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SOVEREIGN MAN

Desperate British government launches task force against Flea Markets

Date: March 1, 2012
Reporting From: Santiago, Chile

 

Earlier this week, the British government announced that Barclays PLC, one of Britain’s oldest and largest banks, was facing an $800 million penalty for engaging in a tax avoidance scheme. Barclays had been exploiting loopholes in legislation in order to avoid paying a higher tax rate, and the government is now drafting legislation to close these loopholes.

Hang on a sec. Full stop.

If the government has to pass legislation in order to ‘close the loopholes’, then the loopholes right now are obviously legitimate. Hence Barclays tax avoidance practices that were perfectly legal.

After all, that’s what tax avoidance is– legally avoiding taxes by exploiting loopholes and legitimate deductions in the tax code. Tax evasion, on the other hand, is willful misdirection or underreporting of income that violates tax code. Barclays engaged in the former.

How is it that the Treasury can penalize Barclays for having done something that is perfectly legal? Technically, it can’t. That’s why the legislation being proposed to close these tax loopholes is going to be RETROACTIVE.

In other words, since the British government can’t legitimately penalize Barclays, they’re going back in time to change the law to make what Barclays did illegal… all to collect some extra dough.

In related news, the Treasury also announced that recent tax receipts have failed to meet expectations. Despite Britain’s constantly increasing tax rates (now as much as 50%), income tax revenues dropped by $810 million from a year ago, a 4.68% decrease.

British government, meet the Laffer Curve. Even the guy flinging spitballs in the back of a high school economics class can tell you that raising tax rates often decreases overall tax revenue.

Consider that, with a 0% tax rate, government revenue would be zero. Similarly, at a 100% tax rate in which people didn’t keep a single penny of what they earned, government revenue would also be zero because nobody would have an incentive to work!

Working up from 0, and backward from 100, would yield similar results. At 1% tax rate, the government would collect a bit of revenue. At a 99% tax rate, a small handful of people might work, also generating some revenue for the government.

Economist Art Laffer is credited with describing this relationship between tax rates and government revenue, however philosophers going back to the 14th century also examined the idea.

Laffer’s point was to show that there’s an equalization between the government taking a small piece of a big pie (low tax rates, huge incentive for economic productivity), and a big piece of a small pie (high tax rates, very little incentive for economic productivity).

Britain is trying to take a big piece of a rapidly diminishing pie. As the pie gets smaller, they keep increasing the size of their slice by upping tax rates… which is the exact opposite of what they should be doing.

There are a lot of other places in the world that are happy to take a smaller slice of a big pie. In Hong Kong and Singapore, where tax rates are very low, both of those governments are awash with surpluses.

Even in Bulgaria, income tax rates are a flat 10%. It’s such a low rate, it’s not even worth the effort to avoid. People have an incentive to pay simply because it’s so cheap and easy.  It’s perhaps for this reason that Bulgarian Finance Minister Simeon Djankov has been openly courting UK investors to relocate to Bulgaria.

Meanwhile, back in the UK, the British government is fighting hard to shake every pound they can out of the people. Revenue & Customs (the British IRS) is launching a whopping 30 new task forces, going after everybody from used car outlets to flea market sales booths.

This is so absurd, it seems like a headline from the Onion: “British Treasury Preparing Task Force for Flea Markets”. Unfortunately it’s true.

Look, here’s a simple truth. Governments are so bankrupt and desperate that they’re willing to do absolutely anything to confiscate people’s wealth. They’ll steer away from sound economic policy, completely reject the rule of law, and even go back in time… just to keep the party going a little while longer.

International diversification– selectively diversifying your assets and interests across sound jurisdictions– is a very solid strategy to protect yourself against such runaway government theft.

This includes things like buying property abroad, storing physical gold and silver in a non-bank secure storage facility overseas, and opening a foreign bank account.

If you think that taking such steps (and making the appropriate disclosures) makes you a target, you may be right. But by doing nothing, you’re still going to be a target. Just ask any flea market salesman in the UK.

 

 

 

Further reading:

Financial Times on the British government’s reaction to Barclays-

http://www.ft.com/cms/s/0/3efe8cb6-621c-11e1-807f-00144feabdc0.html#axzz1nryneFh6

Bulgarian Finance Minister wooing UK investors-

http://www.novinite.com/view_news.php?id=137109

HMRC creating 30 task forces-

http://www.guardian.co.uk/money/2012/feb/23/hmrc-tax-dodging-market-traders-car-salespeople?newsfeed=true

50% tax rate failing to boost revenues-

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9097219/50p-tax-rate-failing-to-boost-revenues.html

Cato Institute explains the Laffer Curve

HMRC tax receipt figures, raw data-

http://www.hmrc.gov.uk/stats/tax_receipts/tax-nic-receipts-info-analysis.pdf

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • http://www.bzemic.com/impossibleInstinct/ steve ward

    I’m not sure what to say to this, it not new nor is it something that surprise me. There is a lot of things i dont know about a lot of this. That not a bad thing but I’m still missing some keystone pieces in this puzzle

  • http://www.owngoldandsilver.com/ Lists

    The UK have it sown up, I’m telling you. They introduced something called the Disclosure act in 2004 and amended it in 2007. What this means is that if you come up with a way to avoid paying tax via a “loophole” you have to disclose it or be fined for failure to disclose. As I understand it the government then has the power to act on this disclosure and effectively apply the “law” retroactively. Which pretty much means that due process, another pillar of the rule of law dating back to Magna Carter 1215 has gone, along with Habeas corpus, double jeopardy and free speech.

    http://www.hmrc.gov.uk/avoidance/aag-disclosure.htm

  • Chasb80

    Sad to say, Britain is circling the drain. A once-great nation brought low by its own government.

  • Ajgoddard

    I have a feeling that this is more about impoverishing the individual vs. sustaining the state. 

  • Guest

    Having worked in a Govt tax dept., the way most changes to legislation come about is that the Minister or the deputy read something in the paper or hear about it and tell the minions to stop this racket. 
    Even if the solution is idiotic, the economists, lawyers and accountants run around writing papers to justify the minister’s or the deputy’s stupidity or shortsightedness.

  • PappyYokum

    Ex Post Facto laws are unconstitutional in the U.S.  I assumed the same was true in the U.K. I guess not. How can one function – try to follow the laws – when an action can be made illegal after it was taken? It is bad enough here. People can’t plan because the Constitution is ignored and laws are constantly changing. Planning near term is difficult. Planning long term is impossible. With ex post facto laws being passed, now it is required the past be planned as well.  That isn’t government. It is madness.

  • Action man

    For a while foreign golfers playing in the British Open would only have to pay the incredibly high tax on money received for that tournament. There were plans to tax the golfer on HIS ENTIRE EARNINGS for the year, even tournaments played in other countries. The problem with such tax schemes are obvious to even the most casual observer.

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