Tax and owning a business.

[ccgg]

Obviously we need to pay tax to keep the country, get us out of all this debt, pay for the armed forces, schools, and other things but I thought this was funny and very thought provoking and I think it is worth sharing.

"
I'd like to make you a business offer.

Seriously. This is a real offer. In fact, you really can't turn me down, as you'll come to understand in a moment...

Here's the deal. You're going to start a business or expand the one you've got now. It doesn't really matter what you do or what you're going to do. I'll partner with you no matter what business you're in ? as long as it's legal.

But I can't give you any capital ? you have to come up with that on your own. I won't give you any labour ? that's definitely up to you. What I will do, however, is demand you follow all sorts of rules about what products and services you can offer, how much (and how often) you pay your employees, and where and when you're allowed to operate your business. That's my role in the affair: to tell you what to do.

Now in return for my rules, I'm going to take roughly a third of whatever you make in the business each year. A third seems fair, doesn't it? I think so. Of course, that's a third of your profits. And you know what, just to make it more attractive, if you choose to pay yourself an income instead of keeping the money in the business I'll take up to half instead of only a third. Well, you know that growing businesses need an incentive for investment, so that seems like a good deal.

You're also going to have to pay me about 12% of whatever you decide to pay your employees because you've got to cover my expenses for promulgating all of the rules about who you can employ, when, where, and how. Come on, you're my partner. It's only "fair."

Now... after you've put your hard-earned savings at risk to start this business, and after you've worked hard at it for a few decades (paying me my 33% or a bit more along the way each year), you might decide you'd like to cash out ? to finally live the good life.

Whether or not this is "fair" ? some people never can afford to retire ? is a different argument. As your partner, I'm happy for you to sell whenever you'd like... because our agreement says, if you sell, you have to pay me an additional 28% of whatever the increased capital value of the business is at that time.

I know... I know... you put up all the original capital. You took all the risks. You put in all of the labor. That's all true. But I've done my part, too. I've collected 33% of the profits each year. And I've always come up with more rules for you to follow each year. Therefore, I deserve another, final 28% slice of the business.

Oh... and one more thing...

Even after you've sold the business and paid all of my fees... I'd recommend buying lots of life insurance. You see, even after you've been retired for years, when you die, you'll have to pay me 40% of your entire estate over about 250k.

After all, I've got lots of partners and not all of them are as successful as you and your family. We don't think it's "fair" for your kids to have such a big advantage. But if you buy enough life insurance, you can finance this expense for your children.

All in all, if you're a very successful entrepreneur... if you're one of the rare, lucky, and hard-working people who can create a new company, employ lots of people, and satisfy the public... you'll end up paying me more than 70% of your income over your life. Thanks so much.

I'm sure you'll think my offer is reasonable and happily partner with me... but it doesn't really matter how you feel about it because if you ever try to stiff me ? or cheat me on any of my fees or rules ? I'll break down your door in the middle of the night, threaten you and your family with lawsuits funded by an infinite pool of money - amusingly enough, that's a pool you contribute to - and throw you in jail.

That's how civil society is supposed to work, right? Because that's the offer the state gives its entrepreneurs.

"

I agree it's funny. However, it doesn't mention the fact that the partner educated the entrepreneur (and employees) for free, looks after him/her and all the extended family when they're ill, works with other countries to make it easier to export/attract inward investment, ensures that other partners play by the rules and does all kinds of things to maintain a stable society. So it's not a one-way street.

How about this from the much missed Mr. Eugenides.

"The main argument now, increasingly, is between those who view the state as an enabler and those who view it as, at best, a sometimes necessary irritant. To employ a massively oversimplified analogy, statists seem to think that the state should act as captain, coach, physio, kitman, ballboy, PR department, groundsman, ticketing department, FIFA representative, the guy with the half time oranges, agent, translator, WAG, turnstile operator, matchday police, the guy selling the big flags outside the ground and the guy confiscating the big flags on the way into the ground. Libertarians just want a guy with a f___g whistle."

Excellent post ccgg.

Yes, have fun running your successful business in an anarchy, ccgg. Sure you'll be v successful.

I'll make you an alternative offer. You can, instead, go and start your business in a country which doesn't make all of these charges.

Of course, you'll find there aren't any roads, sewers or other infrastructure. Your potential employees will mainly be illiterate. You'll have to employ private security guards for your workplace. You'll have to pay for private healthcare for you/ your employees. If you/they are unlucky enough to develop a chronic condition / have a disabled child etc etc etc then this probably won't be paid for, and you/they will end up destitute.

Personally - and speaking as a small business owner - I think I get pretty good value for my tax. I'd pass on some of the foreign wars, and probably spend rather more on childcare if I had the choice, but overall I'm not complaining.

BTW, not all anarchists are right wing small state libertarians - lots want social support, just not run by a hierarchical authoritarian state :)

Takver

I'll make you an alternative offer. You can, instead, go and start your business in a country which doesn't make all of these charges.

Of course, you'll find there aren't any roads, sewers or other infrastructure. Your potential employees will mainly be illiterate. You'll have to employ private security guards for your workplace. You'll have to pay for private healthcare for you/ your employees. If you/they are unlucky enough to develop a chronic condition / have a disabled child etc etc etc then this probably won't be paid for, and you/they will end up destitute.

I disagree with the premise that unless government spends 50% of GDP we're going to be like Somalia.

Personally - and speaking as a small business owner - I think I get pretty good value for my tax. I'd pass on some of the foreign wars, and probably spend rather more on childcare if I had the choice, but overall I'm not complaining.

Good for you. I think government's "value for money" is abysmal and I'm tired - speaking as a small business owner - of forking out hand-over-fist for a government which is fiscally incontinent.

I'd be happier myself to pay German or Norwegian taxes and nat insurance and have German / Norwegian productivity levels and profits . . .

Which country would you suggest I move to that has a lower govt spend as a % of GDP combined with good social infrastructure and high levels of productivity? (Excluding mini-states like Andorra on the pragmatic grounds that they wouldn't have me.)

Agree with Takver - obviously some level of contribution is wholly appropriate, but agree we get poor value for money

Takver

I'd be happier myself to pay German or Norwegian taxes and nat insurance and have German / Norwegian productivity levels and profits . . .

That would be lovely, I agree. It's not going to happen in the UK for a number of excellent reasons.

Which country would you suggest I move to that has a lower govt spend as a % of GDP combined with good social infrastructure and high levels of productivity? (Excluding mini-states like Andorra on the pragmatic grounds that they wouldn't have me.)

Apart from the USA? And Canada? Australia? New Zealand? And Germany. And Norway. And Portugal. And Ireland. And the Netherlands.

flatpack, I'm meant to be working so don't have lots of time to look, but AFAIK (and with a very quick look at OECD stats here) tax take in the UK as a % of GDP is certainly below that in Germany and Norway (and indeed the Netherlands).

I think there's a lot of useful conversations to be had about what the UK govt spends its money on and to what extent they are papering over the cracks in a massively unequal society (Japan being an interesting counter example of a low tax but much more equal society,though obv with its own economic problems) but a simple 'we're creating wealth so we shouldn't pay tax' line like the OP really isn't helpful.

Takver

flatpack, I'm meant to be working so don't have lots of time to look, but AFAIK (and with a very quick look at OECD stats here) tax take in the UK as a % of GDP is certainly below that in Germany and Norway (and indeed the Netherlands).

Previously you wrote about spending as a % of GDP, and so I just pulled the stats from This Wiki page which lists government spending as a % of GDP. All the nations I quoted have a lower % than the UK.

Tax take in the UK is lower, but really not much lower. The excess, of course, is made up by borrowing, as it has been for the last 11 years.

I think there's a lot of useful conversations to be had about what the UK govt spends its money on and to what extent they are papering over the cracks in a massively unequal society (Japan being an interesting counter example of a low tax but much more equal society,though obv with its own economic problems) but a simple 'we're creating wealth so we shouldn't pay tax' line like the OP really isn't helpful.

I don't think that's what OP is arguing. I think OP is arguing that if you're generating wealth it's not unreasonable for you to keep a decent chunk of it. I agree with OP in that respect - government takes too much and wastes it. Did you know that we, the taxpayer, are paying the anti-smoking and anti-drinking lobby groups to lobby government to raise taxes on cigarettes and booze? The NHS pays ASH (anti-smoking group) over £500,000 a year.

If government spent money well, I wouldn't have a problem with high taxes, but they simply can't be trusted to spend money well, and so they should have less of it. And this inability to spend money wisely - which I think comes from a lack of respect about how hard we have to work to earn it - permeates every element of government, top to bottom.

The problem with the govt. spending figures is that current data is confused by the bank bailouts in the UK - look back pre-crash, and UK spending as a % of GDP will be considerably lower relative to other EU countries. Similarly UK borrowing was relatively low by international levels pre-crash but shot right up in the late 00s.

Having said that I'm quite happy to accept the argument that the way the bailouts happened in the UK was wrong, and that we shouldn't have propped them up.

Actually, I'm also quite happy to agree that the govt doesn't do a good job of organising tax/spending. I just don't agree that the answer is simply to cut taxes.

Your figures are wrong though, corporation tax is 20% (one fifth), not 33% (one third), (unless you happen to make more than £1.5million in which case it's 24%, dropping to 24% next year). It's only on profits though as well, you pay nothing on money that passes through your business, i.e. money that you've made and then spend on business expenditure.

HMRC encourage business' owners to pay themselves through the dividends route, so unless you pay yourself more than about £37.5K then you don't have to pay any extra tax.

i hate this attitude.

the tax payer paid for my education which my employer has not contributed a penny too (unless through business taxes) and the tax payer pays for my treatment if I get sick so I can go back to work, at no extra cost to my employer.

Employers in other countries have to contribute a lot more in health costs of the employee for example.

plus employees in some other european countries often get paid more in real terms for the same skill set, due to emplyee expectations.

"I don't think that's what OP is arguing. I think OP is arguing that if you're generating wealth it's not unreasonable for you to keep a decent chunk of it."

If the OP isn't keeping a decent chunk of the wealth generated, maybe they aren't so good at running a business and should get a decent accountant

One thing that I would support would be increased capital allowances and particularly high allowances for R&D; encourage business owners to keep cash in their businesses and invest it, rather than paying it out as dividends. Having said that, we've never gone over the available capital allowances, but then we're not in a capital-intensive industry, and I imagine some businesses would benefit from higher levels.

Takver

If the OP isn't keeping a decent chunk of the wealth generated, maybe they aren't so good at running a business and should get a decent accountant grin

I don't think it should be necessary to have a good accountant to earn a living from your business.

One thing that I would support would be increased capital allowances and particularly high allowances for R&D; encourage business owners to keep cash in their businesses and invest it, rather than paying it out as dividends. Having said that, we've never gone over the available capital allowances, but then we're not in a capital-intensive industry, and I imagine some businesses would benefit from higher levels.

The one thing government should change is that they should scrap Employers' NI for SMEs. Why should a small business pay a tax to give someone a job?

No, it shouldn't be necessary - we don't use an accountant at all, and make a very comfortable living.

I think tbh all NI should be collapsed into income tax - the 'insurance' element has never been an accurate description, as benefits have always been paid from current take right from day 1.

I think in theory all parties agree; the problem is that none have the courage to preside over the resulting increase in the headline rate of tax. Tweaking NI is also a convenient way that governments of all shades can increase tax take in a way that is less immediately visible.