I really fail to see how what is declared in a tax return, David Cameron’s or any other, reveals anything important at all on the issue of widespread tax-dodging by the super-rich. It seems to me that the only thing to be gleaned from Cameron’s tax return is some rather pointless newspaper tittle-tattle.
David Cameron’s tax return shows that he received £300,000 in inheritance from his father. This amount is just under the inheritance tax threshold. It seems obvious that this is no coincidence. Cameron’s mother stepped in to give Cameron an additional £200,000 herself soon after her husband’s death. A sneaky wheeze perhaps, but hardly explosive material.
Once money is declared in a tax return, almost by definition, the essence of the tax dodging issue has been stripped out. The whole “Panama Papers” scandal is to do with how much can and does go totally undeclared in the tax returns of the super-rich.
The means of avoiding and evading tax are highly secretive. Sometimes, not always, they are also entirely legal. This is the scandalous nature of the current tax regime. It is not difficult to hide away vast sums of money in order to pay little or no tax. However, because it can be rather expensive to ‘minimise’ taxes it is a benefit only the super-rich are able to benefit from.
The Panama Papers have revealed that aggressive tax avoidance is utterly commonplace for wealthy individuals: for autocratic rulers, hereditary monarchs, international oligarchs, drugs barons, arms dealers, property developers and art collectors. From Britain to Russia to China, from Iceland to Argentina nerves are jangling and politicians are scampering to dismiss, deflect and deny.
The rate of Corporation Tax (currently 20% in the UK, scheduled to fall to 19% next year and to 18% in 2020) is less than the highest rate of income tax (which currently stands at a rate of 40%). One way of avoiding paying the high rate of income tax, therefore, is to channel income through a private corporate entity. This accounts for the trend for individuals to contract out their services and to receive remunerations through a privately owned company, rather than as a salary paid to employees on (non-tax-avoidable) PAYE terms. They lose some benefits of course, like sick pay and paid holidays, but the tax saving is worth it, if the remuneration and corresponding tax savings are high enough.
Flows of funds into loss-making, often government-subsidised, investment schemes (such as film-making), into tax-exempt charities, and into property owned by corporations rather than individuals, are other ways of escaping tax (and sometimes also of laundering money). Tax accountants begin conversations with their clients by asking them how much tax they wish to pay. Paying tax is viewed as optional by the super-rich.
Money can be channelled into accounts of third parties in order to disguise the identity of the beneficiary. Paying no inheritance tax is perfectly legal if a property is passed down through a corporation rather than directly to individuals. This could explain why Cameron is so unsure about just how many homes he does actually own.
What we need to see is not Cameron’s income tax return, but the entire list of all of his assets and income flows, as well as those of his immediate family. Will he show us these? I doubt it. Should he? Well yes, if the idea is to prove whether or not he personally profits from the tax loopholes that remain commonplace, whether there is, in fact, a conflict of interest, and whether or not he says one thing and does another. That is not the same thing as demanding to see the details of each and every person’s personal tax returns. Not only would such a thing be dull and intrusive, it would fail to reveal the crux of the problem.