When it comes to economics, the US and UK tend to find themselves on the same page. A recent example is their consolidated front over the need for banking transparency – both countries took a tough approach with respect to the banking secrecy laws of in Switzerland and Luxembourg.
But this weekend, the US and the UK took decidedly different views over a proposal to tax financial transactions to support future bank rescues.
UK Prime Minister (for now) Gordon Brown is in favor of such a tax, referred to as a so-called “Tobin Tax”, as a way to take the burden off taxpayers in the midst of financial crisis. The idea would be to implement a tax or levy, also characterized as an insurance fee, to be implemented across the board on financial institutions in all economic centers including the US, Europe, Asia, and the Middle East. Brown described it as a “just distribution of risks and rewards.”
But US Treasury secretary Timothy Geithner has said he would not support such a tax, adding that it should not be the position of those today to pay for future risks. He did not, however, rule out the idea of any responsibility by banks to pay for the economic crisis – he just apparently feels that it’s too soon to consider a tax in the face of other alternatives.
Interestingly, Russia appeared to be in agreement with the US with Russian finance minister, Alexei Kudrin, also voicing skepticism over the tax. Canadian Finance Minister Jim Flaherty also expressed concern over the tax.
However, Max Lawson, the senior policy adviser for Oxfam was enthusiastic about the UK proposal, saying:
Gordon Brown today signalled that payback time for banks could be just around the corner. A tax on banks would be a major step towards clearing up the mess caused by their greed.
While the two day G20 Summit has ended, the matter is far from over. The International Monetary Fund is already looking into this very issue with an eye towards what it’s calling a financial sector tax. One way or the other, we’ll see further discussion on this…
In an effort to recover income from funds that might have been hidden offshore, the US introduced a Voluntary Compliance Program that offers reduced civil penalties and no criminal penalties.
At the time, IRS Commission Doug Shulman described the program as stating:
The goal is to have a predictable set of outcomes to encourage people to come forward and take advantage of our voluntary disclosure practice while they still can… We set up a penalty framework that makes sense for them. They need to pay back taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years.
The program, which has tentatively been referred to as a success, wraps up on September 23, 2009.
But while the US program is winding down, the British program is just getting started. The UK has announced an amnesty program for unpaid taxes on income linked to offshore accounts.
The program is called the New Disclosure Opportunity and has similar provisions to the US program. The amnesty program begins September 1 and runs for six months. During that time, taxpayers have the opportunity to work out agreements to pay back taxes with a reduced penalty rate and little risk of prosecution.
The UK had previously resisted the urge to offer an amnesty program, hoping instead to force tax havens like Switzerland and Luxembourg to make disclosures. However, with government borrowing hitting an all time high, $21.4 billion last month, they decided to give it a second look. HM Revenue and Customs believes that the initiative could raise as much as $825 million over 4 years.
It’s not just politicians in the US who are feeling anger from taxpayers over perceived “perks” in the midst of an economic recession: UK pols are feeling it, too.
Parliament in the UK has been slammed recently with accusations that politicians are unfairly benefiting from their positions. British papers have recently been citing personal expense reimbursements and tax “loopholes” as ways that government officials have been taking advantage of their positions.
Next in line to be called out? Eleanor Laing, a Conservative MP for Essing Forest. She reportedly paid no capital gains tax on a £1 million ($1,635,915.24 in US dollars using today’s exchange rate) profit from the sell of an apartment in London.
Laing bought the apartment for less than £800,000 (approximately $1.3 million US). More than 10% of the purchase price paid out of taxpayer-funded allowances for a second residence, despite the fact that her primary residence is just an hour away. She sold the apartment for more than £1.8 million (just under $3 million US) last July.
Laing claimed that the apartment was her “second home” for purposes of nearly £90,000 in taxpayer-funded reimbursements. She then turned around and claimed the apartment as her primary residence for purposes of escaping capital gains tax on the sale of the apartment. She used the proceeds from the sale to buy another apartment on the same block.
Laing says that she has not done anything wrong. However, her own party, the Tories, may disagree with her. She will have to appear before the the party’s scrutiny panel to determine how much she must pay in taxes. If she is forced to pay the entire amount, it would be the biggest payback from any MP caught in the expenses scandal, which has rocked the UK Parliament in recent months. Previously, Conservative MP John Butterfill was thought to have the highest repayment obligation.
Sir John Butterfill (he was knighted in 2003) did exactly the same thing. He bought a taxpayer-funded “second home” in Surrey. He then sold the property, racking up £600,000 profit. He then informed HM Revenue & Customs (the equivalent of IRS) that it was his primary residence and therefore exempt from capital gains tax.
Butterfill also claimed tens of thousands of dollars in fees for the country estate/second home/”primary residence.” He has agreed to refund more than £20,000 worth of fees that he claimed as living expenses. Over the last five years, he has claimed £17,000 of expenses for his servants’ quarters alone. That’s right: servants’ quarters. For his second home. Which he claims was really his primary residence.
But don’t think that sort of thing is limited to the Brits. We have our similar scandals in the US – Congress and other pols often appeared “confused” about where they really live. Just ask Tom Petri (R-WI), Rep. Phil Gingrey (R-GA), and Rep. Steve King (R-IA), each of whom recently tried to claim a homeowner’s exemption for their residences in DC. The exemption is meant solely for DC homeowners who maintain their primary residence in the District, not for taxpayer funded second residences. And lest you think it’s an accidental “oops”, note that Karl Rove and 22 members of Congress were slammed for the same thing in 2005 (Rove did agree to pay back the taxes that he inappropriately exempted).
It seems that everywhere you go, politicians seem to believe that public trust = public trust fund.
The global recession (are we allowed to say that now?) is pinching the purses of more governments than just the US.
In the UK, the top wage earners are about to feel the effects of a 50% tax rate, according to Chancellor Alistair Darling. The new tax rate will apply to earnings in excess of £150,00 (about $218,000 US), beginning next year. That represents a hike of 10% – from a top rate of 40%.
Also smacking top wage earners is the loss of personal tax allowances – similar to US exemptions. That would be phased in for those earning £100,000 ($145,000 US) or more.
Other tax increases, which will be spread among UK residents, include 2p on fuel, 1p on a pint of beer and 7p on cigarettes (that’s right, the UK is raising taxes beer again). Hard liquor and wine will also see increases: 4p on a bottle of wine and 13p on a bottle of spirits.
The Chancellor claims that there are no other alternatives. The UK is suffering its biggest losses in revenue in recent years. The Chancellor reported that, for 2009, it appears that the economy will face its worst year since the Second World War. The Labour party (kind of like our Democratic party) has been widely criticized by its handling of the economic crisis, with the Tories (the equivalent of our Republican party) calling it an “utter mess.”
