Ultimatum games and taxes

Posted by Christie Malry on September 18, 2014 at 1:44 pm

In an ultimatum game, a sum of money is to be shared between two parties. If the second party is happy with the split proposed by the first, both get their shares. If he is not, neither gets anything. Research shows that, should the first party offer less than about 20-25%, their offer will be rejected as unfair.

I wondered whether you could extend this to tax, as follows. The game operates as before, only both parties are taxed on their share: 0% on the first £10, 25% on the next £30 and 40% thereafter. Tax money is discarded.

As far as I can tell, there is no existing study along these lines, which probably should be sufficient to tell me it's a stupid idea. But would it tell us anything useful? What would it reveal?

I suppose one line of thought might be that the 20-25% rule might reassert itself, based on post-tax amounts. In the scenario above, an offer of £16 would mean the second party would retain £14.50 compared to the first party's £58.90. The taxman would take £26.60.

An offer of £30 is needed to ensure both parties receive more than the taxman. P1 takes home £50.50, P2 £25.00 and the taxman £24.50. The minimum amount the taxman can be left with is £23.00 for offers between £40 and £60. Might one of these scenarios become an equilibrium, in order to maximise the amount players receive compared to the taxman?

Critics may reasonably point out that tax isn't wasted, so the exercise is artificial. A different experiment in which tax is obviously wasted or obviously spent on good things might help tease out this factor.

Any other thoughts?

The glorious gibberish of Richard Murphy

Posted by Christie Malry on September 4, 2014 at 2:30 pm

On being asked to explain why Go-Ahead Group's effective current tax rate is much lower than the statutory rate, he states:

The underlying tax rate is actually higher – deferred tax reduced the rate this year and you are comparing with tax paid – which is wrong

The Fair Tax Mark criteria (questions 7 and 8) presume that the current tax charge is a good proxy for the tax paid in the year. So it cannot be wrong to compare the two. And, indeed, in GOG's case they're only £0.2m different.

But it is gibberish of the highest order to argue, as he does, that deferred tax is responsible for reducing the current effective tax rate. It's not just wrong, it's Marks and Spencer wrong.

Remember, this is the man who is proud of his influence on the world's taxation system.

Schop and change

Posted by Christie Malry on July 16, 2014 at 8:34 am

Change is then predicated on the existence of disruptive thinking and, as Schopenhauer suggested, it usually provokes a three or four fold response. At first it can be ignored. That clearly did not happen in this case. Second it is ridiculed, which most certainly occurred. Then it is violently opposed. It may be fair to say that happened, although I mean in terms of the argument, and no more. Last it is accepted as being glaringly obviously appropriate and the right thing to do, with the idea then being adopted by those who usually have no idea how it might have emerged.

A couple of reflections on this:

The original quote isn't about change, or even disruptive thinking. It's about truth. While it's often attributed to Arthur Schopenhauer and sometimes to Gandhi, it's unlikely either were the true source.

But Ritchie has gotten the quote the wrong way around. The quote isn't a manual for how to bring difficult new concepts into common acceptance: first make sure they ignore you, then get them to laugh. It's descriptive, not normative. It says that, for a given truth, it will have followed these steps. And for novel scientific advances that's probably true. But Ritchie is holding it up as a scorecard. Because he has been ignored, because he's being pilloried, he's effecting change. And this is clearly a fallacy of affirming the consequent. Silence and ridicule are products of truth, not determinants of it.

Carl Sagan explains the latter point brilliantly:

But the fact that some geniuses were laughed at does not imply that all who are laughed at are geniuses. They laughed at Columbus, they laughed at Fulton, they laughed at the Wright Brothers. But they also laughed at Bozo the Clown.

Responding to the Fair Tax Mark consultation on its criteria for multinational companies

Posted by Christie Malry on July 5, 2014 at 12:21 pm

The Fair Tax Mark is looking for feedback on its draft criteria for UK-owned multinational companies. Well, they say they are. But they haven't actually asked any questions to help reviewers direct their energies towards particularly contentious or difficult areas of the criteria. And they have given a mere two weeks for people to respond.

I think the approach taken by Fair Tax Mark is flawed. It is, in my view, insufficient either to ensure that companies who pay a fair rate of tax are eligible for the Fair Tax Mark or to ensure that companies who use unacceptable tax avoidance schemes are ineligible for the Fair Tax Mark.

I've commented here. My comments are blunt and in places a bit rough around the edges. I'm sorry; I didn't have time to tidy it up. Given a 12 week comment period and an indication of the areas the authors had struggled with, I could have had time to clean it up.

My main comments are:

  • The scope of this document is unclear - is it just UK parent companies and does it apply to listed and unlisted companies?
  • The meaning of ‘Fair Tax’ in respect of MNCs is unclear - the objective suggests all taxes worldwide must be 'fair' but the criteria look only at UK taxes.
  • The impact of accounting standard choice should be explained - because the criteria look at effective tax rate, it would appear the choice of accounting standards (IFRS, UK GAAP, etc) would impact the assessment.
  • The MNC criteria notes do not make use of HMRC’s processes for ensuring that UK companies pay the right amount of tax in the UK at the right time according to the spirit of the law in the UK - it presumes HMRC does nothing.
  • The MNC criteria equates “transparency” with “disclosing more”, which is incompatible with the Financial Reporting Council’s work on cutting clutter in financial statements
  • The document is in places inconsistent with the UK-only criteria
  • The consultation process makes it unlikely that FTM will have captured viewpoints from all stakeholders

Bad Technocrats and Good Technocrats

Posted by Christie Malry on June 16, 2014 at 9:19 am

Jolyon's post continues to generate debate, including this astonishing wibble from Ritchie. I've already explained why it's not unreasonable to expect Moralists to ground their social campaigning in the truth. But thinking about this some more, I can distinguish a "good" form of Technocracy from a "bad" form. So that's what I'll explore here.

The Good Technocrat identifies flaws in Moralist arguments. The Good Technocrat demonstrates where data have been incorrectly derived or have been abused, whether mathematically or otherwise. He warns when seemingly  innocent proposals might bring dangerous unwanted consequences or offend basic liberties. He speaks up where there are other, better or simpler solutions on offer.

Contrast this to the Bad Technocrat. He refuses to debate with any Moralist until they can demonstrate competence in the subject. However, he fails to help them get this competence. He is encapsulated by the single sentence once uttered by a French-speaking African audit manager of mine who shrieked at his audit staff "Don't ask questions until you fully understand!" Pointing out that Moralists aren't tax experts isn't, in itself, helpful. But the Bad Technocrat offers only that statement of the bleeding obvious.

Now there is a place for a bit of Bad Technocracy in all disciplines. For example, there's only so much the medical community can and should do to rebut homeopathy or anti-vaccine campaigners when they wilfully ignore evidence and make wildly unsupported claims. Sometimes you do simply have to profess something to be, in your professional opinion, "bollocks".

But one must strive to be Good wherever possible. Contrary to popular opinion, I do try. Hopefully, I've sought to show where Moralists have got it wrong, rather than merely asserting that they are wrong. Remember, "you're wrong" is not debate. And when I point out that there are unforeseen consequences, I'm opening up the debate in a very complex area, not seeking to close it down. I wouldn't be so bold as to suggest I've always got it right. But, unlike some commentators on the Other Side, the comments on this blog are, and have always been, open to anyone to explain where I've got it wrong in their own terms.

"If Rome is in France, then grass is green." Why the Moralists should heed the Technocrats

Posted by Christie Malry on June 14, 2014 at 2:18 pm

Photo by flickr user Moyan Brenn. Used under the CC licence. https://www.flickr.com/photos/aigle_dore/

The terribly nice Jolyon Maugham has written a thoughtful blog post in which he characterises online debates around tax policy as a war between Moralists and Technocrats. Do go read the piece for yourself (not least because he's very kind about me), but in summary he argues that Moralists want change for the better, while Technocrats revel in pointing out the flaws in their arguments. Because both sides have entirely different objectives, this is a war that neither can win. So they should work together to build a better world. Hooray!

I want a better world, for sure. But I'm unpersuaded by Jolyon's blasé dismissal of the Technocrats' concerns. Here's why.

The title of this piece is taken from a first year Cambridge Philosophy paper. The question is based around the logical principle that, if you start from a falsehood you can deduce anything logically, even statements that in retrospect turn out to have been true. The same is true in tax policy. If you throw the truth out of the window, you can conclude anything. So in assessing and implementing tax policy it is vitally important to hold on to the truth for dear life. Abandon it at your peril, because you may end up drawing the wrong conclusions from your dodgy premises.

In criticising the work of Jolyon's Moralists, that's what I see myself as doing. Where they have got something wrong, it must surely be right - moral, even - to seek to get them to correct it. If, as they argue, it doesn't matter to their overall argument then they can have no problem with using the truth instead of a half-truth. If, unfortunately, it holes their argument below the waterline then they're better off admitting it now rather than the truth becoming clear after politicians have wrongly believed their arguments.

Simply, there can be no justification whatsoever for resisting factual corrections to their arguments.

So why do they? Maybe, as Jolyon suggests, they care so deeply about their cause that they will do anything that solves it, even if that means cutting a few corners. But Technocrats care about these causes too. It's a lie to pretend that the only reason to oppose a sloppy, half-baked Moral case is because the Technocrats want to maintain the status quo.

Imagine a Moralist is trying to plan a journey with his Technocrat spouse. "We'll take the A888 for 20 miles then turn left and carry on for 10 miles" "Yes, but that won't get us to our destination." "You don't want to get us to our destination, do you?!"

If the Moralist has misread the map, is he truly serious about the destination? Or does he maybe just want to sit in the driver's seat?

Ritchie and numbers

Posted by Christie Malry on May 22, 2014 at 10:34 am

The average current UK mortgage rate at present is, apparently, about 3.4% whilst the average balance is about £96,000. No doubt many of the households have bigger loans balances than that. But even for those on such balances a rate rise of 1% (which is entirely plausible) increases their annual cost £80 a month.

True if they're on an interest-only mortgage. If they're on a repayment mortgage, as most people these days are, monthly payments comprise a portion of principal and a portion of interest. Over time, this balance shifts. And that means that interest rate changes affect repayment mortgages less. For a borrowing of £96,000 without fees, the difference between 3.4% and 4.4% is about £53 a month according to MSE, not the £80 he quotes.

I would expect a chartered accountant to know this sort of thing.

Richard Murphy thinks auditors should have triggered multiple catastrophic bank runs

Posted by Christie Malry on March 29, 2014 at 12:16 pm

Is there any other way to interpret this?

I am sorry – but if the auditors were worth their salt they’d have said no to the government

They did not

They are culpable

So, when the government told auditors that, in order to provide the necessary stability to a very nervous banking sector, it would provide funding of last resort, auditors should have told government tough tit. Even though the banks were now going concerns thanks to government's intervention to restore confidence to the sector, auditors should have undermined their efforts altogether. And, in doing so, triggered a series of catastrophic bank runs that would have crippled the entire UK economy.

Really, Ritchie? You sure about that?

Can accountants be trusted? A response to Ian Fraser

Posted by Christie Malry on March 28, 2014 at 12:41 pm

Yesterday, Economia magazine published the latest in its rather controversial series of debates. Entitled "Can accountants be trusted?" it put former ICAEW president, Mark Spofforth up against journalist and author, Ian Fraser.

I didn't find myself convinced by Fraser's case and, thanks largely to Twitter's 140 character limit and my own mercurial mood, we didn't get that close to resolving our differences on Twitter. So that's the purpose of this post: to set out what I see in flaws in Fraser's reasoning that lead him to incorrect conclusions about the accountancy profession.

It's worth pointing out that I'm not in the employ of the Big 4. As has been the case with this blog ever since I first started blogging in 2010, I care only about facts and what can logically be deduced from those facts. So my issue with Fraser's piece is that I see it as drawing inferences that cannot be inferred, not that I am personally unhappy with where he ends up. Nor should you read anything into my clashes with Fraser before. This is solely to do with this piece.

Because annotating each comment in HTML might become cumbersome, I've uploaded his entire text to Google Drive and added comments there. Please feel free to add your own comments to my comments (I think I've set the permissions right for you to be able to do this). Or you can simply comment below too.

In most cases, my issue is that Fraser makes claims which he doesn't support. If these claims turn out not to be true then everything that is deduced from them is in turn also not true. I also find that he has drawn examples from a selection of accountancy firms' behaviour and then claimed that these behaviours are representative of other accountancy firms and other work done by those firms, without demonstrating that it's appropriate to do that.

Whether accountants can be trusted is an important debate, and it needs rather more air than Economia's rather unfortunate to-and-fro, restricted to a single page of their magazine, can provide. So I hope we can get rather further than Economia managed.

No, you're not correct

Posted by Christie Malry on March 1, 2014 at 12:41 pm

 

*

twat

He really needs to stop being such a twat about his critics. After all, the main motivation for Ritchie wanting "transparency" is so he can abuse them.