What is Wrong with Being a Tax Haven?

[Newchodge]

I hate the phrase 'wealth creators'. It is used to imply that they are people who create wealth for the country or for others. Most of them just create wealth for themselves which they hide away off-shore.

 

[The Byre]

We do not need to eliminate any taxes, we just need to reduce them to the point where we are more competitive than other big nations.

Having studied this very subject at the behest of my political masters and having produced several papers on this subject, I have to (sadly) assure you that economies do not work like that.

If you are a major economy and you try to make yourself more attractive to outside industries than, say, Germany or France, then several things follow -

1. other nations tend to retaliate by doing much the same
2. they also introduce road-blocks to make your country's goods and services harder to import
3. you have (as a result of 1 & 2) have to move the tax burden even further onto the middle classes
4. you must cut back on government spending, which in turn, makes the poor even poorer
5. you have to provide tax-free 'loop-holes' for the rich to continue to be able to park their wealth, such as hording agricultural and forest land.

Bear in mind that going hand-in-hand with tax changes will be the removal of regulatory burdens.

And birds will fly out of my butt! Getting bureaucrats out of government, is like shooing flies off a dilly wagon!*

If we make significant changes to the attractiveness of the UK we could double our GDP.

It's them birds again! That's just crazy talk! And I thought it was me that likes a few beers in the evening!

our GDP is already the 5th largest in the world.

5th??? In 2014 and for a very short while - the pound has trousered since then!

I must make clear I am not a British national and my passport isn't a UK passport. The UK is, however, my country of residence.)

Your secret is safe with us! Of course, once all the Alf Garnets come out of the Brexit woodwork, you may have to go into hiding. We'll put you up in a guest room and if push comes to shove, I'll claim that you are my long-lost son.

"It was that terrible night in Kanpur, Officer!"

*A dilly wagon was the cart that drove around medieval towns to collect human waste and other nasty things.

 

[Deleted member 59730]

Another way to tax business is practiced by some countries in the ME. Instead of tax a fee is charged to operate in the country. Imagine if Amazon, Starbucks and the other tax dodgers couldn't operate at all unless they paid the licence fee.

 

[The Byre]

Completely removing the incentive for wealth creators is not a smart way to treat them, Being vindictive rather than encouraging their success actually works counter to getting the £20K guy up to £40K or more.

Now there you go again! Nobody wants to penalise them or act in a vindictive manner! There are rich people in countries like Sweden and Norway.

I personally, just want the absurdly rich to act in a moral and equitable manner. That means introducing measures like rent control and land reform and also abolishing tax havens like the IoM, Guernsey and all the others. It also means that we must introduce a universal turnover tax and abolish VAT and corporation tax.

The large number of poor people in the UK is damaging our economy and that hurts the rich as well as the middle classes who at the moment are paying for the poor.

 

[Scott-Copywriter]

Clinton makes a good point.

The concept of reducing wealth inequality seems to be based around closing the gap, and to make any meaningful progress with that, it would involve a relatively minor increase in low-tier wealth, but a dramatic drop in high-tier wealth.

As Clinton mentioned, you could double lower-level salaries, but a wealthy person just needs a good day on the stock market with a 1% increase in share value to exceed that monetary increase and then some.

The fact is, when you have a lot of money, it's a lot easier to make more. That's not because of wealthy people making more at the expense of the poor. It's just because minor percentage increases are amplified significantly more.

For example, if I put a million dollars in Coca Cola stock in 2007, which is historically a very reliable and consistent long-term holding, and reinvested the dividends, I'd now have 2.25 million dollars.

I'd have made what some low earners make in an entire lifetime by doing absolutely nothing.

If I had taken more of a risk and put my million in Apple back then, I'd now have well over 10 million dollars today. Again, this is by doing nothing other than putting my money at the mercy of the markets with a degree of risk.

And that's just a million dollars. Hundreds of thousands of middle-class people have that sort of value tied up in their homes and pensions. It's not some unimaginable figure.

What can you really do about that? If someone is successful and makes money, it's considerably easier to pull ahead at a far faster rate.

It's really pointless chasing any sort of meaningful reduction in the wealth inequality gap. By all means look at ways to increase the disposable income of lower and middle earners, but once someone is even moderately successful in business, they have the cash to invest and grow their wealth exponentially in a multitude of ways.

 

[Clinton]

5th??? In 2014 and for a very short while - the pound has trousered since then!

The World Bank, them lot wot tracks these things, would disagree with you. And the pound has risen since that article in Oct from just under $1.21 to nearly $1.27. Anyway, gotta get back to work.

Very quickly, though ...

I hate the phrase 'wealth creators'. It is used to imply that they are people who create wealth for the country or for others. Most of them just create wealth for themselves which they hide away off-shore.

You may hate it, but you have the type of people who go to work from 9-5 and you have the type of people who populate these forums - people who take risks, create stuff, invent things, work ungodly hours, employ people and generate wealth for the country (and themselves). As much as you hate the term most people on these forums are in business and are wealth creators. Just like with those rich people you want to penalise.

 

[Newchodge]

It is easy on one level. Introduce a pay ratio in every company. The company can pay the top earners whatever they want, provided the lowest earners get, say 10% of that. Pay your CEO 1,000,000, pay your cleaners 100,000. Simples

 

[Scott-Copywriter]

I personally, just want the absurdly rich to act in a moral and equitable manner. That means introducing measures like rent control and land reform and also abolishing tax havens like the IoM, Guernsey and all the others. It also means that we must introduce a universal turnover tax and abolish VAT and corporation tax.

Unfortunately, such measures would only really be effective if the whole world followed suit, otherwise there's no point anyone doing it at all.

The rewards are just too great. Too many countries are keen to keep the weapons of tax incentives and deregulation to attract business and investment away from their neighbours.

It's not just the wealthy who may be lacking morals. Countries are equally responsible. They chastise wealthy people when they leave, but in the same breath they welcome anyone who is moving into their country for the same reason.

The US is trying to crack down on tax havens and avoidance, but one of the easiest countries in the world to set up a company is... The United States. It can often be done with very little proof of identity.

Unless the whole world follows suit, and I mean the whole world, business headquarters and wealthy individuals will just shuffle around, and there won't be a shortage of countries willing to incentivise them to do so.

 

[Scott-Copywriter]

It is easy on one level. Introduce a pay ratio in every company. The company can pay the top earners whatever they want, provided the lowest earners get, say 10% of that. Pay your CEO 1,000,000, pay your cleaners 100,000. Simples

Then talented CEOs would run a mile and businesses would be left weaker for it.

Believe it or not, experienced CEOs are talented individuals. Get a good one, and they can make a very positive impact on growth and revenue.

Large corporations want the best to lead the company, and if it's impossible to attract them with a competitive salary, they'll head off to somewhere like Asia instead.

The market sets the rate for C-level salaries. Companies are not paying them millions because they want to. They're paying them millions because others are willing to pay that if they don't. The talent pool of highly experienced directors who have a proven track record of growing multi-billion pound companies is comparatively very small. Demand outstrips supply, and salary offers skyrocket.

These ideas only work if the entire world follows suit, otherwise one country will try to do the morally correct thing and end up shooting themselves in the foot with a mass exodus of talent and businesses.

 

[UKSBD]

I have no problem with that CEO earning £1m a year if he pays his tax in the UK on that £1m a year.

What I don't like is that CEO being paid £150k a year, having £150k year paid in to his pension pot and receiving £700k of company shares that will go in to his wife's and kids trust funds and off shore schemes.

It may be perfectly legal, I may do the same myself in a similar situation, but it still stinks.

 

[Newchodge]

I would agree with you if CEO's only got these obscene amounts of money when they succeed. major corporations continue to pay these ridiculous amounts even when the CEO's have failed spectacularly.

No organisation makes a good profit without the commitment and involvement of all of its staff. To reward the top bods while leaving those who actually do the work on minimum wage is obscene, and it is high time this was recognised. I am not proposing a cap on what executives can be paid, just that it should be proportionate for all employees of the company.

 

[Chris Ashdown]

Must agree Cindy, Also maybe there should be a general rule that a percentage say 10 of profits should be given as a bonus each year divided by the total workplace equally

 

[Clinton]

I would agree with you if CEO's only got these obscene amounts of money when they succeed...

Again, your heart is in the right place, but your understanding of executive pay reward systems isn't.

It's tricky to judge success for c-suite. If you give bonuses purely on stock price, there are a million ways to force a short term share price spike and you are rewarding financial jiggery pokery rather than genuine growth.

If you give it to them on turnover ... that too is easily manipulated.

If you give it to them on market share... you starting running into issues with the competition commission.

If you give it to them on profit ... you are rewarding short-termism. There are numerous decisions that can be taken to boost current profit at the expense of longer term growth.

As a NED on the executive pay panel you are forced to structure pay and reward systems based on open market supply and demand. Force NEDs' hands by linking executive reward to some proportionate reward for the entire workforce and you are dooming that company to decline and possibly death.

 

[Scott-Copywriter]

I would agree with you if CEO's only got these obscene amounts of money when they succeed. major corporations continue to pay these ridiculous amounts even when the CEO's have failed spectacularly.

No organisation makes a good profit without the commitment and involvement of all of its staff. To reward the top bods while leaving those who actually do the work on minimum wage is obscene, and it is high time this was recognised. I am not proposing a cap on what executives can be paid, just that it should be proportionate for all employees of the company.

There's no moral element to it. It's not done on purpose. It's just basic supply and demand.

There are millions of cleaners out there, but there are only a handful of top-tier CEOs with a proven track record of running multi-billion pound enterprises.

If CEOs were a dime a dozen, and cleaners with experience at the highest level were very rare, the salaries would be reversed.

It's essentially an auction. If there are 10 experienced CEOs, and 20 corporations eager to hire the best to run the company, salary offers will be bid up rapidly.

As I said, it's all or no one. Every corporation in the UK could cut CEO salaries by 80% tomorrow, but with a month they'd have all went to somewhere like Asia where there are hundreds of corporations willing to pay significantly more.

All in all, making it proportionate is an impossible task. If a company wants to hire a proven CEO on a competitive salary, it would have to pay low-tier staff so much money that it would wipe out any profit and cause a backlash from investors. If a company stuck with it and kept low-tier salaries reasonable, they would only be able to offer salaries to C-level executives far below the average and attract no one of any experience or credibility to actually run the company.

So what can you really do?

 

[The Byre]

Large corporations want the best to lead the company, and if it's impossible to attract them with a competitive salary, they'll head off to somewhere like Asia instead.

No they do not. They are not like footballers, with a clear track record of goals scored and footage of their ball control.

I have been dealing on and off with two companies, that in 2000 were both worth about $2bn and each company paid its CEO about $1m. They are both on the NASDAQ, but one makes software and tech products, the other is an electrical manufacturer. Today, the manufacturer has a market cap of $20bn and pays its CEO $2.5m with all options, bells and whistles - but the SW and tech company has a cap of just $200m, but pays the CEO $8m.

The tech company is loaded with debt, it is crippled by a falling market share in a falling market. It has twisted this way and that and looks very much as if it will fail completely, as it defaults on the P&L covenants in its loan agreement. The manufacturing company makes one type of product that we use every day of our lives, without even knowing their name. It is a rather boring engineering company that just plods along, getting more and more profitable.

The CEO of the manufacturing company is called Greg and started with them as an apprentice. He went on to be sponsored by that company to study engineering and then go for an MBA. He is a typical Mid-West farmer's boy who grew up on a small ranch. Greg is a man of few words with a Ford pick-up.

The CEO of the tech company is the hungry son of Mexican immigrants. He set out to earn the big bucks. He is member of the right lodge, the right golf club and he went to the right Ivy-League college. He even does all the right charity work! He is above all, an expert user of networks. He has turned the task of getting onto the right boards and talking to the right people into an art form. (It would not surprise me, if he had not toyed with the idea of becoming Jewish, so that he could be a member of the right temple as well!)

But under his stewardship, the company continues to fail, as he makes all the same mistakes his predecessors made!

The market sets the rate for C-level salaries. Companies are not paying them millions because they want to.

No, they are paying those 'remuneration packages' (as we now call 'em) because they are on the same boards and are also responsible for the 'remuneration packages' of those that decide theirs.

These ideas only work if the entire world follows suit, otherwise one country will try to do the morally correct thing and end up shooting themselves in the foot with a mass exodus of talent and businesses.

There are plenty of good managers out there. You don't have to get someone with an Ivy-League MBA or a membership in your lodge or temple, or an Old Boy from your school and college. Sometimes they are called Greg and are right under your own damn nose!

 

[UKSBD]

That Ivy League guy also knows the bubble could burst in the next 3 years.
He doesn't care, he is getting as much money out as quickly as he can.

 

[Deleted member 59730]

There are millions of cleaners out there, but there are only a handful of top-tier CEOs with a proven track record of running multi-billion pound enterprises.

The big problem is that the top-tier CEOs are a handful which means that the vast majority of companies are run by people with little talent. Because in the UK it is essentially an old boys club the salaries are decided by the incompetents who just happened to go to Eton or Oxbridge.

The UK produces very few high level managers, executives and CEOs.