Douglas Carswell

11 DEC 2012

Tax base? What tax base?

In order to raise enough revenue, governments need to tax wealth creation.

For much of the past hundred years or so, that basically meant taxing factories. Governments could either tax what industry made, or tax those who worked in the factories, or both.

It is relatively difficult to move a factory from one tax jurisdiction to another. So unless government tax demands were excessive, government tax collectors in an advanced industrial economy could count on there being a "tax base".

In the digital economy, however, wealth is created less in factories and more via the exploitation of intellectual property. How do you tax intellectual property?

Google and Amazon have recently been accused of failing to pay their fair share of tax. Such disputes tend to boil down to a set of arguments about which tax jurisdiction intellectual property is being exploited in.  (And which, incidentally, help explain why there do not appear to be any magic "loop holes" that the Treasury can shut off in order to solve the problem.)

Unlike factories, you see, intellectual property is hyper mobile. Tax it too much in one jurisdiction, and it will move to another.

Instead of a nice, solid, dependable tax base, therefore, perhaps we are moving to a world where the tax base becomes fluid? Draw to heavily from it, and it will flow away elsewhere.

At this point, folk often pipe up by asking "But if that turns out to be so, how will we manage to pay for all the things that government does?" How indeed.

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