Knock knock. Who’s there? A tax cheat

LONDON, UK — Have you heard the one about the comedian, the prime minister and the offshore tax dodge? It’s doing the rounds in the UK at the moment, but with millions of families teetering on the brink of poverty, it’s not raising many laughs.

Instead, a newly-exposed legal loophole that has allowed people earning millions of dollars to pay taxes of little more than 1 percent is generating a great deal of fury. And much of it is directed at a government that has been reluctant to condemn its tax-avoiding friends.

It’s a scandal that broke with a classic newspaper scoop. The London Times lured an accountant into divulging that comedian Jimmy Carr was squirreling his savings away from revenue collectors.

Carr will not be a name familiar to many outside of the UK, possibly because his willfully offensive brand of humor doesn’t travel well. At home, however, he is a headline act. He hosts his own TV panel show and performs his stand-up routines to full houses.

Carr’s gags regularly provoke the ire of the right-wing press. And that’s apparently a lucrative métier. He earns more than $5 million a year by crafting slow burn one-liners such as: “I’d rather see a pregnant woman standing on the bus than a fat girl sitting down crying.”

To avoid the 50 percent tax rate that the UK currently imposes on high earners, his financial adviser pulled some fancy footwork and signed him up for a scheme known as “K2.”

K2 works like this: An individual becomes an employee of a company based on the tax haven island of Jersey and receives a minimal salary. Any fees earned by the individual are paid directly to the company, which then loans them, tax-free, back to the individual. The loan is never repaid.

Once his K2 membership was exposed, Carr quickly apologized. “I now realize I’ve made a terrible error of judgment,” he wrote on Twitter. “I’m no longer involved in it and will in future conduct my financial affairs much more responsibly. Apologies to everyone.”

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The minimization of tax bills is no doubt appreciated by some in the UK who see levies on high earners as unfair and discouraging to business. But for many more earning low incomes but still paying more tax than Carr, details of his creative accounting have been hard to swallow.

A recent newspaper study found that 7 million working-age adults in Britain are teetering on the brink of destitution despite being employed. Household incomes fell 7 percent in the past three years due to rising unemployment and recession, according to the UK’s Institute of Fiscal Studies.

Such was the level of public outrage that Prime Minister David Cameron took the unusual step of breaking away from this month’s G20 talks in Mexico to offer his comments on the situation. He described Carr’s tax dodge as “morally wrong.”

"People work hard, they pay their taxes, they save up to go to one of his shows,” he told reporters. “They buy the tickets. He is taking the money from those tickets and he, as far as I can see, is putting all of that into some very dodgy tax-avoiding schemes.”

While Cameron’s verdict on Carr neatly slipstreamed the flow of public opinion, it notably stopped short of criticizing other patrons of similar schemes who have subsequently been named. The omission was leapt upon by opposition politicians as evidence of his insincerity.

They blamed Cameron’s reluctance to condemn Gary Barlow — recently knighted as “Sir Gary” by the Queen in recognition of a successful career that includes singing with veteran boy band Take That — on the fact that the pop star regularly campaigns for Cameron’s Conservative party.

"The prime minister rushed to the TV studios to condemn the tax avoidance scheme used by Jimmy Carr but he did not take the opportunity to condemn as morally repugnant the tax avoidance scheme used by Conservative supporter Gary Barlow, who's given a whole new meaning to the phrase 'Take That',” said Angela Eagle of the left-wing Labour party.

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Some criticisms of Cameron have gone much further. The prime minister has been labeled a hypocrite for issuing a moral judgment on one individual’s tax affairs while using the leverage of lower taxation to curry the favor of others.

Earlier this year, the Conservatives announced a reduction from 50 to 45 percent in taxes paid by high earners. And last week, Cameron used the G20 meeting to invite French millionaires to move to the UK to avoid paying President François Hollande’s proposed 75 percent top tax rate.

Questions have also been raised about Conservatives such as Zac Goldsmith, who enjoyed tax breaks as a non-domiciled UK citizen prior to becoming a lawmaker, and Peter Cruddas, a former resident of income tax-free Monaco.

Then there’s the claim that Cameron himself owes some of his not-insubstantial family fortune to the cash salted away in tax havens. Reports suggest that Cameron inherited 300,000 pounds ($470,000) of the 2.7 million pounds left by his father, Ian, when he died in 2009.

“It’s one rule for the comedians on stage and one rule for the comedians in the Cabinet,” Labour leader Ed Miliband commented during the UK parliament’s vigorous weekly Prime Ministers’ Questions debate.

Ironically, Cameron has unwittingly become the butt of the joke, by involving himself in the argument over tax. But the comedian who triggered it in the first place has plenty to smile about. The scandal doubled the ratings for Carr’s TV show and also given him rich new stand-up material.

As he told fans at one recent gig: “You know you’ve had a bad week when the PM takes time out from the G20 to say ‘Jimmy Carr, what a dick.’ Excuse me Mr Obama, there’s something more important.”