When will those in Treasury start to realise that the three decades of “reduce tax” “reduce the size of the state” “the private sector will show how to run Government (Central and Local)” are over? There is increasingly discussion around the world on taxes.
There will be resistance toward increasing taxes. I can just hear the banshee wail from Judith Collins right now. In 1982 William Tucker argued that the environmentalist banner, when waved against local development, offers a conveniently genteel way to “favour the status quo” for those whose “material comfort under the present system has been more or less assured.” Well, this could also apply to those of us who could easily pay more taxes and not notice it. I would certainly start with heavy taxes on those who own multiple houses.
Remember what I printed from Chris Chamberlain last week:
Tax us! I welcome a higher tax rate. I welcome a CGT. How many houses does one person need? Tax me when I buy a second and any subsequent house! Tax is not a burden; it is a responsibility when we live in a civil society. I do not accept that I am paying too much tax. I also note that several high profile rich-lister types have publicly state this also. The ten-year shift to the Bright Line just announced is simply not enough in this tax realm, in my humble view! Many will simply wait till year 11 and then sell.
In the Guardian last week there was an interesting article showing how the Washington consensus which set the standard for the Reagan era of economics to flourish. It’s when the neo-liberals hard work behind the scenes came out of the closet. That’s why the Guardian article last week was so interesting. Here’s how it started:
A wealth tax to help pay for the cost of fighting the pandemic. An international agreement to prevent a race to the bottom on corporate tax. An insistence that recovery from the second severe crisis in just over a decade should be green and inclusive. A conviction that governments should spend whatever it takes to fend off the threat of mass unemployment, paying no heed to the size of budget deficit.
There’s nothing startlingly new about any of these ideas, which have been knocking around for years, if not decades. What is different is that these are no longer just proposals put forward by progressive thinktanks or marginalised Keynesians in academia, but form part of an agenda being pursued by the International Monetary Fund and the US Treasury under Joe Biden’s presidency.
This matters. From the 1980s onwards, the IMF and the US Treasury forged what became known as the Washington consensus: a set of beliefs that was foisted on any country that ran into economic difficulties and came looking for help. The one-size-fits-all approach involved cutting public spending and taxes, and privatisation, to create incentives for risk-taking entrepreneurs, and making inflation the overriding goal of economic policy. These policies inevitably caused pain, but it was thought the “tough love” approach was worth it.
If the old Washington consensus believed in small states, low taxes and balanced budgets, the new Washington consensus believes in activist governments, inclusive growth and a green new deal. Until relatively recently, the only outpost of the multilateral system that supported such ideas was the UN’s trade and development arm in Geneva.
And then the article concluded:
There is a sense in which history is repeating itself. It took more than a decade after the end of the first world war for the realisation to dawn that the gold standard was finished. It was the second rather than the first oil shock that opened the door to the economics of the new right in the 1980s. Those who thought that the financial crisis would result in a challenge to the Washington consensus were not wrong. The old nostrums are indeed being questioned. It has just taken 10 years longer than they were expecting, that’s all.
Here’s a link to the article: https://www.theguardian.com/commentisfree/2021/apr/08/economic-orthodoxies-covid-crisis-states-taxes-budgets
Another Guardian article which caught my eye, also on taxes, was about a new millionaire’s club which is calling for the State to increase taxes for the wealthy and they say start with us. It’s worth noting that one of the signatories is New Zealander Stephen Tindall.
The number of people joining has grown. One of the leaders is Abigail Disney, granddaughter of Roy Disney who with his brother, Walt, founded Walt Disney World. In this article she states:
Disney worries that society risks slipping back into a “Dickensian world” unless the really rich realise “we are all humans at the end of the day, and we need to look after each other. You know, these billionaires are modern-day, miserly Ebenezer Scrooges. Because they are looking straight at Tiny Tim and saying: ‘No, fuck you, I won’t pay for your crutches,’” she says. “It may sound extreme, but they really are.”
The article then goes on to cover what this group is promoting:
Abigail Disney is part of a small but growing group among the super-rich, calling for a wealth tax to help fund the recovery from the pandemic. The Patriotic Millionaires movement, of which she is a longstanding member and key spokesperson, started in 2010 with only a handful of signatures on a 163-word open letter, including the musician Moby and Ben & Jerry’s ice-cream co-founder Ben Cohen. It has grown into a global organisation with more than 200 members, including Chuck Collins, heir to the Oscar Mayer hotdog fortune; Morris Pearl, a former managing director at BlackRock; Danish-Iranian billionaire Djaffar Shalchi; and Sir Stephen Tindall, the founder of New Zealand’s largest retailer, the Warehouse Group. They describe themselves as “proud traitors to their class” united in their concern about the “destabilising concentration of wealth and power”.
These members argue that, instead of leaving the super-rich to splash their billions on philanthropic vanity projects such as opera houses and museums, higher taxes should be used to fund public services, welfare and tackle growing inequality. Disney wants taxes on the super-rich to fund universal medical treatment and education in the US and throughout the world. This week, she will help launch the UK and European chapter of Patriotic Millionaires, pressuring world governments to “raise taxes on people like us. Immediately. Substantially. Permanently”.
Then some articles about taxes in New Zealand:
In an article by Gordon Campbell he summarises some of the battles which have taken place in particularly USA between the state and the corporate sector. Some quotes make interesting reading:
Large companies like Apple and Bristol Myers Squibb have long employed complicated manoeuvres to reduce or eliminate their tax bills by shifting income on paper between countries. The strategy has enriched accountants and shareholders, while driving down corporate tax receipts for the federal government. President Biden sees ending that practice as central to his $2 trillion infrastructure package, pushing changes to the tax code that his administration says will ensure American companies are contributing tax dollars to help invest in the country’s roads, bridges, water pipes and in other parts of his economic agenda.
Regardless, the centre-right orthodoxy –i.e. National and Act – still clings quaintly to the notion that tax cuts will create economic growth, despite the lack of any supportive evidence over the past 40 years that this is indeed the case. On the evidence, all that tax cuts have been really good at creating is a widening inequality gap between the top 1 per cent and the rest of society. Here’s a brief overview of the recent track record of tax cuts/tax hikes in the US:
- In 1993, President Bill Clinton raised taxes on top earners from 31 percent to 39.6 percent. Conservatives predicted disaster;3 instead, the economy boomed. 23 million jobs were created and the economy grew for 32 straight quarters in what was then the longest expansion in history.
- By contrast, in 2001 and 2003, President George W. Bush cut income taxes substantially, lowering the top rate to 35 percent while also lowering top rates on capital gains and dividends. Conservatives maintained that the tax cuts would turbocharge economic growth; in fact, conservative think tank The Heritage Foundation predicted that growth would be so strong that the United States would entirely pay off its debt by 2010.5 Instead, the ensuing years saw weak growth, followed by the 2008 economic collapse. And as economist Danny Yagan has found, the steep cuts in dividend tax rates signed into law by President Bush in 2003 did not increase corporate investment or worker pay.
Then came the presidency of Barack Obama :
- The Bush-era tax rates stayed in place through 2012, but at the end of that year, President Barack Obama struck a deal to restore the 39.6 percent top tax rate and raise the tax rates on capital gains and dividends. Again, many conservatives predicted doomsday. However, the economy grew steadily…
What can we conclude from all this? Well, that tax rates may well be a far less important driver of economic growth/jobs/wages than interest rates, or government spending :
…Job growth has been much stronger following the two most recent increases in the top tax rate. Given that there are innumerable factors behind how the economy performs, this recent history certainly does not prove that raising taxes on the rich causes the economy to grow or that cutting taxes on the rich causes it to lag. It does, however, provide powerful evidence refuting the claims made by the proponents of trickle-down tax cuts.
Bernard Hickey wrote on Friday mostly along the same lines as the article from the Guardian above. His observation of how the Government is responding to this world-wide movement for change toward tax increases and Government spending is:
… repeated calls to increase welfare spending in line with the Welfare Experts Advisory Group’s recommendation for a permanent $5.2bn per year increase in benefits has been brushed away by Ardern and Robertson, who argue the nation can’t afford it. The same could be said for new infrastructure and state housing spending, which is set to be less than 5% of GDP and well short of what America and other developed countries are talking about.
Ardern and Robertson have prioritised debt reduction and are now at the fiscally conservative end of the advanced economy spectrum. New Zealand’s public net debt is barely 32% of GDP, less than a third of the average of developed economies with similar credit ratings. That’s despite interest costs falling at the same time as rising debt, which is the exact opposite of the pre-GFC orthodoxy that believed lower government debt would be good for economies and avoid higher interest rates. https://thespinoff.co.nz/business/09-04-2021/bernard-hickey-on-the-new-plan-to-unravel-capitalisms-doom-loop/.