Taxing Times!

Fellow blogger Leann (http://crazyworld-leann.blogspot.com/) in a recent blog listed Warren Buffet’s  comments about taxation and the ‘need’ to tax the wealthy more highly,  as one of the items that she might blog about. Great minds think alike!  Even though the Atlantic Ocean and several thousand miles separate Leann and me,  I too was intending having a “rant” (or is it an informed debate?) about the same subject - taxation!

Warren Buffet

Buffet, consistently ranked amongst the world’s wealthiest people has called for higher taxes on the very wealthy. From what I understand and briefly seen whilst scanning Google and reading the Guardian he has received short shrift from many in his native USA. But yet he is not alone in his views. There appears to be some kind of feeling or move that is more widely spread than the comments of one very rich man. At about the same time as Buffet was making his point a number of very wealthy French people said very much the same thing. And in this morning’s paper I read that our Chancellor, George Osborne is intent on ensuring that everyone, especially the wealthy, pay their due tax. Osborne focuses on the very wealthy who “shelter their wealth in the tax haven of Switzerland” and “warns top earners who attempt to avoid tax that the government will find you and your money.”

The comments that Buffet and Osborne make, are, of course,  rather different. Buffet is, I understand, arguing for more tax to be imposed on the very wealthy whilst Osborne is making the point that people avoiding paying their due tax, whatever it is, should be brought to justice. This tax is a “taxing subject” so perhaps I should set out my basic premises!

Oliver Wendell Holmes

That great American, Oliver Wendell Holmes, a member of the US Supreme Court famously said that "tax is the price we pay for a civilized society" –and all of us pay some form of tax to enable governments to provide the amenities and actions that the society desires. These may vary from society to society but might include roads, guns, policemen, aid to foreign countries, hospitals, schools, soldiers, waste collection – whatever. If we don’t pay taxes, goes the argument, then these desired services might not be provided. Now there may be many views on this – indeed there are, for example in the UK  there currently rages a debate about the role, for example of private enterprise in the provision of many services – especially the NHS - but essentially that is what taxation is about – everyone making a contribution according to their means towards the general good. It is, however, rather more complex than this. Individuals in societies might argue about what is appropriate for taxation to fund and what private individuals or bodies should fund. We might dispute what is a fair level of taxation – indeed, this seems to be the point being made by Buffet. Or we might have quasi-political arguments about the role of the state and that of the responsibilities of the individual – a factor which is at the root of many of the current  debates in the USA  about Obama’s introduction of health care proposals  or in the UK about  social services spending and the welfare state. In the final analysis, however, these complex considerations do not detract from the general fact that we pay tax to fund the things that we desire and value as a society.

Eric Pickles

The whole thing is a mine field, however. A couple of weeks ago one of the UK’s most ridiculed  (and by many reviled) politicians Eric Pickles  (he is the “Communities Secretary” – whatever that is) opposed a proposal to introduce what is called a “Mansion Tax” whereby properties valued in excess of a million pounds are subject to a tax.  When I read Pickles’ comments I was incandescent! I did not object to his opposition to the tax – that was very predictable but rather his reasons. He said: "We as a Government have got to understand that middle-class families put a lot into this country and don't take a lot out.....People will suddenly find themselves in a mansion and they hadn't realised it was a mansion....I like people to keep more in their pockets for their family."

I found Pickles’ comments offensive and banal at every level. However people might argue it cannot, I believe be denied that  anyone classed as “middle class” is by implication more financially secure (and potentially richer) than many others and as such must be potentially subject to greater taxation. Secondly, I wonder on what he basis his claim that middle class families take less out? – this seems to be a very divisive statement  but, more importantly,  carries the implication that you only get out what you put in. This seems to run contrary to what I believed  was a fundamental on tax – it is about society not individuals and provides services for all and in many case protection for the vulnerable and less well off. And thirdly, his final comment  goes to the root of all taxation issues – it’s about greed. I want to keep more of my money for me so I want to pay less tax.

This last point is for me crucial on a number of fronts. Let me explain my position. Many of my views on taxation are based on a conversation I had some half a century ago but which still has resonance today  - as George Osborne’s latest comments (above) illustrate.

Contemporary picture of the
Boston Tea party

In the early 60s I left home in Preston to go teacher training college in Nottingham.  Like most students I received a grant which was calculated on parents’ income. My grant was  £162 per year – almost the maximum available (£164). My parents were not well off but they were still required to make a donation and they did. Each Monday morning I would receive from my mother a rolled up copy of the previous Saturday night’s “Football Post” (so that I could read the reposts of how my beloved Preston North End had played!) and hidden inside was a letter of all the family news and two pound notes. I know that the £2.00 mother sent me each week was a significant bit of the family’s cash – we were not well off – and I also knew I was lucky since many of my peers did not have such supportive parents and had to manage on their grant alone.  In the next room to me  was  a blunt, plain speaking Yorkshire guy. Terry and I got on quite well and soon after we started the course we happened to be discussing grants. Terry was mean with money (a Yorkshire man!) but never short of it. He told me that he got a full grant plus other benefits -  a clothing grant, an extra payment for books, a travel grant so that he could travel home for free – all things that had been denied me because my parents earned “too much”.  At first this meant nothing to me until after a few weeks his parents  came for a visit. His dad drove a very posh car – a Humber, the equivalent in those days of a top of the range BMW and his mother looked very well dressed. Terry told me that his dad owned a chain of gents’ outfitters in West Yorkshire – they were well off! When I queried his grant Terry was perfectly honest -  explaining that his dad had an accountant who made sure, by using every tax loophole, that his dad’s income appeared  minimal as far as the grant was concerned and that despite the booming business rarely paid any tax anyway! Terry was, therefore, the happy recipient of a full grant and every other available benefit! I thought back to the squabbles that there had been at home between my mother and dad about money, I thought of how much it “cost” my parents to send me the £2.00 each week from their meagre income and mostly I thought about the basic dishonesty of a system that allows someone to play it and reduce their financial responsibilities by clever accountancy. It seemed very unfair – the richer you are the richer you get! Perhaps Terry’s dad was not  acting illegally, just “playing the system”, but it all seemed wrong to me – and still does – and reinforces my belief that willingness to pay tax commensurate with one’s income is inversely related to  personal  greed. Pickles said that middle class people take little out of they "system" - that may or may not be true - but, I would argue, they are also more skilled and tax aware to ensure that their tax liability is minimised in the first place - as was Terry's father. Put simply the richer you are the greedier you are or the less you want to pay tax then, in all likelihood, the wealthier you are – you have a lot and you want to keep all of it. Precisely the point which I believe Eric Pickles makes l and which hopefully, George Osborne is going to try to reduce – although I won’t hold my breath on that one.

Robin Hood outside
Nottingham Castle

But of course, this is not new. There has always been a basic unwillingness to pay tax. People object either because they don’t approve of what the money will be spent on or object to what they perceive as “their money” being taken off them. “I’ve earned it so it’s mine” they say. Indeed that view of the world underpins the much repeated mantra of recent months in this country – “if the government taxes the banks and bankers at a punitive rate then they will go elsewhere to ply their trade and London as a financial capital will be adversely affected”. Well, maybe – although I’m cynical enough to believe that bankers and banks and the like are so governed by greed and their own personal  welfare that they will factor in other benefits of working in the UK and work out that they will be better off to stay.  And if they don’t then I for one would say that our society is better off without their attitude and greed!

But, as I say, taxation and people’s responses to it have been around for a very long time. There are references in the Bible, history is littered with examples and indeed, here in Nottinghamshire we have two superb historical examples which despite being based in far off history are still “of today!”

Is it Errol Flynn,
Robin Hood or
Warren Buffet in tights? 

In the Bible we read of Jesus’ comment about “rendering unto Caesar what is Caesar’s” – interpreted by many as a requirement for people to pay their taxes. We also read of Jesus’ friendship and calling of Levi the tax collector. In 1215 the English barons forced King John to sign the Magna Carta – a document that changed the world and which had its roots in what the barons saw as John’s unfair use of taxation. In Boston, America, in 1773 the “Tea Party” was a reaction against what the colonists saw as unfair taxation from London and the call for “taxation only with representation” – a few years later the USA was born following the event in Boston .  In more recent years the “Poll Tax” in Britain lead to widespread revolt in the 1990s and was a major factor in the final demise of Margaret Thatcher as Prime Minister.

The Wise Men and the sun
and the pond

But, back to Nottingham. As I drive into Nottingham city centre I can pass the famous statue of the town’s most famous son – Robin Hood. If I decide to have a summer afternoon out I can visit Sherwood Forest, a few miles away from where I live – Sherwood, the home of Robin and Maid Marion and the Merry Men - the subjects of books, poems, legends and Hollywood blockbusters. And why are they famous? Put simply, because they fought what was seen as an injustice to ordinary people – the unfair taxation imposed by King John to fund his life style and his foreign crusades. Of course, Robin had a quirky way of going about it that made him a hero – “he robbed the rich to give to the poor” – now, strangely,  that seems to me to be the basic premise of what taxation should be about – and something that perhaps Eric Pickles would not understand! He wants the rich (the middle classes) to keep their wealth – perhaps we need a modern day Robin, or indeed, perhaps in George Osborne we already have one! Perhaps Warren Buffet is a reincarnation of  Robin or Robin in disguise!  Perhaps some future Hollywood blockbuster might feature Mr Buffet starring as Robin in Errol Flynn type tights and Eric Pickles, also in tights, starring as the evil Sheriff of Nottingham – King John’s tax collector in chief!

Catching the cuckoo with the fence

But even closer to my home is the small village of Gotham (pronounced “Goat-ham” for the benefit of American readers) and not to be confused with Gotham (pronounced “Goth-am” where Batman and Robin fight evil). Gotham is a small community and more or less our nearest neighbouring village. An old friend is the Head Teacher of the local school and we have a number of friends  who live there. And what has it to do with this blog? – “The Wise Men of Gotham” – the original tax dodgers, the people who George Osborne and is railing against and who Eric Pickles would be supporting - is a world famous tale from the middle ages. It has been passed down over the centuries by word of mouth and put into children's poetry form on a number of occasions! When I was teaching, since my school was very close to Gotham, it was a frequent part of our assembly story telling and classroom studies. It is very much part of the "folklore" of south Nottinghamshire. There are no great theme parks but the people of Gotham are often good naturedly considered to be very wise of alternatively stark raving bonkers! I will explain.

The Cuckoo Bush in Gotham today

The legends of the Wise Men of Gotham, like Robin Hood, date back to the time of King John. According to the many legends King John’s soldiers and tax collectors were due in the village to collect the King’s taxes. The village elders met – how could they avoid taxation? The plan they hit upon was to appear stupid to the soldiers and tax collectors so that they would give up in disgust and frustration. And so began a number of bizarre escapades of which there is still evidence in the village. The soldiers observed the men rolling great cheeses down the village hill and when asked what they were doing the “Wise men” announced they were rolling their cheeses to market in Nottingham  - eight miles away! The cheeses of course crumbled and broke. Or at night villagers were observed leaning over the village pond and dipping their hands in. When asked what they were doing they explained that they could see  silver coins at the bottom of the pond and they were trying to catch them to pay their taxes. Each time they tried the coins broke up – it was the reflection of the stars! They made this even more bizarre by doing the same this the next day when they tried to catch the huge gold coin they saw each morning at dawn as the sun rose! The legends go on – my personal favourite is that of the cuckoo bush where the villagers tried to catch a cuckoo in a  bush. They built  a fence around the bush and, of course, the bird flew straight up high into sky. When the soldiers confronted them with the stupidity of this the villagers responded by agreeing that it was rather silly – they should have built the fence higher!  They did, and of course, the bird simply flew away again! Wherever they went the tax collectors saw the villagers of Gotham undertaking foolish tasks - the local people seemed incapable of understanding or doing anything right! In the end the soldiers and tax collectors shook their heads and agreed the people of Gotham really were mad, not worth the effort, a waste of time so they moved on and the good folk of Gotham were spared paying their taxes! And to this day Gotham’s “wise men” are remembered  - the Star Inn, Cheese Hill, an annual festival in the school, The Rising Sun pub, the Cuckoo Bush pub and the cuckoo bush memorial in the middle of the village!

Looking down Cheese Hill to
Nottingham

Of course, this is all good knock about stuff but it is about a serious subject. Whether it be in Boston or Gotham, whether it is the tax laws of the UK or the tax dodging of wealthy bankers, whether it is Warren Buffet or  Robin Hood, tax matters and over the years has had a profound impact on the world, how its people behave and react and upon politics, economics and indeed the moral base of society. In some future blog (be warned) I shall return to more serious tax considerations and set out my position, but for now, it’s sufficient to reproduce one of my favourite quotes by the father of modern economics and capitalism Adam Smith. Smith often regarded as the arch free trader is clear on taxation issues is the idol of right wing economists and yet he said two centuries ago: “To feel much for others and little for ourselves; to restrain our selfishness and exercise our benevolent affections, constitute the perfection of human nature......... The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.....The rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion".

Adam Smith

That was  over 200 years ago but Warren Buffet today couldn’t have put it better! And I'm pretty sure that Oliver Wendell Holmes would indicate his agreement. And, as I read it, I am forced to the conclusion that poor old Eric Pickles - a modest man who, to use Churchill's words, "has much to be modest about" - is clearly out of synch with Adam Smith. And yet Smith is at the foundation of, and often used to justify, the current Tory philosophy about free markets, low taxation and capitalism espoused by Pickles. The right wing Tory "think tank" the "Adam Smith Institute" advises the party and others on these matters - and yet their founding father was clear about his position on a humanitarian tax system  two centuries ago. Clearly Eric Pickles is not strong on the exercising "our benevolent affections and the perfecting of human nature" bits of Smith's philosophy. And he certainly doesn't seem to go along with the rich "contributing more than their proportion" imperative. No, Eric is clear, he wants the wealthier middle classes to "keep more in their pockets!" Tax really is very confusing!

And, in writing this blog I’ve suddenly realised something else. I have written about Robin Hood, Nottingham and about my nearby village of Gotham and the tax struggles and avoidance there in medieval times. My fellow blogger Leann, whose blogs I referred to at the opening paragraph lives, I understand, in Massachusetts and  so must be somewhere near to that other great centre of tax avoidance in the late eighteenth century – Boston - coincidentally, also the birthplace of Oliver Wendell Holmes.  Clearly tax issues  are not bounded by geography or history – it is something that faces all of us wherever we live - and I do  like the symmetry of the events and personalities involved in the  Gotham/Nottingham/Boston “tax connection”. Great minds think alike!