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The monstrous tax quandary.

A friend of mine in the insurance sector faces a difficult decision late in life. Bermuda is about to ask him to leave, after he has spent most of his adult life working on the island. His expulsion will be ordered in strict accordance with the law, along with everything he has ever been told or promised by government. His beef is not with Bermuda.

With 50 being the new unemployable, he has asked his employer to transfer him to England, whence he originated. The problem he faces is taxation. All told, he will be required to work for about 30 cents on the dollar--compared to about 90 cents in Bermuda--and is having trouble seeing his way to doing it. Add in the extra administrative time required to fill in the tax forms, and five-and-a-half days' work a week at the professional level will net less than he makes in Bermuda in two days.

Such corrosive treatment is standard for the self-employed Briton, which he would be, since his employer lacks a permanent presence in the United Kingdom. To the 50 percent-plus income and social security taxes he would have to pay would be added the pain of preparing a plethora of tax forms.

It could be worse. Tim Martin, the founder and chairman of Wetherspoon Pubs, a customer-friendly chain in the United Kingdom, says his company paid 11 [pounds sterling] in tax last year for every 1 [pounds sterling] it made in profit. Wetherspoon has it better than my father did. At one time, he paid a top rate of 128 percent tax on his income--a capital tax--and in the 1960s, the top rate of income tax was 97.5 percent.

Not one of my friend's British friends has the slightest sympathy for him. Most are greatly pleased by his suffering, the British doing a good line in Schadenfreude. It is probably understandable. Misery loves company.

The only viable alternative my buddy can think of is to retire and never work for pay again. It would cut only 30 percent off his nose to spite the taxman, but he would gain five and a half days a week of freedom.

The equation is thus: work 10 percent harder for 70 percent less pay, or work 100 percent less hard for 100 percent less pay. Mathematically, my pal would be crazy to continue working, even though he likes what he does so much that he would do it for nothing (he says). Ah, but the U.K. tax authorities would not allow that. He would be taxed on the money he would have earned had he not waived it. He would then be working 110 percent as hard for 170 percent less pay.

Einstein said the income tax was the only thing he couldn't understand. Professor Arthur Laffer, of Laffer Curve fame, argues that taxation is the single greatest destroyer of motivation. They're both right.

I told my friend that no one of my acquaintance in the United Kingdom ever does a day's work. They get by on car trunk sales, moving stolen property, selling drugs--all the usual business of those without visible means of support, lie says he will not do that. He'll just close down his life and do nothing productive for pay, (which, read differently, applies to half the working people I know).

U.K. taxes are slated to increase significantly as the government begins to pay the bills for the hundreds of billions it has borrowed to get through the recession. The deeper my friend slips into his funk as the day of his return approaches, the less likely it seems that he will be making any contribution at all.

During the hateful negotiations that followed my father's death, a British tax inspector said to me, "We're not monsters!" She lied.

ROGER CROMBIE is a Bermuda-based columnist for Risk & Insurance[R]. He can be reached at riskletters@lrp.com.
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Title Annotation:ROGER ON RISK
Author:Crombie, Roger
Publication:Risk & Insurance
Date:Sep 15, 2009
Words:653
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