Taxing the Population for Private Profit

by Manfred Davidmann

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CONTENTS

Summary

Introduction

Exporting Employment (Importing Unemployment) at Taxpayers' Expense

Taxing the Population to Benefit Corporations

Reducing Public Spending to Benefit the Rich

Channelling Taxpayers' Moneys into Private Profits

Condoning Tax Avoidance by the Rich

Appendix 1: The Social Costs of Unemployment

Notes <..> and References {..}


Relevant Current and Associated Works

Relevant Subject Index Pages and Site Overview



SUMMARY

This report shows how taxpayers' moneys are used in different ways to enlarge the profits of companies (corporations) and thus of their owners. Companies (corporations) are in effect allowed to tax the population and are also allowed to pass large parts of their operating costs to the taxpayers.

Moneys saved by spending less on social security for those in need and gained by collecting more tax from the working population, is apparently being used to reduce the taxes collected from the rich and from corporations.



INTRODUCTION

This is one of a series of four studies which were undertaken to obtain a better understanding of why people have to struggle throughout their adult lives, in all countries and organisations, at all levels, to maintain and improve their standard of living and quality of life.

We know what people are struggling to achieve {15, 16} and so these studies explore why people have to struggle by looking at what they are struggling against.


The main report 'What People are Struggling Against' brings together the work reported in the four component studies by extracting and rearranging key findings from them.

To get an overview, it would be best to read the main report first. If you want more information on particular aspects of interest, you could then go to the component studies (See Relevant Current and Associated Works).



EXPORTING EMPLOYMENT (IMPORTING UNEMPLOYMENT) AT TAXPAYERS' EXPENSE

Corporations (Companies)
  • Import goods and services which originate in low-wage countries, into a high-wage home country.
  • Transfer manufacturing and service work from a high-wage home country to low wage countries.

The mark-up between buying or producing in a low-wage country, and then selling in a high-wage country, is often enormous <3>. Large additional profits result. Unemployment increases in the home country. There are many costs associated with unemployment such as social security payments to the newly unemployed. {5}

It is accepted as a principle of economics that social costs have to be paid by those causing them, so that the social costs of unemployment have to be paid by the enterprise which caused the unemployment in the first place {3}.

The different costs to individuals and community which result from unemployment are listed in Appendix 1. The social cost of unemployment to the community is the total cost to the community, is the sum of all the items listed there.

Companies, however, are not made to pay the resulting costs of unemployment, are allowed to pass these operating costs to the community and are thus making large profits at the expense of the community. {5}


In the UK, an individual was in 1998 reported to have been jailed for seven years for only threatening to contaminate a food if the producer did not pay him GBP 30,000 {7}. If he had carried out his threat the social costs would have been considerable and so he was jailed, presumably both as a punishment and to deter others from similar activities.

On the other hand, companies and corporations threaten to make people unemployed, and carry out these threats actually making hundreds and thousands of people unemployed with massive consequential social costs <1>. They also do so for the sake of private profit but no action is taken to prevent them from doing so by recovering the social costs from them, or to punish and deter by punitive sentencing.


All for the sake of profit, for personal gain of wealth, power, influence and control over others, for 'empire building'.



TAXING THE POPULATION TO BENEFIT CORPORATIONS

A multinational company can minimise its liability for corporation tax by transfer pricing, that is by making book entries which transfer profits to the country with the lowest corporation tax. This tax avoidance is legal and governments have not legislated to prevent this practice. {4}

Say a multinational has increased its profits by tax avoidance. The government's income from taxation has decreased accordingly. As the government's expenses have not changed it must make up this shortfall elsewhere. Usually from its other taxpayers, say from its citizens. So its citizens pay more tax, the government can now spend the same amount as before, the multinational's profits have increased.

In other words, the multinational's increased profits arise from money which is in effect collected by the government by taxation from its taxpayers.

The multinational, and this means the owners and directors of the multinational, are thus in effect taxing the people and in this way increasing the multinational's profits and thus their own incomes and wealth.



REDUCING PUBLIC SPENDING TO BENEFIT THE RICH

The government spends for the community the money it receives from the community, collecting it through taxation. Questions which need to be answered {9} are:

  1. 'How much money has to be collected to provide for the community's needs?', including the level of social security and health services people need and would like to have.

  2. 'Who contributes how much?' to see how the tax load is being shared among different income groups (including income from all sources).

  3. Who ought to contribute more, and who less?

  4. 'What effect will proposed changes have?' on the standard of living and quality of life of the different income groups.

'Appropriate Pay' {6} discusses such questions at some length, illustrating them by changes which took place in the United Kingdom over a period of ten years.


When owner-serving governments 'reduce income tax' for individuals and corporations, it is the rich who gain much, the working population hardly benefits. This becomes obvious when instead of looking at percentages one considers the purchasing power of the amounts. One then sees that the amounts contributed by the rich are being drastically reduced. The rich also gain much from other government policies which transfer moneys to them. And there are likely to be ways for tax avoidance (legal) and tax avoidance would be condoned. {9}

To claim in such circumstances that government expenditure on public services has to be cut so as to make ends meet, appears to be very one-sided.

In 1994, a British newspaper reported {10} that

the Swedish Social Democrats looked like replacing the ruling right-wing coalition in the coming election. The Social Democrats policies included increasing taxes on income, capital gains, share dividends and wealth.

Just before the election a newspaper article by the managing directors of four well-known companies 'was interpreted as an attack' on Social Democrat policies. A top-level owner-industrialist stated that his family might move some of its companies abroad 'unless the Swedish government made deep cuts in public expenditure'.

The economic policies of a British conservative government, for example, in effect reduced the tax the rich were paying and so reduced the contribution from the rich towards government expenditure. The conservative government then attempted to make ends meet by firstly collecting more money from the lower paid and from the poor by substantially increasing VAT (by 50%), and secondly by drastically cutting social services and social insurance payments and benefits including expenditure on education and on the health service. {1}

Such reductions seem to aim also at reducing the social security of the working population in areas such as unemployment benefit, health insurance payments, social security benefits such as supplementary payments, and pension rights. For example, it has been reported that in Britain's national health service the number of hospital beds has steadily declined over a considerable number of years while the number of admissions has increased. {2}



CHANNELLING TAXPAYERS' MONEYS INTO PRIVATE PROFITS

Employers should pay wages which will provide a good life for employees and their families. But the lower the wage paid, the higher the profit. And there will be employers who are more interested in their own profits than in the welfare of their employees.

Some employers may then pay wages which are so low that employees are forced to work long hours merely to survive. A government may then make up such wages with means-tested income support benefits to a poverty-existence level. Which is apparently what happened in the UK while minimum-wage requirements ceased to be applied.

In such ways taxpayers' moneys are used to subsidise the profits of companies (corporations), of their owners.


Taxpayers' moneys are also used to subsidise the profits of companies (corporations) when a government pays a subsidy to a company for every new employee. This is so regardless of whether the subsidy is paid as a single payment or whether it is paid for a limited period as part of the employee's wage.


Eton, a British establishment's exclusive 'public' boarding-school was, in 1997, reported to have about 1,260 pupils most of whom paid fees of about GBP 13,400 each year. Apparently nineteen of Britain's prime ministers were educated at Eton. The annual fee is close to the average annual British wage and Eton apparently had assets of about GBP 130 million without including buildings, 350 acres of grounds, and much else. {11}

But this wealthy and exclusive enterprise is registered as a charity. As far as I know this means that annual fees can be paid in accordance with a written covenant <4>, that is by stating in writing one's intention to make regular payments, which enables the college to recover the income tax paid on those sums and so reduce the level of fees.

And this means that the government, that is the working population, is subsidising Eton college by something like GBP 6 million each year. This figure is based on its income from fees alone and it appears to have additional 'investment income of millions'.

There are a considerable number of 'public' schools in the UK which appear to be almost exclusively educating a very small and rich section of the population.

Here taxpayers' moneys are in effect used to subsidise without means-testing the income and lifestyle of the parents. Can we afford to give away such large sums to benefit almost directly only a small number of people who are not in need?


Overall, the amounts channelled in such ways into private profits seem large. There may be investment grants, depreciation allowances, grants in aid, tax allowances, tax-free benefits, loans at favourable terms or other ways of financial support to various enterprises in industry, agriculture and the service sector. {9}

Very large amounts are apparently handed over yearly to increase the wealth and power of a small number of people without any corresponding return to the community. They are generally given without any obligation to repay, without a corresponding transfer of ownership and control to those who provided the money, to us. {9}

No banker, no financial institution, no shareholder would dream of giving away their capital without making sure of retaining ownership and control over this money, through the transfer of corresponding securities and ownership rights, and of direct and indirect participation in the resulting profits. {9}


So how come a democratically elected government can hand over public moneys to owners of companies (corporations) without getting corresponding ownership rights in return?

And how come public moneys can find their ways into private profits in such ways?



CONDONING TAX AVOIDANCE BY THE RICH

It has been reported {12-14} that the amount of assets hidden in Britain's offshore tax havens totals more than GBP 350 billion. Apparently companies and trusts are placed in tax havens to avoid paying taxes, appear to be asset-holding rather than trading. It seems they do not have to file proper public accounts nor do they need to reveal the identity of their directors, that is of those who own and control them.

The amount of tax lost to the British government from allowing tax-free status to these offshore islands has been estimated in the absence of reliable information as possibly being of the order of GBP 20 billion {13}, a large amount. One would like more comprehensive information but this estimate indicates a possibly staggering amount of tax-avoidance (legal) by those who are rich.

There would seem to be no good or valid reason for condoning tax-avoidance by those who are rich.

What stands out is that in such ways the rich are apparently allowed to avoid paying a fair share of the tax load. Condoning tax-avoidance increases the tax load on the working population.


We saw <2> that
A multinational company can minimise its liability for corporation tax by transfer pricing {4}, that is by making book entries which transfer profits to the country with the lowest corporation tax.

A unitary taxation system can overcome this tax avoidance by assessing the actual profits being generated by a multinational in a particular country. American state governments have tried to install systems of unitary taxation but, as far as I know, multinational corporations have been able to dissuade state governments from applying such systems.

Studies published in the USA {8}, for example, tell us much about the extent to which multinationals can avoid paying tax on their profits. These present a disturbing picture. It seems that at times some top companies pay no federal income tax or obtain an overall rebate. Tax allowances appear to add well over USD 100 billion each year to the accounts of US corporations, and are thus given to owners and directors.


The ways in which taxation can be used to shift the tax load between income groups are numerous and often hide behind fine-sounding phrases.

Companies (corporations) have to distribute yearly a 'Funds Flow Statement' to their shareholders which states in plain language where moneys have come from, and what they have been spent on, for a particular year.

We should get similar independently audited statements from our government stating what moneys they have received and what these have been spent on. Stating in plain language who provides how much, for different income groups, showing types of taxes referred back to these income groups, and what the moneys have been spent on. Including and showing direct and indirect payments and transfers to the income groups, as well as showing what taxpayers received in return for the taxes collected from them.

And we should get a funds flow statement for the country's operations as a whole.



Appendix 1:

THE SOCIAL COSTS OF UNEMPLOYMENT

The social costs of unemployment {5} to people as individuals, to their families, and to the community as a whole, are {5}:

INDIVIDUALS
Poverty, lack of spending money
Frustration, despair
Young people without full-time work experience
Social disillusionment
Ill health
Reduced life span
Mental illness
Increasing suicide rate
Drug abuse, crime

FAMILIES
Increased family breakup
Homelessness
Domestic violence

COMMUNITY
Higher and rising crime rates
Brutalization of lifestyle
Lost Income:
(1) Loss of income tax from those now unemployed.
(2) Loss of National Insurance contributions which would have been received from both employees and employers.
(3) Loss of Value Added Tax as the unemployed reduce their spending.
Increased Expenditure
(4) Increased cost of Unemployment Benefit (Among developed countries, the British rate of benefit appears to be one of the lowest).
(5) Increased cost of Social Security support payments.
(6) Increased costs for Health Service, Police and Prisons.

Note that persistent lack of care and consideration towards its members leads to a view of society as being hostile and unrewarding {15}. We now see this taking place and see its effects.

The social cost of unemployment to the community is the total cost to the community, is the sum of all the items listed here.



NOTES AND REFERENCES


NOTES

<1>     See 'Appendix 1'
     
<2>   See 'Taxing the Population to Benefit Corporations'
     
<3>   Costs + Profit = Price
     
    'Mark-up' is 'Profit' expressed as a percentage of 'Costs'
     
    Say Costs = 100
Profit = 10
       
    Then Price = 100+10=110
       
    And Mark-up = (10/100)*100 = 10 percent
     
    'Costs' include wages and salaries
     
<4>   A 'covenant' in this context is a written agreement to make regular payments.


REFERENCES

{ 1}     Social Responsibility, Profits and Social Accountability
Manfred Davidmann
http://www.solhaam.org/
     
{ 2}   Style of Management and Leadership
Manfred Davidmann
http://www.solhaam.org/
     
{ 3}   Community Economics: Principles
Manfred Davidmann
http://www.solhaam.org/
     
{ 4}   Transfer Pricing and Taxation
Manfred Davidmann
http://www.solhaam.org/
     
{ 5}   Exporting and Importing of Employment and Unemployment
Manfred Davidmann
http://www.solhaam.org/
     
{ 6}   Appropriate Pay
Manfred Davidmann
Social Organisation Ltd
     
{ 7}   Seven years for dairy blackmail
Helen Carter
Guardian, 12/09/98
     
{ 8}   The Resurgence of Business Investment & Corporate Income Taxes
Citizens for Tax Justice, 1989
Robert S McIntyre, Douglas Kelly, Bruce L Fisher, David Wilhelm, Helen Luce Dorrier
     
{ 9}   Inflation, Balance of Payments and Currency Exchange Rates
Including: Multinational Operations;
How Base (General) Interest Rates determine Share Prices and Pensions;
Standard of Living and The Struggle for a Bigger Share.

Manfred Davidmann
http://www.solhaam.org/
     
{10}   Swedish chainsaw massacre
Greg McIvor
Guardian, 16/09/94
     
{11}   How Eton entered the Kwik-Fit league
Clara Longrigg and John Carvel
Guardian, 21/04/97
     
{12}   Billions hidden offshore
David Leigh
Guardian, 26/09/98
     
{13}   Raid the tax havens
Guardian, 26/09/98
     
{14}   Island tax havens face crackdown
Alan Travis
Guardian, 20/11/98
     
{15}   Motivation Summary
Manfred Davidmann
http://www.solhaam.org/
     
{16}   The Will to Work: What People Struggle to Achieve
Manfred Davidmann
http://www.solhaam.org/



Relevant Current and Associated Works

     
Title   Description
     
     
Main Report
       
What People are Struggling Against: How Society is Organised for Controlling and Exploiting People   Report of study undertaken to find out why people have to struggle throughout their adult lives, in all countries, organisations and levels, to maintain and improve their standard of living and quality of life. Reviews what people are struggling against.
     
     
Component Reports
     
Corrupted Economics and Misleading Experts   Shows how 'Economics' is used to misinform and mislead the general public. Clearly states underlying considerations of specific important economic relationships and comments on misleading political interpretations and on role of independent experts.
     
Taxing the Population for Private Profit   Shows how taxpayers' moneys are used in different ways to enlarge the profits of companies (corporations). These are in effect allowed to tax the population and to pass large parts of their operating costs to taxpayers and so to competitors.
     
Democracy Under Attack: Top-level Leadership and Decision-taking   Discusses and illustrates the internal struggles taking place in political parties and all other organisations, for achieving greater democracy and against those wishing to overpower democratic processes of decision-taking.
     
Understanding How Society is Organised for Controlling and Exploiting People   Describes how corporations (companies) accumulate their capital and reserves from moneys taken from customers. Enterprises are allowed to collect, take over and control such moneys. Cooperatives also take over moneys from their members. And much more.
     
     
Other relevant current and associated reports by Manfred Davidmann
     
Style of Management and Leadership     Major review and analysis of the style of management and its effect on management effectiveness, decision taking and standard of living. Measures of style of management and government. Overcoming problems of size. Management effectiveness can be increased by 20-30 percent.
     
Role of Managers Under Different Styles of Management     Short summary of the role of managers under authoritarian and participative styles of management. Also covers decision making and the basic characteristics of each style.
     
Directing and Managing Change     How to plan ahead, find best strategies, decide and implement, agree targets and objectives, monitor and control progress, evaluate performance, carry out appraisal and target-setting interviews. Describes proved, practical and effective techniques.
     
Motivation Summary   Reviews and summarises past work in Motivation. Provides a clear definition of 'motivation', of the factors which motivate and of what people are striving to achieve.
     
The Will to Work: What People Struggle to Achieve   Major review, analysis and report about motivation and motivating. Covers remuneration and job satisfaction as well as the factors which motivate. Develops a clear definition of 'motivation'. Lists what people are striving and struggling to achieve, and progress made, in corporations, communities, countries.
     
Work and Pay   Major review and analysis of work and pay in relation to employer, employee and community. Provides the underlying knowledge and understanding for scientific determination and prediction of rates of pay, remuneration and differentials, of National Remuneration Scales and of the National Remuneration Pattern of pay and differentials.
     
Work and Pay: Summary   Concise summary review of whole subject of work and pay, in clear language. Covers pay, incomes and differentials and the interests and requirements of owners and employers, of the individual and his family, and of the community.
     
Exporting and Importing of Employment and Unemployment   Discusses exporting and importing of employment and unemployment, underlying principles, effect of trade, how to reduce unemployment, social costs of unemployment, community objectives, support for enterprises, socially irresponsible enterprise behaviour.
     
Transfer Pricing and Taxation   One of the most controversial operations of multinationals, transfer pricing, is clearly described and defined. An easily-followed illustration shows how transfer pricing can be used by multinationals to maximise their profits by tax avoidance and by obtaining tax rebates. Also discussed is the effect of transfer pricing on the tax burden carried by other tax payers.
     
Inflation, Balance of Payments and Currency Exchange Rates     Reviews the relationships, how inflation affects currency exchange rates and trade, the effect of changing interest rates on share prices and pensions. Discusses multinational operations such as transfer pricing, inflation's burdens and worldwide inequality.
     
Organising   Comprehensive review. Outstanding is the section on functional relationships. Shows how to improve co-ordination, teamwork and co-operation. Discusses the role and responsibilities of managers in different circumstances.
     
Social Responsibility, Profits and Social Accountability   Incidents, disasters and catastrophes are here put together as individual case studies and reviewed as a whole. We are facing a sequence of events which are increasing in frequency, severity and extent. There are sections about what can be done about this, on community aims and community leadership, on the world-wide struggle for social accountability.
     
Social Responsibility and Accountability: Summary   Outlines basic causes of socially irresponsible behaviour and ways of solving the problem. Statement of aims. Public demonstrations and protests as essential survival mechanisms. Whistle-blowing. Worldwide struggle to achieve social accountability.
     
Co-operatives and Co-operation: Causes of Failure, Guidelines for Success   Based on eight studies of co-operatives and mutual societies, the report's conclusions and recommendations cover fundamental and practical problems of co-ops and mutual societies, of members, of direction, of management and control. There are extensive sections on Style of Management, decision-taking, management motivation and performance, on General Management principles and their application in practice.
     
How the Human Brain Developed and How the Human Mind Works   Describes clearly what happens while sleeping, role of dreaming, meaning of dreams. Functioning of the two halves of the human brain is related to the autonomic nervous and the immune systems. Shows how human behaviour is affected by primitive instincts.
     
Using Words to Communicate Effectively   Shows how to communicate more effectively, covering aspects of thinking, writing, speaking and listening as well as formal and informal communications. Consists of guidelines found useful by university students and practising middle and senior managers.
     
Community and Public Ownership   This report objectively evaluates community ownership and reviews the reasons both for nationalising and for privatising. Performance, control and accountability of community-owned enterprises and industries are discussed. Points made are illustrated by a number of striking case-studies.
     
Ownership and Limited Liability   Discusses different types of enterprises and the extent to which owners are responsible for repaying the debts of their enterprise. Also discussed are disadvantages, difficulties and abuses associated with the system of Limited Liability, and their implications for customers, suppliers and employees.
     
Ownership and Deciding Policy: Companies, Shareholders, Directors and Community   A short statement which describes the system by which a company's majority shareholders decide policy and control the company.
     
Creating, Patenting and Marketing of New Forms of Life     Evaluates problems in genetic manipulation, and consequences of private ownership of new life-forms by multinationals. Lists conclusions and recommendations about man-made forms of life, their ownership and patenting, about improving the trend of events.
     
The Right to Strike   Discusses and defines the right to strike, the extent to which people can strike and what this implies. Also discussed are aspects of current problems such as part-time work and home working, Works Councils, uses and misuses of linking pay to a cost-of-living index, participation in decision-taking, upward redistribution of income and wealth.
     
Reorganising the National Health Service:
An Evaluation of the Griffiths Report
  1984 report which has become a classic study of the application and effect of General Management principles and of ignoring them.

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Relevant Subject Index Pages and Site Overview


The Site Overview page has links to all individual Subject Index Pages which between them list the works by Manfred Davidmann which are available on the Internet, with short descriptions and links for downloading.

To see the Site Overview page, click Overview

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Copyright    ©    1998    Manfred Davidmann
All rights reserved worldwide.

History
11/12/98 Completed
03/01/99 To Website
07/02/99 Main report published. Reference added.
02/06/02 Added 'Relevant Current and Associated Works'