Could 2013 be the year we finally learn to love the taxman?
When Gérard Depardieu announced he was giving up his citizenship to escape a 75-per-cent tax on France's superrich, he was derided as a traitor – including by his own Prime Minister.
After all, the government had put the tax in place as a temporary measure to help tackle the country's record debt, now representing nearly 91 per cent of the economy. And who better to make a "solidarity contribution," as the tax is called, than the country's wealthy?
For all its drama, Mr. Depardieu's tax flight clearly misjudged the mood of his nation – and a growing shift in global sentiment. Where the Rolling Stones made a bestselling album from their Exile on Main Street to avoid taxes, paying dues is now seen as a civic responsibility for everyone; flouting them, decidedly unfashionable. Even the rich agree: Warren Buffett has famously argued for spikes in taxes on the wealthy.
It's all part of a remarkable embrace of taxes, not only for the wealthy but for all of us. Portugal, Spain, Ireland, Italy, Greece, Britain, France, Japan and the United States have all introduced tax increases to cover growing national debts and costly stimulus programs. According to the Organization for Economic Co-operation and Development, the average tax burden increased in 26 out of 34 OECD countries last year.
Whether these tax measures can come close to solving fiscal problems remains to be seen. More interesting is the shift in our attitudes: The language around current tax debates taps into social values of fairness and equality as well as responsibility – the latest measure of patriotism is paying up.
In France, for example, the 75-per-cent tax is called a measure for "fiscal justice." In the United States, actor George Takei of Star Trek fame recently blogged about his "duty" to support higher taxes. In the United Kingdom, that extends to corporations, which have been labelled "immoral" for evading taxes.
"There is a debate going on now which hasn't existed before," says Richard Murphy, who runs the British-based Tax Justice Network.
Could 2013 be the year we finally learn to love the taxman?
For now, the main point of debate in many countries is how much the very wealthiest should be taxed.
This is partly a backlash from the recession. There's a sense that, despite tough economic times, some people still have it too good while others suffer seemingly unending government cutbacks. The Occupy movement tapped into some of that resentment, but the current push for taxes on the rich is more than a fringe movement.
This can be seen best in the United States and the recent debate over the so-called "fiscal cliff," a series of automatic tax increases and spending cuts that some say could have triggered another recession if they had come into effect earlier this week.
Nowhere is the call to freedom, small government and entrepreneurship louder than in the United States. Politicians on all sides uphold the ideal that anyone can make it and keep it. And Republicans have recently taken a vanguard position with a "no new taxes" pledge and a fight to keep tax cuts in place. They argue that tax cuts leave money in the hands of consumers, leading to longer-term government revenue and economic growth.
But last week even the Republicans buckled in the face of mounting public opposition. For the first time in more than 20 years, the party voted to increase taxes on those making more than $450,000. Helping the cause was former California governor Arnold Schwarzenegger, who declared in a recent issue of Esquire magazine that he loves paying taxes: "I always tell my accountant, 'If you're in doubt about taxes, pay more.' "
All of which was a victory for President Barack Obama – except that making the superrich pay more may not, ultimately, pay off. According to one analysis, taxing America's wealthy will raise barely enough money to fund the government for nine days let alone close a budget gap of some experts estimate to be roughly 7 per cent of the gross domestic product.
"I think what's going happen [in the United States] is a few rounds of raising taxes on the wealthy," says Kenneth Rogoff, an economics professor at Harvard University. "But that's not going to begin to solve the budget problem."
In Britain, the focus has been on another side of the tax equation: corporate responsibility.
Companies that avoid paying tax, even through legal methods, have been branded "immoral" and shunned in a series of boycotts, demonstrations and sit-ins. For example, a group of activists recently took over a Starbucks in central London, chanting and singing and turning the coffee shop into a temporary daycare site for families taking part. Their point was clear: wealthy businesses, like wealthy individuals, should be expected to do their part.
The tone was set last fall by a parliamentary committee that sharply criticized multinational companies – including Starbucks as well as Amazon and Google – for avoiding taxes by shifting profits offshore to lower tax jurisdictions. The committee also found that the government failed to collect around $50-billion annually in taxes because of avoidance schemes.
The public outcry became so intense, Starbucks announced last month that it would pay roughly $32-million in additional tax over the next two years even though the company has followed the letter of the tax code until now.
There are those who say the tax issue runs much deeper, however, than simply putting pressure on top earners – and that now is the time to consider more radical changes.
Canadian economist Don Drummond, who recently advised the Ontario government on reducing its budget deficit, says recent economic challenges may be a spur to changing broader cultural views about taxation. And that we could look to northern Europe for ideas on future tax reform.
Those countries, he says, have high personal tax rates and taxes are harder to avoid. But they also have strong incomes, a more equal society with less poverty, and consistently score high on citizen satisfaction levels.
"If you stand back in the abstract and shop around the world for what kind of economic or taxation model you might want to emulate, you really have to pause and take note of what's happening in northern Europe. We tend to brand all European economies as basket cases, but the northern European ones have held up fairly well," he says.
Whether Canada would accept a northern European model is unclear. Despite ideals of social welfare, lower taxes have been a mantra for nearly all politicians here and the focus so far has been on spending cuts.
Finn Poschmann, vice-president of research at the C.D. Howe Institute, a conservative think tank, argues the limited tax increases imposed so far by the provinces are driven by need not a shift in attitudes about taxation.
He also believes increased taxes on the wealthy, while politically popular, will prove economically ineffective because high income earners will seek expert help to lower their tax load. As in France, higher taxes on top earners could also backfire, driving those earners to other provinces or countries where the tax base is lower.
"The political response of 'tax the rich' which we've seen now in Ontario and Quebec and in the United States and France is very much a matter of politics and desperation, rather than something that produces good economic outcomes for pretty much anyone," he says.
Other thinkers disagree with Mr. Poschmann.
Kalle Lasn, for instance, the Vancouver-based founder of anti-consumerism magazine Adbusters and an early proponent of the Occupy movement, says tax reforms in various countries are part of a larger disillusionment with traditional economics.
He argues, in fact, that reform needs to go farther than just taxing the wealthy; there should be new taxes on the "bads" in society – whether hollow, computer-driven currency trades or gas-guzzling vehicles – and new ways to cut costs for the "goods."
For him, any tax avoidance – by corporations or individuals like Mr. Depardieu – is clearly immoral.
"To set an example where he's leaving the country where he was born to avoid taxes, that's something that's ethically and morally unforgivable," Mr. Lasn says. "What kind of example does that set?"
By contrast, a U.S. website called I Heart Taxes bills itself as "home of the proud taxpayer" and promotes the benefits of taxes, such as fighting fires, putting a man on the moon and funding education.
Certainly, France is keeping up its momentum , deterred neither by Mr. Depardieu's defection nor a ruling by a French court last week that its 75-per-cent tax was illegal because it applied to individuals instead of households.
On New Year's, French President François Hollande vowed to press ahead with the tax. "We will still ask more of those who have the most," he said told the nation.
Paying up in Canada
Personal income tax was first introduced in Canada in 1917 to finance the First World War. The top rate in those days was 25 per cent on income exceeding $100,000. Since then, income taxes on Canada's high earners keeps changing radically – both in terms of how we define a "high" earner and how much we tax them. Taxes have also become more complex as both federal and provincial governments got in on the levies. Herewith, the highest income rates in Canada:
98% – 1943's top tax rate, on incomes exceeding $500,000.
65.6% – 1962's top tax rate, on incomes exceeding $500,000.
51.09% – 1988's top rates on incomes exceeding $95,408.
54.2% – 1998's top rates on incomes exceeding $200,000.
50% – 2012's top rates on incomes exceeding $132,406.
Rick Cash. Sources: Canadian Tax Foundation, Canada Revenue Agency
Paying up in the rest of the world
Federal income taxes vary wildly around the world, as a glance at individual income tax rates from 2012 indicates. While Canada ranks low in federal comparisons, however, we pay significant provincial income taxes – which, depending on where you live, can bump your rates up to 50 per cent.
29% – Canada
30% – Mexico
35% – United States
35% – Argentina
45% – France
50% – United Kingdom
50% – Japan
56.6% – Sweden
31.91% – Global average