Posts Tagged ‘Taxation’

Automation can mitigate for a population decline

September 17, 2017

The cold hand of demographics cannot be denied. Global population will begin to decline soon after 2100. The real question is whether an implosion can be avoided, economic decline can be held at bay and that an irreversible death spiral can be avoided.

For over 100 years it has been the threat of unsustainable population explosion which has exercised the minds of governments and policy makers. There are still many people who have spent their lives confronting this problem and cannot adjust to the new reality. This reality is that fertility rate is declining across the world. There is nowhere in the world where the rate is not declining. There are still many countries where the rate is greater than the 2.1 children per woman needed to just hold the population constant.

(From the World Population Prospects 2017)

Soon after 2100 population will begin to decline everywhere across the world. In many countries population decline is already well established. Population decline is compounded by  increasing longevity and a decline in the ratio of working population to aged population. Declining (and ageing) populations threaten the start of a downward death spiral of economic decline.

John Maynard Keynes in a lecture in 1937  “Some Economic Consequences of a Declining Population.” Keynes eugenrev00278-0023

“In the final summing up, therefore, I do not depart from the old Malthusian conclusion. I only wish to warn you that the chaining up of the one devil may, if we are careless, only serve to loose another still fiercer and more intractable.”

The point is that this decline is inevitable. Demographic trends cannot be denied over a matter of 2 or 3 generations. Hopefully the decline will be slow and allow time for corrective actions – provided however that irreversible economic decline does not set in.

Mitigation by automation

The critical parameter will be whether total GDP can be maintained at a level to allow the per capita GDP to be increased or, at least, maintained in spite of a declining labour force.

For the past 500 years (perhaps more), economic activity has been consumer driven and with a surplus of labour always available. Labour and its ready availability was in itself also the capital to be employed. Growth has been achieved by the increase of production exceeding the growth of population. Agricultural production before the industrial age was primarily a function of the labour available. With the advent of the industrial age, the link between labour force and production remained strong but industrialisation allowed an enormous productivity increase. It is the introduction of industrialisation into agricultural production which has also allowed the rapidly increasing population to be fed. However the last 6 or 7 decades has seen the industrial age morph into the age of automation. Automation is now gathering pace. Growth is no longer as dependent upon the availability of labour as it was.

With population declining it is likely that GDP will – in the long term – also decline. Production cannot happen without consumption. However ii is not necessary that the total GDP decline must exceed the decline of population. In the short term there may well be an increase of per capita consumption (and of per capita production). The question becomes how to maintain production with a decreasing work force available. But this is a question that all commercial enterprises face already. In the last 60 – 70 years, reducing work force and increasing automation has become a standard method of reducing cost and increasing productivity.

Within two decades I expect that driver-less vehicles, pilot-less aircraft, army-less wars will be common place. Robot diagnosticians, AI assisted surgeons and teller-less banks are already here. Idiot-less politicians would be nice. The bottom line is that the paradigm that more employees means more production is broken.

Automation has already progressed to the level where just the availability of a young work force is no longer a guarantee that production will (or can be made to) increase. The unemployment level of the less-educated youth of the world is testimony to that. Clearly if automation eliminates the need for human labour for all routine, repetitive tasks, then it also becomes necessary to occupy these young with years of further education. Together with a population living ever longer, the dependency ratio (ratio of non-working to working population) will obviously increase and increase sharply. For a government this can be a nightmare. Revenue generation is from the working population and large chunks of revenue consumption is for the education of the young and the care of the elderly. But that is also because tax revenues are so strongly dependent upon taxing the labour force. If the dependence of production upon the labour force is weakened (as it must be with increasing automation), and since production must eventually match consumption, then the entire taxation system must also tilt towards taxing consumption and away from taxing human labour for its efforts. (Taxing production is effectively also a tax on consumption because production which is not for consumption is not sustainable). Increasing automation also breaks the taxation paradigm.

It seems to me therefore, that a population decline is not something to be afraid of. It is imperative that the decline not be allowed to become an implosion. However a slow decline starting soon after 2100 can be managed. It is going to need over the next 100 years

  1. immigration to mitigate fertility declines,
  2. increasing automation across all manufacturing
  3. increasing use of AI across all fields
  4. increasing education (perhaps mandatory to the age of 25)
  5. increasing opportunities for entrepreneurs (including aged entrepreneurs)
  6. shifting away from income or labour related taxes and towards consumption tax

I can see population developing to “hunt” for a stable, sustainable level at perhaps around 9 – 10 billion with increases coming when new world are opened up to colonise. Pure speculation of course, but as valid as anything else.

Population decline is not something to be afraid of. The next 100 years will be fascinating.


 

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To pay tax you don’t owe is just incompetence

October 2, 2016

I note that the NY Times is busy attacking Trump for offsetting tax on profits against past losses. Which of course is something the NY Times is itself very quick to do when it can. As Forbes reported in January this year:

New York Times Hypocrisy On Corporate Taxes Reaches Record High

……. More recently, for tax year 2014, The New York Times paid no taxes and got an income tax refund of $3.5 million even though they had a pre-tax profit of $29.9 million in 2014. In other words, their post-tax profit was higher than their pre-tax profit. The explanation in their 2014 annual report is, “The effective tax rate for 2014 was favorably affected by approximately $21.1 million for the reversal of reserves for uncertain tax positions due to the lapse of applicable statutes of limitations.” If you don’t think it took fancy accountants and tax lawyers to make that happen, read the statement again. …….

There is much hypocrisy about taxes and tax-paying. To pay more tax than the tax code demands is all about incompetence – not about ethics.

I wrote in December 2015;

Tax avoidance is a measure of the incompetence of the lawmaker and the competence of the taxpayer

…. As law-abiding individuals and companies, we calculate and pay our taxes according to the rules that prevail. We use all available rules of allowable deductions and off-sets and deferred taxes and tax-breaks to minimise the amount of personal assets that are to be confiscated by the State. We use accountants and experts to navigate the complexities and intricacies of tax legislation. No individual is ever expected to pay more than the prevailing rules require. Any individual who does pay more than required, and assuming his perfectly rational objective is to minimise the tax to be payed, is fundamentally incompetent. Any company which pays more tax than it should also demonstrates incompetence and is not demonstrating due care of its investors’ assets.

Individuals and corporations are not required or expected to pay more than what is due under the rules prevailing. The issue of ethics is in play when the rules are formulated and is also involved in the following of the rules. The act of payment is an ethical issue but minimisation of tax due is a matter of competence, not of ethics. Paying more taxes than are due demonstrates incompetence and gains no ethical credits. So when there is criticism of companies for “not paying enough tax”, the real failure is with the politicians who have made the deficient rules – not with the individuals or companies who have followed the prevailing rules to their own best advantage.

Back in January 2015 I was also exercised about the sanctimonious clap-trap that wealth inequality gives rise to:

Wealth inequality: The poor are not poor “because” the rich are rich

Most people on the left of the political divide want more to be taken from the rich to be “given” to the poor. The Robin Hood syndrome. Note that when the intention is to “give to the poor” and not for “making the poor greater creators of wealth”, the driving force is mainly envy. It is when the desire to deprive the rich is more important than any desire to improve the lot of the poor. Concern is over-ridden by envy. Sometimes it seems to me that the real difference between left and right is that the left wants to spread the consumption of existing wealth (and hope that total wealth increases), while the right want to focus on creating wealth (and hope that it trickles down and gets equitably distributed).

But there is a fundamental fallacy in the view that the poor are poor because the rich are rich. There may well be some of the rich who are exploiting some of the poor and where the poor are not getting a just opportunity to be creators of wealth. There may well be members of the rich who create no wealth but remain rich because of inherited wealth. But by far the greatest majority of the rich are rich because they created more wealth than others. The real question is whether each individual gets an equitable opportunity to create wealth and then gets to retain an equitable portion of the wealth he has created. (It is a different matter but I still do not understand why it is the creation and the retention of wealth that attracts more penalties in the form of taxation than the destruction or consumption of wealth).

I incline to the view that taxation as it is practiced today by most states is fundamentally immoral. It is in fact an act of confiscation. This I wrote in February 2015.

On the legitimacy and morality of taxation

I am persuaded that the concept of taxation as practised today is immoral. It is fundamentally a coercion of an individual by a larger (stronger) society. It is an enforced confiscation (by threat of legal action) of an individual’s property or wealth. It cannot be seen as a membership fee for being a member of the society because leaving (or being expelled from) the society is not an option. It is closer to the extortion of “protection money” than to the membership dues for a golf club. The use to which the funds are put is irrelevant. The key point is whether the payment is voluntary or coerced. When early Christians paid a “tithe” to the Church voluntarily it was not immoral. But when the payment was coerced and no longer voluntary, the system became immoral. Similarly Islam requires the payment of zakat on individual wealth over the minimum nisab and this also shifted from a quite unexceptionable and moral voluntary payment to become an obligatory and immoral coercive confiscation.

I don’t quarrel with the need for any society to generate “common funds” to improve the well being of that society. But the legitimacy of appropriating the funds lies only in that the society (state) is stronger than the individual. Might becomes right. I come to the conclusion that a tax code by which the amount a “good citizen”should contribute to society is calculated is quite moral as long as the payment is then voluntary. There would be no moral issue if all taxation was voluntary. The immorality lies in the use of threat or force to confiscate the payment. It is the oppression of the minority by the majority which is immoral. (I observe that all democracies use the very fact of being a “democracy” as being a justification for the oppression of minorities when that is the will of the majority. As if being in the majority – by and of itself – ensures proper behaviour). But, the good socialist will argue, compulsory payment of tax is necessary to ensure the funds for the common good. Without coercion society as a whole would suffer. The common good – as seen by the majority – is worth the oppression of the minority who do not pay their dues.

And so we come full circle. The end justifies the means. Oppression of the minority by a majority is acceptable for the good of the majority. A society must be able to use force and coercion against its own minorities for the greater good. Taxation is made legitimate only because the state is stronger than the individual.


 

Tax avoidance is a measure of the incompetence of the lawmaker and the competence of the taxpayer

December 23, 2015

Taxation is fundamentally a confiscation of private assets for public purposes. It may well be necessary. Tax laws may be fair or unfair. Good citizenship – individual or corporate – then requires that prevailing rules of taxation law be followed, due amounts calculated and paid. Individuals and companies are required to cooperate in calculating the taxes they owe to their tax jurisdictions under existing rules and to pay such amounts in a timely manner.

I find it irritating when the lawmakers then criticise taxpayers for the deficiencies of the laws they have formulated. It has become popular for politicians to criticise large companies and wealthy individuals for “tax avoidance” (which is perfectly legal) as being cases of “not paying your fair share of tax”. It strikes me as a rather irrational – if populist – argument. Tax laws are not inherently, and of themselves, “fair”. In fact the question of “fairness” is not a criteria when it comes to paying or not paying tax. It comes into play only in the formulation of the enabling law. Once a tax law is passed, all legal entities within the jurisdiction are required to pay – whether or not it is “fair” in somebody’s opinion. Many tax laws are intentionally “unfair” to try and implement some policy or other, or to encourage some particular behaviour. When politicians start referring to the “spirit of the law” not being followed, it is just a confession of their own incompetence in formulating laws to implement their intentions.

As law-abiding individuals and companies, we calculate and pay our taxes according to the rules that prevail. We use all available rules of allowable deductions and off-sets and deferred taxes and tax-breaks to minimise the amount of personal assets that are to be confiscated by the State. We use accountants and experts to navigate the complexities and intricacies of tax legislation. No individual is ever expected to pay more than the prevailing rules require. Any individual who does pay more than required, and assuming his perfectly rational objective is to minimise the tax to be payed, is fundamentally incompetent. Any company which pays more tax than it should also demonstrates incompetence and is not demonstrating due care of its investors’ assets.

Individuals and corporations are not required or expected to pay more than what is due under the rules prevailing. The issue of ethics is in play when the rules are formulated and is also involved in the following of the rules. The act of payment is an ethical issue but minimisation of tax due is a matter of competence, not of ethics. Paying more taxes than are due demonstrates incompetence and gains no ethical credits. So when there is criticism of companies for “not paying enough tax”, the real failure is with the politicians who have made the deficient rules – not with the individuals or companies who have followed the prevailing rules to their own best advantage.

I would certainly not wish to invest in any company which was not sufficiently competent to keep its taxes to a minimum.

Tax evasion is illegal and demonstrates a lack of ethics with the taxpayer. Tax avoidance is a measure of the incompetence of lawmakers and of the competence of the taxpayer. I would go so far as to say that to pay more tax than is due is not just incompetent, but also unethical in being deficient in the due care of resources to be expected of any responsible entity.

On the legitimacy and morality of taxation

February 16, 2015

These are two questions that I have been wrestling with. First whether the concept of taxation of individuals by a state is legitimate and moral, and second, what basis of taxation is the least unjust. Here I just consider the legitimacy and morality of the concept of taxation.

Anarchists and libertarians see taxation as theft. They see it as the oppression of the individual (private or corporate) by the greater society – ostensibly for the “common good”. Communists and socialists see it otherwise. For them there is no individual ownership of property and all wealth is owned by the masses. It is a manifestation of the conflict interface between an individual and the larger society. Some – libertarians for example – suggest that the “greater society” cannot abrogate to itself an authority which is not delegated to it by its individual members. And the power to confiscate the property or wealth of some of its members is not an authority that originates with the individual “victim”. Liberal democrats would argue that taxation is merely the membership fee for individuals to be part of the “club” represented by the “greater society”.

There have been many headlines in the last week about HSBC and the manner in which it has assisted its clients to avoid and evade taxation (where avoidance is legal whereas evasion is illegal). The indignation of politicians rings rather hollow. That the poor resent the rich is not surprising. It is inevitable that in a “democracy” the majority poor will seek to oppress the rich minority. But the bottom line is that all taxation is a confiscation of an individual’s property or wealth by a society (state). It is confiscation by force or under the threat of force. But much of the recent turbulence is based on envy and resentment and of various socialist politicians attempting to create a populist wave out of such resentment and envy. (Of course they conveniently forget that the poor are not poor because the rich are rich. Most are poor because they do not, or do not have the opportunity to, create wealth).

I am persuaded that the concept of taxation as practised today is immoral. It is fundamentally a coercion of an individual by a larger (stronger) society. It is an enforced confiscation (by threat of legal action) of an individual’s property or wealth. It cannot be seen as a membership fee for being a member of the society because leaving (or being expelled from) the society is not an option. It is closer to the extortion of “protection money” than to the membership dues for a golf club. The use to which the funds are put is irrelevant. The key point is whether the payment is voluntary or coerced. When early Christians paid a “tithe” to the Church voluntarily it was not immoral. But when the payment was coerced and no longer voluntary, the system became immoral. Similarly Islam requires the payment of zakat on individual wealth over the minimum nisab and this also shifted from a quite unexceptionable and moral voluntary payment to become an obligatory and immoral coercive confiscation.

I don’t quarrel with the need for any society to generate “common funds” to improve the well being of that society. But the legitimacy of appropriating the funds lies only in that the society (state) is stronger than the individual. Might becomes right. I come to the conclusion that a tax code by which the amount a “good citizen” should contribute to society is calculated is quite moral as long as the payment is then voluntary. There would be no moral issue if all taxation was voluntary. The immorality lies in the use of threat or force to confiscate the payment. It is the oppression of the minority by the majority which is immoral. (I observe that all democracies use the very fact of being a “democracy” as being a justification for the oppression of minorities when that is the will of the majority. As if being in the majority – by and of itself – ensures proper behaviour). But, the good socialist will argue, compulsory payment of tax is necessary to ensure the funds for the common good. Without coercion society as a whole would suffer. The common good – as seen by the majority – is worth the oppression of the minority who do not pay their dues.

And so we come full circle. The end justifies the means. Oppression of the minority by a majority is acceptable for the good of the majority. A society must be able to use force and coercion against its own minorities for the greater good. Taxation is made legitimate only because the state is stronger than the individual.

But that does not alter the fact that involuntary taxation is fundamentally immoral.

Whether a tax code should be based on wealth creation or wealth consumption is a question for another day.

Tax on income is easy to levy but fundamentally unsound

September 18, 2012

The latest Mitt Romney “gaffe” is getting much attention. But I was a little surprised to find that while what he said may well be a gaffe in electoral terms – and he may even have lost the Presidential election here – his statement was actually quite correct. I had not appreciated that almost half of all US households paid no federal income tax at all. In the US, federal income tax is a major source of tax revenues and contributes about half of all tax revenues (tax revenues about 15.4% of gdp in 2011 with federal income tax providing 7.3% of gdp). Romney in his leaked video said:

(more…)

Russian taxman sues dead lawyer

February 8, 2012

This is probably something characteristic of tax authorities and not just the crazy Russian legal system at work. The unfortunate Sergei Magnitsky died in pre-trial detention 2 years ago after being denied urgent medical care but  a presidential human rights commission found last summer that charges against him had been fabricated. But the taxman won’t give up.

It does seem like a case of “kill him in detention” and then sue him!!!

Reuters: 

MOSCOW PLANS TO PUT DEAD LAWYER ON TRIAL

Russian investigators have said they may prosecute a dead lawyer who worked for a foreign investment fund in the latest bizarre twist to a case that has come to exemplify investor fears about Russia’s rule of law.

Source: Financial Times:  http://www.ft.com/cms/s/0/ef3b4172-51b5-11e1-a30c-00144feabdc0.html#ixzz1llc77Qbh

 


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