The Mystery Of "The Man" by Umar Saeed

I first heard of The Man when I started working at McDonald’s at the age of sixteen. In my head, I had calculated how many hours of work would get me the stereo I wanted. But money went missing from my paycheque. My manager, who was eighteen and smuggled cheeseburgers to his friends at the drive-thru, explained the discrepancy to me. He said it was “The Man,” and patted me on the shoulder, telling me to get used to it.

The Man taxes you when you make money and then taxes you again when you spend it. If you own property, he’ll take more. His rise to power took off with the introduction of income tax during World War I, which was supposed to be a temporary measure. Today, it’s The Man’s largest source of revenue.

But now something’s bothering all of us. There’s an enormous income disparity between the top one percent and the rest of us.1 Naturally, the rest of us want this fixed. The Man has full control of the most effective income redistribution tool available. Taxation is the primary means with which society balances incomes. It’s his wheelhouse.

I’m a highly trained accountant. I get paid to know what The Man says and thinks. The entire Occupy Wall Street movement is after a specific result and taxation is the tool to accomplish it. It’s math. It’s Robin Hood. Tax the rich, redistribute to the poor. All the mechanisms are in place. But The Man doesn’t think like that.

Take the Canadian tax system as an example of how he thinks. Our system is progressive, which means we tax the rich proportionately more than the poor. But The Man doesn’t give a shit about being fair. All he cares about is maximizing his revenue. The reason the rich are taxed progressively more is because The Man is making a bet that they won’t miss the money, nor will they be bothered by the tax. By maximizing his intake, he can make the most difference when it comes to spending that money.

Besides, we humans are horribly inconsistent with our concepts of fairness.2 Evidence shows that ethnically homogenous countries have no problems with high taxes or social redistribution. The Scandinavian countries are a perfect example; they have the highest tax rates in the world with hardly a complaint. On the other hand, there is strong opposition toward high tax regimes in nations that attract immigrants, such as America.3 So The Man appeases our cultural preferences so as not to disturb the peace, but beyond that he’s indifferent toward being fair.

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Ironically, I learned the most about taxation working on the island of Bermuda, where there is no income tax. Offshore tax havens attract money from all over the world, in the name of avoiding taxation. Big corporations view taxation as a game. It was here where I learned that The Man was hardly an imposing figure. In fact, he was an incompetent loser that could barely keep up in the game of international finance.

Bermuda
The game works like this: rich people and big corporations often have more money than they know what to do with. That money is used to make more money. To avoid tax, they can grow it in offshore tax havens, like Bermuda. The Man hates this, but ultimately you’re free to do what you want with your money. The Man has no authority in a place like Bermuda, where the tax rate is zero. Bermuda isn’t going to say anything because before all this money came flooding into their island, the best thing they had going was fishing, and to be honest that entire industry was meh.

Most corporations and individuals that use offshore havens are perfectly legitimate.4 In fact, every Canadian benefits from this break because the Canada Pension Plan invests in hedge funds. Public school teachers have their pensions in “alternative” investments too. The same goes for university endowment funds. The philosophy at the corporate level is that if the rules permit a tax break, why wouldn’t you use it? We all participate in the system without knowing it.

Everyone knows the story of General Electric arguing that the corporate tax rates in America were too high, while simultaneously paying zero income tax. The fact that G.E. didn’t pay income tax is described as a loophole. But describing it like that overlooks a fundamental problem in American tax law. As a tax student, I carried around one thick book called the Canadian Income Tax Act and complained about it non-stop. The American equivalent has twenty such volumes. American tax laws focuses on specific rules as opposed to general standards, which means that they need more description of what is and is not allowed, which in turn creates more loopholes.5

A few years ago, I had the opportunity to see The Man try to change the laws and tax some of that offshore money. The United States government drastically changed the rules for how long you could keep money offshore and free from tax. The weeks that followed this announcement, teams of accountants, lawyers and hedge fund traders worked together to create an entirely new corporate structure that would protect their large pools of money from the new tax law. They sent me flow charts with arrows pointing in all directions to illustrate their new organizational design. The company was broken up into parts that originated in different jurisdictions and money would flow from here to there, go around the back, and finally through the loophole: tax avoided. After seeing this happen, it was clear that the The Man was no longer the Man anymore; he was just some guy now. Corporations were running the show, especially when it came to taxation.

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A few years back, my staff and I were putting in a late night at the office because one enormous pool of money wanted to merge with another pool of money, and this has many accounting consequences. I was senior management for a large company, I was young, I was making great money, and I was good at what I did. But the sheer emptiness of such tasks solicited contemplation of an important question: was this really a good use of my time?

One of my new staff showed a little too much enthusiasm about some of the token corporate benefits you get when you work late or on the weekends. I explained to him that corporate employers had a whole host of tricks that were designed to make you give up your free time. Dangling carrots came in the form of free meals, fancy dinners, work travel, expense accounts, taxi chits, bonus cheques – techniques designed to make you feel like you gaining by doing all this work for The Man. But ultimately you are losing time, which you can never recover. The Man is no longer a taxing government. This generation’s Man is very clearly the corporation.6

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* move cursor over footnotes to read them

Umar Saeed is an accomplished professional in finance and accounting. On his website (www.umarsaeed.ca), he writes essays to explain the elaborate connections between people and money, without making your head hurt. You can follow him on Twitter @UmarSaeedCA. Or you can read the rest of his posts at The Little Red Umbrella here.



2 comments:

Geoff Granfield said...

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