We’re the 100 per cent because we all pay tax

DEBATES about tax can be pretty taxing – as two recent examples of both sides of the debate embellishing the facts to create outrage out of nothing clearly show.

In a recent report, Action Aid found that 98 per cent of FTSE 100 companies had subsidiaries that operated within a tax haven. There are problems with how they define tax havens, and Christie Malry’s FCA blog has already taken them to task for this. They use a conventional definition from the US Congress’s Government Accountability Office and then supplement it with a mixture of states and countries that they arbitrarily define as tax havens. Since this list includes parts of the US and EU it should be taken with a large pinch of salt. However, when a TV news channel reported this, it implied that owning a subsidiary within a particular country is the same thing as the entire company being based there, claiming that “98 out of the 100 companies on the FTSE 100 base their operations in territories where there is low or no tax.” This would be like saying that Coca Cola, McDonalds and Ford are “based in the UK” purely because they have operations here. Once this started circulating, some people mistook “low or no tax” with simply “no tax”, feigning outrage that 98 per cent of the UK’s 100 largest companies do not pay tax at all. But all companies pay tax.

In the US there is a similar story. The Tax Policy Center found that 47 per cent of Americans do not pay federal income tax (according to Derek Thompson at The Atlantic, over half of those people earn less than $20,000 per year). This has led to a Conservative counter-movement to Occupy Wall Street, referring to itself as “the 53 per cent”, but this figure has also been misused. Fox & Friends co-host Brian Kilmeade presented the movement as representing the “53 per cent that actually pay our taxes”, ignoring the payroll, state, sales and myriad other forms of taxation that affect everybody. All people pay tax.

Both sides can take these criticisms too far. Just because the claim that “98 per cent of the FTSE 100 don’t pay tax” is factually wrong, doesn’t excuse tax evasion (although it is also important to realise that just because companies sign the cheques does not mean that they bear the incidence – ultimately only people pay taxes). Policy should focus on making sure that SMEs do not face regulatory burdens that only large companies are able to work around, and reducing the complexity that makes tax dodging possible. Similarly, those on the left often ignore the caveat about who pays federal income taxes when it does get made, and neglect the important fact that tax burdens on working people are getting higher.

The internet facilitates these sorts of memes, and polemicists on both sides find value in exploiting them. But it usually pays to look beyond headlines and commentary to track down the studies themselves. It is wrong to believe that rich companies can simply employ legal experts and avoid paying taxes, and it’s wrong to think that those who are out of work do not suffer from high tax burdens. We cannot make easy distinctions between taxpaying and non-taxpaying companies, or indeed between tax paying or non-taxpaying individuals. We are all taxpayers.

Anthony J. Evans is associate professor of economics at London’s ESCP Europe Business School. www.anthonyjevans.com