Tax – making workers pay
Posted by John, May 29th, 2012 - under Tax, Tax cuts, Tax policy, Tax the rich.
This is a letter I sent to the Financial Reviow in response to 2 tax articles in today’s edition.
John
The articles by Kelly O’Dwyer and Stephen Bartos raise related and important issues about tax and tax reform. (‘Cut tax rates to attract capital, talent’ and ‘Google ‘spurs debate in an electronic age’ respectively Australian Financial Review 29 May page 63).
O’Dwyer’s premise is that Australia is a high tax country. Compared to other OECD countries this is not true. We are the sixth lowest taxing country.
O’Dwyer also argues tax is a critical consideration in determining investment decisions. This is not true for all capital but may apply to highly mobile capital.
Further, she argues that tax determines the location of labour. This is true but only for the one percent (whom O’Dwyer mislabels as the ‘talented people’) and even then is not necessarily determinative. In any event the rest of us – presumably the untalented ones – have little choice as to which country we sell our labour power in.
Stephen Bartos makes the point that some capital is highly mobile and for that reason the Henry Tax Review recommended Australia tax things that don’t move, like land and resources.
An even more interesting point might be the Henry Tax Review’s hints about taxing all economic rent, or super profits, of which resource rent taxes are merely a subset.
Henry also suggested a simplified tax on consumption, which was among other things a none too subtle way of suggesting the GST could be broadened and increased.
There is a thread that runs through the Henry Tax Review and the thinking of O’Dwyer and perhaps Bartos. It is that the state should take less out of the earnings of capital, earnings created by the labour of workers.
It may be this ‘tax capital less’ mantra is a response to a systemic problem, the tendency under capitalism of the rate of profit to fall. Cutting tax rates won’t address that threat to capitalism. Paradoxically it might increase it in the long term.
Leaving that aside, a question for O’Dwyer to address is ‘where is the money coming from?’ to pay for schools and hospitals, aged care and dealing with climate change? .Does O’Dwyer seriously think that cutting Australian taxes on capital will lead to such an explosion in income and gains that there will be an increase in state revenue despite there being lower taxes?
Now where have I heard that sort of trickle down theory before? And hasn’t it worked well for Ireland with its low company tax rates?
Maybe the hidden message in O’Dwyer’s article is that if we want tax systems comparable to Hong Kong and Singapore then we should have spending on public goods and welfare states similar to theirs as well. So where would O’Dwyer yield the axe?
Henry and Bartos seem to have another answer – tax land, resources and, for Henry, consumption.
This is in effect a further transfer of the tax burden onto the Australian working class, as part of the overall global and Australian trend to increasing inequality to address stagnant or falling profit rates globally.
Maybe the time has come to consider a tax system in which equity and not efficiency is at the forefront of tax policy. I note on that an equitable society is often more efficient for capital than an inequitable one.
Of course, if the underlying problem is systemic, if the underlying problem is declining profit rates over the long term in the developed world, then maybe it is time to consider an alternative system to profit and competition.
Organising production democratically to satisfy human need might be a good place to start.
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Comments
Comment from John
Time May 29, 2012 at 8:19 pm
Thanks dl. I can’t help myself. I was tired and needed a weekend. Plus I have a presentation next week which is concentrating my mind. The Laffer curve supposedly supports the argument that if you cut taxes you increase growth. It is bullshit. In fact there is an argument that providing health and education through state spending increases profitability for business (ie increases the amount of surplus value created) but that might be a consequence rather than a cause of the nature of the exploitation process in Australia. Didn’t know SIngapore and HK were currency manipulators.
Comment from dl
Time May 29, 2012 at 9:11 pm
Yes, apparently they are currency manipulators, and sorry for the essay-like post. China is probably more egregious in doing it, and they have such a large economy is what makes it problematic to countries like the US.
You’re right about the Laffer curve, I don’t think many professional economist even take it seriously, and even if they do, the rate at which the ‘Laffer effect’ begins to kick in is very high (I’m talking of tax rates of around 90% or more on personal income here.) Heck, even George H.W Bush referred to it (the Laffer curve) as ‘Voodoo economics.’
I recently took an economics class at Uni, and yeah, Education and Health Care definitely have knock on effects for the rest of the economy, and they are naturally underfunded in a market economy.
Completely O/T here, but have you noticed a massive uptick in the amount of advertising done by universities at the moment? Could this be a symptom of their progressive commercialization, and a shift toward being a private sector good? I only mention this as it’s in the context of a lot of battles involving cuts in government funding to them.
Comment from John
Time May 29, 2012 at 9:37 pm
Yes. Now they get paid per enrolment they are I think advertising more, and using the media more. Stephen Parker from the University of Canberra has been in the Conversation, and had an article on the future of Unis in the AFR education section and another one there was on their sponsorship of the Brumbies. But that may in part also be part of a wider strategy to soften their image since the revelations of their FoI inadequacies and the marking enquiry. And on top of that there is the James Warden case covered in the Australian a few weeks ago.
Comment from Chris Warren
Time June 2, 2012 at 9:50 am
Stephen’s point about mobile capital is a good one. However circulating capital is the only source of profit. Maybe it would be better if we considered ensuring that all transactions are visible to tax authorities. How can capital move without foreign exchange being recorded in the case of cash, or a bank record being generated for electronic funds transfer?
How else can capital be mobile? Crates of gold ingots?
Comment from John
Time June 2, 2012 at 10:34 am
It is one the Henry Tax Review makes much of. Basically the flick of a button can determine investment in Australia or not. They are talking about attracting foreign investment into Australia and the mobile capital they are talking about is that which can decide or not to go overnight on the New York or London bond market for example. Yes, there will be transfer documents but if the investment isn’t attracted to Australia in the first place it doesn’t matter how many records there are. And if the investment is through a tax haven bank secrecy laws might prevent access to such information by Australian authorities anyway.
However recent developments mean that Australia now has a number of Tax Information Exchange Agreements with some tax havens.
Comment from dl
Time May 29, 2012 at 7:59 pm
I thought you were on break?
But anyways, I read the article Cut tax rates to attract capital, talent’, and it’s just the usual mixture of political cant conventional wisdom on the economy, with all the appeals to ‘talent’ and ‘job creators’, who won’t bring the ‘jerbs’ to Australia if we don’t Kowtow to their every wishes.
I’m not going to try and fault O’Dwyer and Bartos on the bases of their taxation policies though; they’re prob much more knowledgeable than me on this topic.
But is there any empirical evidence to prove that cutting marginal tax rate actually boosts economic growth at all, let alone create jobs?
Firstly, for males, the employment-to population rate for males has seen a secular decline from the late 1970′s to the present, during which time there has been a massive decrease in the tax load on the average person’s income. So this point is Prima-facie untrue. Also, when I have looked at real GDP growth rates for Australia in the pat, I’ve had problems discerning the part of the graph that shows where all the tax-induced growth occurred.
Also, with regards to Hong Kong and Singapore, both do have extremely low tax burdens, and I often see members of the Liberal party whet their lips over the thought of having such a set of free market reforms set into place over here (such as Hong Kong having no Social Security system.) However, they are both small city states with negligible natural resources to speak of, and as such their economy is going to have to be managed in a different manner to that of Australia. Also, Hong Kong and Singapore run a VERY different immigration program than Australia, and I daresay that there are many indigent yet talented Chinese folk from the mainland who would immigrate to these two wealthy countries regardless of their taxation.
Also, they (HK and Singapore) have a habit of artificially depressing their currencies in order to boost domestic employment & keep their respective populations happy; something which I think is close to economic sacrilege in Australia. I can’t imagine O’dwyer and Bartos advocating that Australia to adopt such a crudely protectionist measure.
Lastly the supposition that we are competing with the US, the UK or tiny Israel for educated workers is pure idiocy, for several reasons.