Taxation Paradigms: JOHN WEBB SUBMISSION APRIL 2009
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Taxation Paradigms: What is the East Anglian Perception? JOHN WEBB A thesis submitted in partial fulfilment of the requirements of Bournemouth University for the degree of Doctor of Philosophy SUBMISSION APRIL 2009 BOURNEMOUTH UNIVERSITY What we calf t[ie beginningis oftenthe end And to makean endis to makea beginning ?fie endis wherewe start ++++++++++++++++++ Weshall not ceasefrom exploration And the of exploring end .. Wilt to arrivewhere we started +++++++++++++++++ 7.S f: Cwt(1974,208: 209) ? fie Four Quartets,Coffected Poems, 1909-1962 London: Faderand Fader 2 Acknowledgements The path of a part time PhD is long and at times painful and is only achievablewith the continued support of family, friends and colleagues. There is only one place to start and that is my immediate family; my wife, Libby, and daughter Amy, have shown incredible patienceover the last few years and deserve my earnest thanks and admiration for their fantastic support. It is far too easy to defer researchwhilst there is pressingand important targets to be met at work. My Dean of Faculty and Head of Department have shown consistent support and, in particular over the last year my workload has been managedto allow completion. Particularthanks are reservedfor the most patientand supportiveperson - my supervisor ProfessorPhilip Hardwick.I am sure I am one of many researcherswho would not have completed without Philip - thank you. ABSTRACT Ever since the Peasant'sRevolt in 1379, collection of our taxes has been unpopular. In particular when the taxes are viewed as unfair the population have reacted in significant and even violent ways. For example the Hearth Tax of 1662, Window Tax of 1747 and the Poll tax of the 1990's have experiencedpublic rejection of these levies. Additionally there has been a major growth in tax avoidancein the last 60 years. All of this may indicatea singleontology of taxation;one wheretax is disliked and avoided. However the work of Buchanan(1994) suggestedthere are alternative ways of viewing taxation by identifying four alternative paradigmsof taxation. This research recognisesthe work of Buchanan(1994) but challengeswhether his alternatives are paradigms; other researcherssuggest there are factors such as age, gender and background that can influence our view of taxation. If that is true then Buchanan's(1994) work must be interpreted as four alternative perceptions of taxation; that is taxation does not have a single ontology. Basedupon primary and secondary researchthis thesis clearly identifies the factors that can influence our view, perception, of taxation. Contrary to the conclusionsof Auderbach(1999) this research considersa matrix of factors rather than adopting Auderbach'sview that tax policy is endogenousand should not try to explain taxes from a wide range of factors. This matrix of factors is concluded in the Tax PerceptionPush-Pull Model which identifies a range of influences and in categorising the factors it identifies the relative strength or importance of the factors. Or, 4 The model concept is tested against the tax changes introduced in the UK Budget statement of 2008 and shows there is a balance of push and pull factors, concludingthat the population's overall view of taxation should not change. 5 CONTENTS Pa e Chapter 1: Introduction and initial consideration of the 17 influences upon taxation policy. 17 Introduction 19 Wider Literature Aims and Objectives 24 Chapter 2: Research Methodology and Method 30 Introduction 30 Nature of Reality 30 Positivism 32 Post-Positivism 33 Phenomenology 34 PreferredParadigm 35 ResearchMethods adopted 37 Survey Design 39 Sampling 42 Questionnairedesign 44 Analysis 46 Conclusion 48 Chapter 3: Testing Initial Concepts 49 Initial Example- IR35 49 Client Motivation 52 Contractormotivation 53 The Outsourcing Trend and Tax Evasion 55 Chapter Summary 59 Chapter 4: Influences upon tax perceptions: a review of 62 literature Introduction 62 HistoricalPerspective 62 Motivation 65 Social Response 72 Equity and Fairness 76 Tax Systems 82 Burdenof Taxation 85 UnderstandingChanges 95 Emergenceof Tax Avoidanceand Evasion 97 Tax Compliance and Behaviour 101 Tax and work force related issues. 108 Payingfor Spending 110 Socialand Public Policy 113 AccountingProfession 117 RevenuesPolicy 124 Chapter 5: Life Experiences 129 Introduction 129 Exposureto Policy 129 Marxism 132 Socialism 136 Capitalism 140 Keynes 143 New Labour 145 Conclusion 150 Chapter 6: Review of Buchanan's alternative paradigms of 152 taxation: developing propositions Introduction 152 Background 152 DevelopingPropositions on the perceptionsof taxation 157 Proposition1 157 Proposition2 158 Proposition 3 158 Proposition4 159 Proposition5 160 Proposition6 161 Proposition7 162 Proposition8 163 Conclusion 163 Chapter 7: Taxation Advisors - Attitudes to UK Direct Taxation 164 Introduction 164 Primarydata analysis 166 Extent to which the Inland Revenueis seen professionaland fair 167 Attitudes towards changesin Taxation 173 Personaland EthicalIssues 177 Client Needs 179 Summaryof issues 181 Conclusion 184 Chapter 8: Attitudes of Employed taxpayers 187 Introduction 187 Analysis 188 Reactionto alternative tax systems 196 Conclusions 201 Chapter 9: Attitudes of Corporate Managers to Taxation 205 Introduction 205 Observations 207 Summary 212 Chapter 10: Evaluation of Research Propositions 214 Proposition1- Tax requirementsof clients predominate in the production 214 of financial reports within and outside of GAAPby taxation practitioners. ConclusionsProposition 1 228 Proposition2- With a predominantview that tax is a coercivelyimposed 229 charge taxpayerswill opt for tax reducing advice in preferenceto contributing towards increasedpublic expenditure ConclusionsProposition 2 245 Proposition3- UK tax payersare ignorant of their taxation circumstances 246 with resultant decisionsbased upon non tax factors. Proposition4- There is a predominantview that taxation should be used to reform social policy and social security ConclusionsProposition 3 254 ConclusionsProposition 4 260 Proposition5- Public preferencesupports progressivismin taxation. 261 ConclusionsProposition 5 274 Proposition6- Taxpayershave a preferencefor improved public services 275 with higher direct taxation ConclusionsProposition 6 278 Proposition7- There is general support for the role of taxation within the 278 economy Proposition8- There is general support for the efficiency of the RevenueAuthorities. ConclusionsProposition 7 281 ConclusionsProposition 8 284 ChapterConclusion 285 Chapter 11: 'Buchanan's alternatives' -A Conclusion 287 Impacting Factors 289 Conclusion 299 Push- PullTax PerceptionModel 301 Contributionto Knowledge 306 ConcludingStatement 308 List of References 309 Annex 1 Advocate Questionnaire 318 Annex 2 Corporate Questionnaire 332 Annex 3 Individual Questionnaire 339 Annex 4 Question Matrix 345 LIST OF FIGURESand TABLES PAGE FIGURES Figure 1.1 Initial outline model of tax views 27 Figure 2.1 Literature Map 38 Figure 3.1 Developingmodel of tax views 60 Figure 4.1 MaslowHierarchy of Need 66 Figure4.2 Analysisof Tax ComplianceCosts 103 Figure4.3 Updated Model of Tax Views 127 Figure 5.1 Discourseexperience spectrum 132 Figure 5.2 Stop Go Cycle 144 Figure 5.3 Integrated Discourseexperience and responsesspectrum 149 Figure 5.4 TheoreticalTax PerceptionModel 151 Figure 11.1 OntologicalMap of Taxation 308 TABLES Table 4.1 Impact of the CommunityCharge 78 Table 4.2 Summaryof the Meade Report 84 Table 4.3 International Tax Rates 86 Table 4.4 Direct and Indirect taxes as a% of gross income analysedby 89 quintiles of disposableincome Table 4.5 Burden of direct tax 2002 89 Table 4.6 Burden of direct tax 1992 90 Table 4.6(a) Burdenof direct tax change 1992 - 2002 Percentagepoints 93 Table 4.7 Income - Percentageof tax Borne on deflated income and based upon earlier years tax rates 107 Table 4.8 - Income Taxation Collection Costs (Pre Self Assessment) Table 4.9 Response to tax increase - preferred spending options 111 Commission on Taxation and Citizenship 2000 10 Table 4.10 - Attitudes to level of taxes 112 Table 4.11 Attitudes towards the tax levels of different income groups % 112 The Commissionon Taxation and Citizenship(2000) Table 4.12 Comparisonof NHSExpenditure 1949 - 1995 116 Table 5.1 UK Age Profile 2001 130 Table 5.2 UK Elector Experiences 131 Table 5.3 The TWO Conservatives 141 Table 5.4 The TWO Labours 148 Table 7.1 Thatcher and the Entrepreneurialethic 168 Table 7.2 Attitudes to Private Ownership 168 Table 7.3 Taxation Literature 169 Table 7.4 Rankingof attitudes to the role of taxation 170 Table 7.5 Kruskal Wallis Test Statistics - Analysis of Options Statements 170 Table 7.6 MannWhitney -Ranks, Options v Gender 172 Table 7.7 To what extent do you consider political leadersfully 173 appreciatesociety's views when determining expenditure plans based upon tax revenues? Table 7.8 Responsesto alternative Tax Systems 176 Table 7.9 PremiumRate Tax Thresholds 177 Table 7.10 Impact of ChangingCircumstances 178 Table 7.11 Accountancy Profession and Tax Policy 179 Table 7.12 Summaryof findings 181 Table 7.13 Propositionevidence 185 Table 8.1 Do you believethat the Thatcher 189 government encouragedentrepreneurship Table 8.2 Do you believe in the concept of private ownershipas a core 190 element to Economicsuccess? Table 8.3 Have you ever planned to avoid tax? 191 Table 8.4 Impact of ChangingCircumstances 192 Table 8.5 KruskalWallis Test Statistics- views on societal responsibilities 194 Table 8.6 A strong businesssector will provide an environment to support