Desperate British Fovernment Launches Task Force Against Flea Markets

Recently by Simon Black: Guess Who Folded Now?

Earlier this week, the British government announced that Barclays PLC, one of Britain’s oldest and largest banks, was facing an $800 million penalty for engaging in a tax avoidance scheme. Barclays had been exploiting loopholes in legislation in order to avoid paying a higher tax rate, and the government is now drafting legislation to close these loopholes.

Hang on a sec. Full stop.

If the government has to pass legislation in order to ‘close the loopholes’, then the loopholes right now are obviously legitimate. Hence Barclays tax avoidance practices that were perfectly legal.

After all, that’s what tax avoidance is – legally avoiding taxes by exploiting loopholes and legitimate deductions in the tax code. Tax evasion, on the other hand, is willful misdirection or underreporting of income that violates tax code. Barclays engaged in the former.

How is it that the Treasury can penalize Barclays for having done something that is perfectly legal? Technically, it can’t. That’s why the legislation being proposed to close these tax loopholes is going to be RETROACTIVE.

In other words, since the British government can’t legitimately penalize Barclays, they’re going back in time to change the law to make what Barclays did illegal… all to collect some extra dough.

In related news, the Treasury also announced that recent tax receipts have failed to meet expectations. Despite Britain’s constantly increasing tax rates (now as much as 50%), income tax revenues dropped by $810 million from a year ago, a 4.68% decrease.

British government, meet the Laffer Curve. Even the guy flinging spitballs in the back of a high school economics class can tell you that raising tax rates often decreases overall tax revenue.

Consider that, with a 0% tax rate, government revenue would be zero. Similarly, at a 100% tax rate in which people didn’t keep a single penny of what they earned, government revenue would also be zero because nobody would have an incentive to work!

Working up from 0, and backward from 100, would yield similar results. At 1% tax rate, the government would collect a bit of revenue. At a 99% tax rate, a small handful of people might work, also generating some revenue for the government.

Economist Art Laffer is credited with describing this relationship between tax rates and government revenue, however philosophers going back to the 14th century also examined the idea.