Governments should stop trying to blame
everyone else for their terrible tax codes

If there is one belief that persists among the mandarins and politicians that man the machinery of government, it is that they and they alone are infallible, incapable of error. Error is something which plagues us lesser mortals, not the benign and omniscient bureaucrats which populate the various neoclassical buildings which line Whitehall.

This attitude manifested itself recently at the G8 summit of world leaders in Northern Ireland, where the topics for discussion included tax avoidance, the practice of individuals and firms using aspects of tax code in order to minimise their tax contributions. The heads of government present, including Prime Minister David Cameron and President Obama, decided in their infinite wisdom that this practice had to stop, describing it as a ‘scourge’.

The blame has however been misplaced, or rather, the heads of government have skilfully managed to offload their culpability onto the individuals and firms who engage in such practices.

What many fail to realise however is that tax avoidance is perfectly legal (unlike tax evasion, the fraudulent avoidance of taxes, which isn’t) and herein lies the point. While it may be easy for politicians to bash companies such as Google, Amazon and Starbucks for their perceived ‘greed’, this fails to address the underlying problem, which is that these firms operate under a tax regime of which the same governments who, when congregated together at the G8 summit denounced the actions of these firms, were the ultimate architects of this system.

One merely has to cast a superficial glance over the tax codes of countries such as Britain and the United States to conclude that they are, in short, hideously complicated. Our own tax code is 17,795 pages long, making it over 12 times longer than Tolstoy’s War and Peace. Just like the full Greek National Anthem with its 158 stanzas, it is unknown but also unlikely that any one individual knows it from beginning to end.

With a tax system as complicated as this, it should come as no surprise to anyone that loop holes have been discovered and subsequently taken advantage of. The principal beneficiaries of such a regime have largely been the employees of compliance departments in large companies, such as Google and Amazon, while the losers have been small and medium sized businesses whose only option has been to hire accountants and tax lawyers, the other beneficiaries of the system, the interpret these vast legal documents on their behalf.

The consequences of such a complex tax code are therefore similar to those of an overly-complex regulatory regime, big businesses who can afford to employ staff to untangle the regulatory mess thrust upon by government fair far better than smaller enterprises which have to spend far too much time complying with the demands of a bureaucrat in Whitehall and far little time actually doing something productive.

Governments have also managed, through spending their times lecturing big businesses on their financial arrangements, to divert attention from their dubious spending and accounting practices. World leaders have tried to convince us that the problem lies with them receiving too little tax. In actual fact, the real problem is that since the end of the Second World War, governments have been spending far too much of their people’s money.

Contrast companies such as Google, Amazon and Starbucks with the broad financial situation of a government such as Britain. The three companies that every left-winger loves to hate are true success stories, with each having created hundreds of thousands of jobs in countries across the world, including our own. Our own government, on the other hand, is currently burdened with a national debt of officially over £1 trillion. However, when one factors in unfunded liabilities such as pensions, the figure rises to something more like £7.9 trillion.

In other words, the government is fudging the numbers. Any individual, family or firm to operate like this would rightfully have been declared bankrupt a long time ago. The last major company to engage in financial deceit on this scale was Enron. Perhaps, in light of that, the CEOs of Google, Amazon and Starbucks such be lecturing David Cameron and George Osborne, not the other way round.

Governments then, it seems, are far from infallible, just like the rest of us. The problem with our tax system lies not with the tax arrangements of big companies, but rather with the system itself. Only a complete overhaul and simplification of our tax code will overcome these problems. Harassing and taunting companies will solve nothing.