Thursday, February 4, 2016

Taxes in today's digital world

I was frustrated and irritated to read about steps being taken in Britain by that country's tax authorities to monitor virtually every electronic data point about taxpayers, so that they know what tax is due long before the taxpayer has to report it.  The Telegraph reports:

Accountants, privacy experts, politicians and charities are voicing growing concerns about HMRC’s ambitions to “fully digitise” the tax return system.

They claim that vulnerable groups will be penalised for not wanting to use the internet, that the quantity of data sought by HMRC will hugely increase administrative costs, and that the trend to push everything online will result in far more tax investigations without necessarily raising extra revenue.

They also predict that – whatever it says to the contrary – HMRC’s ultimate intention is to obtain highly detailed data “equivalent to the individual entries on a bank statement”. This is likely to result in more frequent and earlier demands for payment.

There are two prongs to HMRC’s push to “create the most digitally advanced tax system in the world”. One is the introduction of “personal tax accounts” for all individuals, aimed at the majority of people whose tax affairs are relatively simple and who don’t have accountants.

Here, individuals’ online tax accounts will be updated automatically by HMRC with information it has obtained from other sources. You would log on, for instance, and see entries relating to your wages or pension, any taxable benefits you receive, such as the state pension, and any interest earned on your savings in bank or building society accounts.

The second digital drive relates to small businesses, landlords and the self-employed: these groups will have to report information to HMRC quarterly.

This has already caused a storm of controversy, with 110,000 small business owners petitioning against the change. They argue that quarterly reporting would cost time and money.

. . .

The concerns were reflected by Anthony Thomas, an accountant from Coventry with 30 years’ experience. He chairs the Low Incomes Tax Reform Group, which lobbies for a simpler tax system.

He said: “Digitisation is good and fine – but my concern is making it mandatory. There will be significant burdens and costs for many. HMRC says it will be as easy as ‘pressing send’, but that’s naive. It won’t be.”

. . .

“Say a builder goes to a supplier and buys breeze blocks. He uses an application on his smart phone to record the transaction, and it is immediately reported to the taxman electronically. HMRC has talked about making such apps and software available to the public, and that is perhaps what it envisages: the reporting of transactions in real time.

“It is an absolutely enormous shift. The Government is saying ‘if we’ve got the technology, why not use it?’ ”

There's more at the link.

The implications for privacy are obvious.  It seems that the Big Brother state is now demanding to know about every penny you receive or spend, long before you need to report your income and claim expenses for tax purposes.  Effectively, if taken to its logical conclusion, this could completely replace the process of submitting an income tax return.  You'd find your bank account debited with tax owed without you even knowing how it was calculated - and if any transactions were mistakenly attributed to you instead of the proper person, you might benefit or be penalized accordingly, with all sorts of subsequent complications as you try to sort out the errors.  Does this sound like an Orwellian nightmare, or what?

Does anyone know what the IRS in the USA is planning in this regard?  If Britain's this far down the road, I can't believe that the IRS isn't at least interested in following suit.  If you know, please tell us in Comments.



Douglas2 said...

"Effectively, if taken to its logical conclusion, this could completely replace the process of submitting an income tax return. You'd find your bank account debited with tax owed without you even knowing how it was calculated - and if any transactions were mistakenly attributed to you instead of the proper person, you might benefit or be penalized accordingly, with all sorts of subsequent complications as you try to sort out the errors."

This is how the UK Inland Revenue already dealt with taxes from wage-earners when I left there 10 years ago. Tax returns were only filled out by people who had income not automatically reported or business expenses to report. Otherwise you got a polite note in the post saying "this is how much we've taken".

Anonymous said...

What I hear is that -- model of simplicity and efficiency that it is -- the IRS is going to the short-short form. To wit:

1. How much did you make last year?

2. Send it in.


Anonymous said...

The IRS already has access to all digital transactions that they want. Did you know that you can not deposit cash in someone else bank account? My brother-in-law is working overseas as a missionary. I went to put some cash in his bank account here in the United States. The bank said no can do. You can put a check in or transfer from my account to his if I had an account with that bank. If not you are out of luck.

Roger Ritter said...

Anonyous, I think that may be because he's not in the US. I deposit cash to my brother-in-law's account all the time and the bank never questions it.

As for the scheme being Orwellian, it's worse - it's Orwell run through a Kafka filter!

Anonymous said...

The small farmers in the UK get taxed on the 'Potential" of what they are able to produce. This leads to a consistent under reporting of production and a large volume of bartering. What this has done is drive more farmers into producing less, and still getting taxed on what they 'could' produce. Very messed up!

Jonathan H said...

In Japan they have had a partial system like this for years where you get prefilled forms from the government and where banks send part of your interest directly to the government.
I've read elsewhere that the IRS doesn't do it to encourage honesty - in theory, you report everything since you don't know which income they already know about.

I'm not familiar with the British tax system - it seems to me this would be hard to do in the US due to the complexity of our tax code and how much effect it has on what people owe.

tkdkerry said...

Fair Tax. 'nuff said.

raven said...

You and I are not human beings.
We are farm animals.
We produce for the farmer.
The farmer is the government.
The farmer decides whether we get medical care.
The farmer wants to decide everything about us.
Human dignity? Right. Sure.

What they would like to do, is to take ALL our production, and issue back to us the bare minimum to ensure we don't rebel, and have us ask permission to spend anything above that. Communism, in other words.
They are ecstatic at the leverage the new surveillance technology gives them. Imagine crossing your HOA president with an SS guard. Nanny's with machine guns.

Why do you think they are desperate to remove guns and Bibles from us?
The one threatens their physical domination, and the other represents a spiritual truth in opposition to their factory farm.

This is not fantasy- This is extrapolating the trend line that is clear as tracks in snow.

Trimegistus said...

Expect an increase in barter or the exchange of unpaid "favors." Instead of me paying you to repave my driveway, how about I install your water pump? Both of us make less money on paper and therefore pay less tax, but I have a new driveway and you have a water system.

Note that this method works very well for skilled trades, crafts makers, farmers, and other "blue-collar" sorts, but is nearly impossible for information workers or most white-collar people. I mean, I suppose I could write you a novel in exchange for you teaching me Spanish, but it's certainly less easy than swapping beef for stump-grinding.

Bruce Edwards said...

And so this explaiins the FedGov desire to do away with cash...

Anonymous said...

Trimegistu, I like your theory very much, but in the end, you'll have to answer where all the extra asphalt went and be required to show the "inventory of extra replacement water pumps you purchased but did not sell." It works for purely service barter, like I'll buy the paint if you'll paint my living room while I pull all the weeds in your garden... in the end, barter is a subsistence level scheme, but it will be very difficult to get ahead if you're not part of the "governing class" even if you play by the rules. The boot is already heavy upon our necks comrades. The ultra wealthy and the power hungry politicians have designed a system where as many as possible of the productive among us are farm animals that they can harvest our labor for their own gain, and they have woven our corral netting very tight.

Anonymous said...

Nevertheless, they have not escaped history and The Gods Of The Copybook Heading will have out.


Tonerboy said...

With that system the government can "borrow" against future income to help pay off their debt.

Rolf said...

The power to tax is the power to destroy. The power to monitor is the power to tax.

Start moving to as much cash as you can.