No Right Turn entitles this post “Refuted”.

One of the right’s favourite talking points is that higher taxes are pointless because they will simply result in more evasion. In New Zealand, this argument focused on Labour’s introduction of a 39% top rate, and the difference between that and the trust and company tax rates.

The right were right in one sense: greedy sociopaths did try and avoid taxes by structuring their affairs in various cunning ways to minimise their income while still enjoying its benefits.

Of course we were right. It’s basic common sense.

But you’ve gotta love the language he uses: “greedy sociopaths” using “various cunning ways”. The reality is much more mundane – thousands of Joe Blogs business owner set up a family trust.

But they were wrong where it mattered: in thinking that these structures would work. The Supreme Court has just ruled decisively that they don’t. If you incorporate, set your salary at an artificially low level, transfer profits to a family trust, then loan them back to yourself interest free, then its tax avoidance and the IRD can ignore it and stick you for the tax you should be paying (oh, and penalties and interest on everything you dodged).

Yes, in this particular case the IRD won. 10 years after the fact. This is from a guy who probably declared the Iraq war lost in in the first few days.

The problem with greedy sociopaths avoiding high taxation is not a failure of policy, but a failure of enforcement. And that is a failure easily fixed by any government which wants to fix it.

Yea, let’s check that story again…

He said IRD had been helpful  in its handling of this issue and was only focusing on extreme cases and was not tackling a lot of small businesses.

He would expect IRD to pursue only the most extreme cases.

Translation: most people got (or will get) away with it because so many were doing it, and at levels where the tax not paid is probably not worth pursuing. Why were so many doing it? Because the system encouraged them to do so.

As much as Idiot would want it otherwise, there is a limit to how much the tax department can do to enforce tax law. They can’t simply audit everyone in town. There’s a limit to how much money you can spend while you collect tax, or you don’t have any tax for roads or welfare – all that lovely stuff that we all want the government to pay for.

Do we want a complicated, easily avoided tax system that takes 10 years to get the goods, or a simple tax system that has much lower overheads that encourages people to simply pay the tax that is due?

I know what one I prefer. I also know which one encourages economic growth, and not the growth of tax lawyers.

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