to the lily pond at the end of the garden on a summer’s evening to dance with the fairies.

All this is not a cue for the God Squad to jump up and start lecturing on the debilitating effect on morality of an increasingly secular society.  They might like to reflect on the state of organized religion which has, itself,  not been having a very good press  lately. Moreover, a recent book by primatologist Frans de Waal has shown that chimpanzees display considerable moral behaviour in terms of looking after the infirm, the old and the orphaned – which should wipe any remaining  smug smile off the face of the average, intellectually stunted Holy Joe.

Anyone who can see past the Evangelist standing on the doorstep trying to sell human salvation – in fact, anybody who gets around to reading the older part of the Bible he is trying to peddle – should realize that immorality is here to stay. Instead of being surprised by it – society should  legislate for, and strictly enforce, the bits that cause the most angst.

A few months ago I wrote about a British Parliamentary broadside against Amazon, Google and Starbucks who, it was contended by British lawmakers (in between consultations with the moat cleaner), were not paying enough tax. Committee Chairman Margaret Hodge accused them of being immoral rather than illegal. This was balderdash. Apart from the fact that a company cannot be moral, intelligent or humorous because it is just a number in a government registry – how are company managers to know who the god, or gods, it is that they are required to serve – shareholders, host country government , home country government or customers?

And, while we are at it, what defines Morality in the modern Global Village? Perhaps it was prescient that the only typo ever recorded in the official King James Bible was in the 1631 edition where the 7th Commandment was rendered as “Thou shalt commit adultery”. In those days, if you committed adultery it could cost you your life (and if you committed adultery with the wife of the heir to the throne, you watched yourself being chopped up first). Nowadays, it just costs you your house and car.

"Good mornin', Mista Fisher"

“Good mornin’, Mista Fisher”

As the sun began to set on the last century,  I spent a few months working in Manhattan. On my first day in the apartment on 34th and 2nd the concierge caught me on the way out. “Mista Fisher, you gotta separate yer garbage. It’s de law Mista Fisher, it’s de law”.  I, of course, proceeded to do exactly what he said for the entire two months. Why? Was it because, I had a Green epiphany and considered it morally reprehensible to put recyclable and non-recyclable rubbish in the same bin (sorry, “can”)? You kiddin’, or somethin’? There were two reasons: I thought that, if I got caught 3 times putting the washed out remains of the Drip Brew filter  with the empty Ding Dong packets I would get life without parole; and the concierge talked and looked like Jimmy Cagney so I wasn’t taking any chances so close to the East River.

FDR was wrong when he announced at his first inauguration that “all we have to fear is fear itself”. With all the progress in the world, when it comes to enforcing the law, there is no substitute for fear. Maybe they should bring back the Rack. It might not deter corrupt high-flyers much, but it would satisfy the moral majority’s primitive urge for revenge.

Birthday Bloody Birthday

Life begins at 55

Life begins at 55

One night a couple of weeks ago I met up with an old school chum and his wife visiting for the holidays. Over one of those multi-coloured salads that replaced steak and chips as the late-night staple round about the same time our hair went grey, he mentioned that, just before coming away, eighty friends had joined him for a birthday party “including a magician”. Ever the accountant, I quickly did the calculation in my head, remembering that he and I had spent seven years in the same class, and ventured: “55th birthday party? Aren’t you planning making it to 60?”

The world has gone mad with anniversaries.

When we were young, apart from all those balloon and trifle things when we were 5 or 6,  we were brought up to expect a 21st birthday party, a wedding, a silver wedding anniversary, a golden wedding anniversary (if we were lucky), a funeral and good-bye. Jewish boys would have the 21st swapped for a 13th unless they were Dustin Hoffman in the Graduate, in which case they would get both with a bit extra on the side.

As the April 15th tax filing deadline looms, Americans may be forgiven for marking a century of the Federal Income Tax. Back in 1913 that was no small achievement, requiring the 16th Amendment to the Constitution that had previously forbidden the imposition of  direct income taxes by the Federal Government.

I might also  escape a full-blown raspberry were I to mention that, had I not been handbagged into writing an unscheduled appreciation of Baroness Thatcher a few days ago,  this would have been my 75th post (forget the standing ovation).

But when the BBC reminded me on April Fools’ Day that exactly 40 years had passed since the introduction of VAT in the UK, numbers started to whizz round in my head.

25th, 50th, 75th, and 100th anniversaries make some sort of sense (I suppose) – but why on earth do we have to ‘celebrate’ 40 years of a necessary but reviled tax, a mid-decade birthday or, for that matter, all those obscure anniversaries that appear on the Google banner forcing you to google them to understand (“The 338th birthday of Wing Wong Wu”) ?

My hunch is that it is a combination of three things: man coming to grips with a secular world; 24/7 news looking for the vaguest connection to a story;  and any excuse for a good time.

They never had it so good

They never had it so good

Once upon a time, when God’s servants and their friends ruled much of this planet, the world was something like a Mongolian Transit Camp – an utterly miserable stopover between somewhere nobody remembered and a perfect eternal destination nobody had yet visited. You got hammered during your stay in the Transit Camp (unless you were one of God’s servants or their friends, in which case you did the hammering). Time had little meaning because all there was to hope for was eternity.

One day God’s servants and their friends were pushed into the corner of the Transit Camp and scientists told the inmates that there was nothing but the Transit Camp so they had better make the most of it. And the inmates turned the Mongolian Transit Camp into the Western World.

If all man has is the space and time in which he exists, it is natural that he should try to exploit his space to the utmost (the comforts of life) while sharpening his perception of time. We all anchor time according to our own experience. Thus, at 55 (yep. I am 4 weeks younger than the other guy) my memory stretches back more or less exactly 50 years. My conception of all points in history is a function of that half century. The introduction of VAT I actually remember by chance (I got an early 15th birthday present of a new guitar from Macari’s on Charing Cross Road on March 31 before they slammed on the 10% tax). Blimey, is it 40 years already? Tempus fugit.  And everything  before 1963 is pictured in black-and-white; I remember being totally disoriented when I first saw rare World War II footage in colour.

In the 21st century we are bombarded with news. Although there appears no limit to the extent to which a story, however insignificant,  can be masticated, ruminated, milked and churned  ad nauseam, editors are always on the look-out for anything (ANYTHING) newsworthy. Used to the constant talk here of the Iranian nuclear threat and Hezbollah rearmament, I was amused on a recent trip to England to turn on local radio and hear about a female pensioner who had stolen two plant pots from a local nursery. So with material like that, if you can find any excuse (ANY EXCUSE) to delve back into history and talk about something as utterly interesting as the introduction of value added tax, you will do it.

Any excuse

Any excuse

Increased leisure in the modern world ironically forces people who have rationally refuted any meaning in life, to look for the meaning of life. When people worked 15 hours a day 6 days a week they didn’t have much time for that sort of thing and, to the extent they did consider anything, outsourced it to the local priest or rabbi (once upon a time you didn’t hear much about imams and the like in the western world). If there is leisure and not much meaning you at least need a rational excuse for the leisure. Enter anniversaries. Doesn’t matter what, where, how. Anniversaries are the excuse. Let’s party.

I almost succeeded in escaping my 55th birthday a couple of days ago. I fielded several “Happy Birthdays”  gracefully (and gratefully)   at work and a few former employees even contacted me, which was especially gratifying. My son called from Australia and we chewed the fat. Then I arrived home to discover that his 19-year-old brother had gone out, bought the ingredients for a celebratory evening meal and, with a little advice from his mother , come home and cooked it ( fish – delicious).

OK. I’m hooked. Whose birthday is next?

Funeral Blues

23664Margaret Hilda Thatcher. She will always be Margaret Hilda Thatcher to me.

You see,  for well over a hundred years now, when the English have  entered Polling Booths to vote in a General Election, they have  in the main been faced with 3 candidates – Conservative, Labour and Liberal (or hyphenated Liberal or hyphenated Labour or – for a blink in history – Social Democrat). That was my experience when I voted in my first election that swept Mrs Thatcher to power. By the time the second election came around  all hell had broken loose. My ballot paper contained 17 names – including the legendary Screaming Lord Sutch of the Monster Raving Loony Party and TWO Margaret  Thatchers.

Living in the Iron Lady’s constituency of Finchley, the Local Conservative Party popped a flyer in my letter-box reminding me to vote for Margaret Hilda Thatcher. And if Finchlonians like me had not taken notice of the Hilda, the modern history of the world might have turned out very different. I say “Finchlonians like  me”  because I did not actually vote for her (or the other Thatcher for that matter – and I cannot for the life of me remember who I did vote for but he was definitely a member of the Liberal Party).

I had studied at the hotbed of British Monetarism in the early Thatcher years – the head of our department went on to become the Head of the Policy Unit at No 10 – and I could never (and still cannot) quite swallow the idea that if you just controlled M3 (the broad money supply in those days) you were guaranteed a stable economy. Then there was the heavy-handed way in which the economy was overhauled, the results of which were clear to me long before Billy Elliott became a ballet dancer.

But, what has been clear from the vast majority of the comments aired in the Press since she died yesterday, is that, while Mrs Thatcher was undoubtedly a divisive figure, there was much to be admired about her by friend and foe alike. I thought Neil Kinnock, her punchbag through much of her term in office (he was leader of the Labour Party), summed it up very fairly for the Opposition in a short piece in this morning’s leftist Daily Mirror: “She was not a malicious person. She was a person who couldn’t see, or didn’t  want to see the unfairness and disadvantaging (sic) consequences of the application of  what she thought to be a renewing ideology.”

It was very sad that some actually rejoiced at her death (apart from the “parties” there were some very negative comments by union leaders and ex-miners). She was not a dictator – she was democratically elected three times, she did not practice Tyranny of the Majority against the North of England which had been in decline relative to the South for years, and she did not (to the best of my knowledge) order the elimination of swathes of the population opposed to her policies.

Rejoicing at a person’s death should be reserved for true despots like Hitler, Stalin and one of my neighbours. Mrs Thatcher’s crime was telling the Nation: “There is no such thing as public money. There is only taxpayers’ money”. She may (or may not) have got aspects of her policies wrong but, as Kinnock said,  she was not “malicious”. In fact ,she is known to have shown great compassion to political friends and foes alike when they had personal problems.

I remember talking to an elderly former quango chairman who had recently been widowed, during a Department Christmas Party at University. In the course of the conversation I asked him what he was doing for Christmas, it being the first without his wife. He replied that Mrs Thatcher had invited him to Chequers; (when I met him after the hols and asked him how it went he produced a wad of Downing Street notepaper that he had “lifted” surreptiously).

However, it was an African who, in remembering her this morning,  got it absolutely right and reminded us at the same time of the true meaning of democratic government (even though, ironically,  he led a one party State). Zambia’s first president, Kenneth Kaunda, who clashed bitterly with Britain over its ambivalence to apartheid, told the BBC how he had broken the ice with Thatcher. On a visit to Zambia he arranged a dance and invited her to take the floor with him. “We wanted to show her that we did not hate her. We hated her policies”. That could be a good lesson today for the boys  in Washington and several other western capitals.

An undoubtedly remarkable woman, a major world leader and, from personal experience, an absolutely superb constituency MP – requiescat in pace

Losing Marx

Stiff upper lip or not, there must be some outlet for one's emotions

Stiff upper lip or not, there must be some outlet for one’s emotions

“Another decade is traveling through, and I’m here, and you are there.”

Growing up in England, I was always taught that showing emotion was a weakness. So, as I read the above line in the New York Times the other day a fleck of dust must have popped into my eye and made it, and its twin, lightly water. Written by a mentally ill and physically handicapped woman to her successful writer sister (who authored the article), it highlighted that, well before considering any human failure, the world is not a fair place. All men may have been created equal but some were definitely created more  equal than others.

As the running of the western world has been gradually wrested from the Church by rational thinkers, advances in science have done much to close the natural gap. In the moral sphere too there have been major advances in recent centuries with the individual finally achieving centrality in the scheme of things.

But the fact remains that, while we may dream of a Utopian society where all burdens and benefits of life are shared equally, the fundamentals, whether they are interpreted as God-given or Big Bang-given, do not imply that outcome. Success in life is about managing to fit your own lyrics to a predetermined tune – like fitting the “I did it my way” to the “dum-dum-di-dum-dum”.

At dinner last week with a very dear relative who can best be described as an unreconstructed 1960s socialist (and worst described as a Bloody Lefty), we got to discussing that age-old yawn – the equitable redistribution of income. The watered-down social democratic version of Marx’s “From each according to his abilities to each according to his needs” has been experiencing yet another revival with the recent social protest movements.

The Communist Manifesto of Marx and Engels, of course, had much to recommend it. The manual’s main problem was that it was a bit short on what Communism meant. What had become apparent 150 years after its publication was that Communism, as it came to be meant,  was not the ticket for two reasons; firstly, it didn’t work; and,  secondly, judging by the number of Russians , Chinese and assorted comrades who ended up at the end of a gun barrel or rope, the manual was not very user-friendly

Who said Communism is dead?

Who said Communism is dead?

What must be said regarding the durability of the equitable redistribution of income is that, despite the fact that Communism eventually accepted it had got itself wrong and gallantly fell on its own sickle, that concept still keeps knocking at the door of democratic nations across the globe (though not, it must be admitted, at 2 o’clock in the morning with an unmarked black car waiting on the street outside)

Much has been written about the merits or otherwise of  the redistribution of income. Intuitively, the average post-Neanderthal man, woman or other would tend to agree with taxes being charged disproportionately to fund health, education, unemployment and pensions – though progressive taxes can cause disequilibrium in the economy to the detriment of all.

The interesting thing is that almost all efforts over the last century and a half at leveling the socio-economic playing field, be they inspired by Marxist equality of income or Liberal equality of opportunity,  have bombed across the globe. The Economist ran an interesting article recently in which a number of studies on social mobility were reviewed. Previous studies based on a sample of two generations showing 50% of socio-economic standing as inherited, had been unfairly skewed because it was quite regular for a wealthy father to have a child who did not work in gainful employment or chose charity work and suchlike. However,  by following the fortunes of rare surnames from the 18th century to the present it was established that “70% to 80% of economic advantage seems to be transmitted from generation to generation”.

That means that, currently, all bets are off on comparative social progress. The implication is that, while efforts at serious redistribution of income –  around for quite a while now – have not worked (and, evidently, cannot work), enlightened governments should concentrate on absolute social progress. In the 1960s the miserably inadequate British Labour Government hiked tax rates on investment income as high as 105% and the nation reaped the benefits until Margaret Thatcher finally brought a sledgehammer to the Trade Unions in the 1980s. One Labour minister in that wonky administration summed up the philosophy of the time in a hurriedly conceived reply to an attack by the Press who caught him traveling in the First Class compartment of a train. It was his ambition, he retorted, that the entire nation would one day travel first class.

That was not as stupid as it sounds (although it was totally stupid to say it). If, instead of wasting endless energy  on the elusive Holy Grail of redistribution of income, the education systems of countries and their means of assessment of students were revolutionized from the bottom up to meet the economic needs of the country, while businesses were freed of all but the most essential red tape (eg. conditions of employment, anti-trust and financial sector regulation),  as well as punitive taxes, greater opportunity should bring across the board increases in standards of living. As prophesied by that jerk of a Labour minister, workers may indeed then be traveling First Class, albeit that their bosses will be traveling  Heaven Class while the super-rich will opt for Seventy-Two Virgin Class.

Did you hear the one about  Regressive Consumption Taxes? How about Flat Taxes?

Did you hear the one about Regressive Consumption Taxes? How about Flat Taxes?

Socialism has brought much to the world – spawning an important safety net for workers in Free Market economies that should never be underestimated. There has, however, also been a lot of hot air which might have been summed up by the other Marx – Groucho: “I worked my way up from nothing to a state of extreme poverty”.

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