Friday, 29 June 2012

Nothing tears a society apart faster ...

... than the perception of a tax burden unshared,

... for the aficionados of social revolution remember the American and French revolutions.

... as Ben Macintyre writes today

When tax loopholes were in-wall, not offshore ...

... Georgian window-blockers were the Jimmy Carrs of their day — only more visible

When you use the term “daylight robbery” you are invoking a 17th-century British tax and a tax avoidance scheme still visible in many parts of Britain. In 1697 Parliament introduced a tax on windows to defray the expense of the new mint. Householders would henceforth pay a tax proportional to the number of windows they owned. 

The window tax was intended to be progressive. Individuals with large houses would logically pay most and, as windows were visible from the outside, calculating the return should have been easy. It proved to be very difficult. Middle-class and wealthy homeowners simply boarded up some, and in a few cases all, of their windows, permanently or temporarily, to avoid paying what they owed. 

Today one still sees elegant Georgian houses with bricked-up windows, visible testimony to the temptations of tax avoidance; these buildings belonged to the Jimmy Carrs of their day, employing a ruse that was perfectly legal but contrary to the social contract that underpins all taxation. 

Owners of large properties could easily reduce their tax burden by bricking up a few windows, but those with smaller houses could only do so by forfeiting air and natural light. As a result, houses were built with fewer windows and health experts predicted epidemics caused by lack of fresh air. The most annoying aspect was the brazen and visible way richer avoiders went about skirting the tax: windows became tax loopholes and everyone could see who was dodging tax. The levy was finally repealed, denounced as a “tax on light” and nothing less than “daylight robbery”. 

This week Graham Aaronson, the lawyer brought in by David Cameron to explore ways to combat tax avoidance, warned of “riots on the streets” if tax-dodgers get away with it. That may sound like hyperbole, but from a historical perspective he is entirely correct: an abused tax system, in which the poor dutifully cough up but the rich get away without paying their share, is the fuel of revolution. 

Down the centuries the authorities have come up with elaborate ways to extract money from society, with taxes on individual wealth, numbers of female servants, hearths, watches, dogs and salt. Peter the Great taxed beards, beehives, basements, hats, birth, marriage and death. The Roman emperor Vespasian imposed a tax on urine ( vectigal urinae), which was used to dye togas, in public urinals: this was the first and last Pee As You Earn system, raising the possibility of bladder control as a tax avoidance scheme. 

Tax is a test of character, and always has been. As Plato wrote: “When there is an income tax, the just man will pay more and the unjust less on the same amount of income.” 

Taxes are never popular, but become socially destructive when it is perceived that the broad mass of people have to pay, while a privileged few avoid their dues. Leona Helmsley, the American hotelier and convicted tax evader, was heard to observe: “We don’t pay taxes. Only the little people pay taxes . . .” 

That remark crystallised the deep and dangerous social dislocation in 1980s New York because, in addition to being stupid and unpleasant, it happened to be true. 

George Osborne says he regards “tax evasion and indeed aggressive tax avoidance as morally repugnant”. But beyond the ethical argument lies the social and political cost: nothing tears a society apart faster than the perception of a tax burden unshared. 

It is no coincidence that those European countries facing the most serious economic problems and social unrest also have the highest rates of tax evasion. Silvio Berlusconi once said that because of high tax rates in Italy, evasion was seen as a “natural right”. The Federation of Greek Industries estimates that the Greek Government is losing as much as $30 billion a year through tax evasion. 

The Greek system is shot through with loopholes: singers, athletes and various professionals all receive favourable rates, and shipping tycoons pay no income tax at all. Some Athens doctors report unfeasibly low incomes while enjoying a life of swimming pools and yachts, evidence as blatant as a bricked-up Georgian window. 

If a tax system is corrupt and biased, it inevitably erodes the vital “social compliance” that comes not from fear of getting caught, but from a sense of communal obligation; governments must increase taxes to make up the difference, increasing the burden on those who pay and their righteous fury at those who don’t. The social bonds that hold society together begin to fray. 

Britain has a long history of rebelling against taxes seen as unfair. Boadicea was said to have led the Iceni in revolt partly in opposition to punitive Roman taxes. Lady Godiva’s naked equestrianism, according to legend, was a protest against oppressive taxes levied by her husband on the people of Coventry. When taxes are perceived as unjust, Britons tend to protest violently or vanish from the tax rolls. Three years after introducing the poll tax of 1377, the authorities attempted to levy another and found the population had miraculously dropped by half a million. 

The 1990 poll tax riots demonstrated what the “little people” will do when faced with a deeply regressive tax that suddenly left many poor families with greatly increased bills. With up to 30 per cent of the population refusing to pay in some areas, the civil unrest and street protests played a big part in the fall of Margaret Thatcher. 

We “little people” will not take to the streets today just because a handful of comedians and pop stars have worked out a legal way to cling on to more of their vast fortunes. Yet Mr Aaronson is right that such practices have a toxic effect on society, gradually eroding faith in fairness. 

Whenever a rich man boards up his windows or slips his money offshore, the rumble of anger over “daylight robbery” intensifies and society grows a little darker.  

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