Death and taxes again

Posted on 2 August, 2021 by alloporus

The theme of death and taxes we gave an evidence argument in a previous post. This one is about the hip pocket.

As a private citizen in Western democracies, you are certain of two famous things: death and taxes.

Except for those independently wealthy, to survive in the system you have to earn income and that income is taxed. Modestly for low-income earners and at a greater proportion as your remuneration grows.

This ‘work for money that is taxed’ keeps going until the inevitable happens and your body can’t fight entropy anymore.

Would you rather pay $20,000 or $1,000,000 in tax per year?

The weird part of this is that, after some thought, most people would be more than happy to pay a million dollars a year in personal income tax.

Obviously, it would mean that earnings are high enough to spend at least 10 grand a week and still have change. Compared to the low-income individual who plays $20,000 a year in tax, your bum is in the butter.

Similarly, a business paying tax is a good thing.

Corporations have many more ways of avoiding the tax dollar than the individual, but the reality is that net profit after tax, NPAT, where profit is the operative word, is the objective of the business, the reason it exists.

The company will have directors who, should they fail to maximize profit for their shareholders, risk prosecution. That NPAT number, the profit measure should be as high as possible.

A business not declaring a profit is very creative in its accounting or has previously made losses or isn’t a very good business.

Either way, the shareholders are not too happy if profit is not declared because that is their reward, their dividend for risking their own hard-earned to invest in the company.

Once the accounting smoke and mirrors are over, paying little to no tax is not a good thing.

Taxes benefit everyone

All this preamble comes before any moral argument about whether or not taxes are for the public good.

Remember that tax pays for collective benefits: roads, schools, police, defence plus a whole raft of services and structures that are hard to pay for as individuals, but that benefits everyone.

Tax is an integral part of the modern democratic system. It supports the social structure and a whole chunk of individual well being. Drive out of your front gate and you benefit from the tax dollar as soon as you hit the tarmac.

Without a tax system, we can say goodbye to the current quality of life that we enjoy. Arguably there is a moral obligation through the social contract for all legal entities and individuals to pay their way.

What is a fair share?

A fair share of tax is designated by the policies and the politics of the day.

And sure there’s no reason to pay more than your fair share according to the rules. As long as the tax system is equitable then everyone at some point in the process will have benefited from the taxes that they’ve paid. There should be a certain pride in paying tax toward the public good.

So to claim that you’ve paid no tax. Or to even hint that such a thing is good does not stack up in any sensible argument.

Paying no taxes as an individual means that you’re either at the very low end of the income scale in need of support or you’ve diddled the books somehow and claimed payments or shifted money around to avoid paying your fair share.

If a company pays no tax then at some point in the process the business has failed to disclose a profit or manipulated the books to sail very close to the wind and, again, avoids a fair share.

There is no doubt that corporations do this. They use all sorts of systems and hire expensive lawyers and accountants to move money around to avoid paying tax and one of the things that society has struggled to do is to reign in that avoidance behaviour.

But when no tax is paid for a very long time then the company is poor at what they do or they’re extremely good at dodging their fair share. Which even if it’s not illegal has certain moral nefariousness.

The graph below can speak for itself.

Alloporus would suggest tax is a good thing.

Paying your fair share according to your means should be everyone’s responsibility.

Banks

Posted on 13 January, 2017 by alloporus

Banks are a handy invention. They provide a safe place to store everyday money and, so long as you a meet certain criteria, a place to borrow money for items too costly for everyday money.

Banks also have a stupendous business model. There is no more profitable commodity to trade than money. Everybody needs it and is prepared to pay a premium for access to it. This willingness to pay even helps banks manage their risk of not holding enough capital to cover their obligations because most people do the right thing and make their repayments.

Even psychology is on their side.

Despite such a stupendous business model bankers are sharp to opportunity and the squeeze to profit is ingrained in their culture.

Last year in Australia the four main high street banks declared an after tax profit just shy of $14 billion and account for around 80% of the systemic risk in the financial system. They play a big game.

And the rhetoric is that we need them to play. If the flow of cash stopped, then so would everything else. Our system of trade and exchange requires that both capital and cash flow. Deals have to be done to ensure that a new housing block is built, paying tradesmen and providing homes for people to fill with white goods and flat screen TVs.

Banks profit from all of these transactions as they provide capital, credit and a place to store cash for a fee.

The question is how much should they profit? Is $14 billion in profits fair? It is enough to pay roughly 176,000 people the average wage for a year or 400,000 people the minimum wage. The number of people recorded as unemployed in Australia as at November 2016 was 725,000.

Remember that profit is the money made over and above the cost of doing business, paying taxes, and executive bonuses.

Of course, some profit is distributed as dividends to shareholders and so is fed back into the economic system. And without this redistribution, the money would not have been mobilised toward profit in the first place. So care is needed here.

It is too simple to imply that $14 billion could make a serious dent in the unemployment rate. But it is worth a thought.

At what point does society collectively say that enough profit is enough?

Profit

Posted on 21 November, 2016 by alloporus

What I learned lately about… profit

Profit is still the bottom, and only line

You know the old saying ‘if push came to shove’ means when things get nasty and extremis arrives this is what you would do.

Well, where the corporate world is concerned, any shoving results in action to protect profit. There is, of course, pampering to other values, but the law compels directors and trustees to build shareholder value. And this sets in stone a quest for profit.

Sobering.