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How To Raise Taxes and Create Prosperity
This article originally appeared in the Daily Capitalist.
I am constantly reminded how useless are official and semi-official committees, subcommittees, boards, associations, organizations, bureaus, brotherhoods, conferences, dialogues, and congresses. The word bloviate comes to mind. Today that reminder came in the form of a report from the OECD on tax policy and inequality.
The "International Tax Dialogue (ITD) 4th Global Conference on Tax and Inequality" was held in New Delhi, India on December 7 to 9. Perhaps you could have guessed that their conclusion was inherent in their name: that is correct, tax policy can promote equality. Such conclusions are, to be generous, facile.
In our desire to provide transparency and shine the light of reason on such organizations, I will translate the essence of their report so that it is understandable to most readers.
Original text:
In his closing remarks, Rintaro Tamaki, Deputy Secretary General of the OECD, said “As I travel around the world, a question that I get repeatedly asked is how can we deal with inequalities? What will be the impact of the crisis? How do we reconcile the fact that the behavior of banks was one of the major causes of crisis yet despite public bailouts, we see them continue to pay millions of dollars in bonuses? How can we show our citizens that the gains and the benefits of globalization are being fairly shared?”
Translation:
As I travel around the world, a question that I get repeatedly asked by politicians is how they can perpetuate inequality by taking money from the rich, fund their constituent bureaucracies, and then redistribute the money to projects run by their cronies. People aren't blind to the fact that the rich are getting richer from bailouts after their politicians' fiscal and monetary policies destroyed their economies. Voters are really pissed off.
Original text:
Deputy Secretary General Tamaki also said, “Politicians need to have good answers to these questions, and they need to have answers quickly, otherwise we risk a back lash against globalization as countries move back towards protectionism,” Mr. Tamaki said. He added: “This conference has shown that smart tax policy can reconcile the need to promote sustainable growth with the need to reduce excessive inequalities, particularly at the top end of the income scale.”
Translation:
These politicians are really afraid of their own people and they don't have much time left to find new scapegoats. They'll do anything to buy off their voters even though they know that such policies will ultimately cause even more economic harm. They need to figure out how much they can steal back from their rich cronies and pray that by the time the money is all spent some miracle will save their necks. Otherwise the mob may find that these people are ... superfluous.
There is a certain fetor emanating from such "dialogues." These people have no clue as to how prosperity and wealth is created, but they know how to steal it.
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From a more economic perspective, to optimize the common wealth, there has to be a balance of rewarding innovation, luck, hard-work, ancestors being able to give to their descendants etc while also ensuring concentrations of wealth and power do not take over an economy.
To me the ideal economy that produces most wealth and opportunity for all is one that ensures there is plenty of both ability (via education, infrastructure etc) and incentive to work, try, fail, try again, innovate, create, and also ensures there is minimun drag on transactions due to distrust, insecurity.
An optimized economy is one that is constantly tweaking market regulations to minimize drag on innovation and incentives, while also minimizing monopolies and parasites that make good profit while providing no value to consumer, whether those parasites it be bloated govt agencies or big dominate businesses or long-time, multi-generational holders of valuable assets.
Concentration of wealth does lead to "moldy" money. While we should encourage people to work to accumulate money, if such earned money is long-concetrated in a few hands, such an economy will be become moribond, like a banana republic or a slave plantation.
The innovation and opportunity that existed in the North in the early 1800s in US, where being a farmer or a trademan was ticket to a comfortable middle class life, was in stark contrast to the stagnant, stuck production of the South. In the South, highly productive lands only yielded wealth to a few rich families, and almost all other people were poor or chattel slaves. When these lands were taken over by former slaves (Carolina Islands) or even much abused share-croppers, their production increased by huge mulitples. Foreign visitors to US were constantly struck by how vibrant Northern towns were and how stifled the South's economy was. I know plantation slavery is an extreme example, we have nothing like it now, but it shows how concentration of wealth, legally gained via an ancestors hard work and by low wage workers that have no other opportunities can completely stifle an economy.
Sometimes government monopolies, or regulated private monopolies, both with democratic controls will provide the best value to consumers (trash collection, utilty companies etc) and many other times best value provided by multiple competing entities. Sometimes govt can best provide infrastructure that will improve whole economy revenues in ways that private markets would never endeavor. Sometimes, democraticly determined laws of something simple, like forcing phone companies to allow cell phone numbers to be portable, will do something that great for consumer and will also encourage more competition on real value while not harming profitability of telecoms but such a thing would have never happened without the law.
There is a role for democratic governments to create conditions for thriving economies. Private markets, that essentially crowd source the needs and wants of cosnumers are great tools for achieving great value for consumers. However, some democratic controls are needed to optimize these markets, ensure that they encourage healthy competition, not discourage it. Also, some basic whole country investments, such as education, infrastructure, ensure businesses and individual workers all have great economic nursery from which to grow if the have pluck, luck, talent, smarts etc..
Successful economies like Germany and Japan don't succeed by a complete government hands-off approach, nor do they succeed by allowing massive inequalities and permanent underclasses. Not do they succeed by central planning or excessive, government-run industries.
To me it's all about checks and balances and democratic controls. In US, I think our biggest problem is the lack of democracy and the corruption of government. That is neither an all gvernement or all capitalism problem, it is rather a problem of not getting sufficient democratic controls. The majority of people in US do not want to pass laws that would bankrupt all the companies that give them jobs. That is why you see Senators from oil rich states block environmental laws, they are not simply captured by the oil companies, but also responding to all the people they represent that work for those oil companies or profit from the oil companies spending in the region. But there are fishermen, tourist resort owners, regular folks with with kids that breathe and swim etc, that want to see environmental safe guards. Democracy can find good balance, but huge concentrations of wealth and corruption of government is not conducive to good checks and balances.
Anti-corruption movements and populist pressures can make governments work best for the common wealth, unregulated markets alone will not achieve optimal results.
To me, the countries around the world that are thriving economically, those that have big and growing middle classes, a business climate and economics that do well domestically and compete internationally, and that do not have large, entrenched, permanent classes, and hat have livable and safe cities, like say Germany, Sweden, Japan, and new comers that are approving quickly, greatly in these areas, like say Turkey or Brazil, are those have government policies that support opportunities, education, and common wealth and ensure workers have a big voice in their businesses, by law or culture, Germany and Japan respectively.
German businesses thrive in global competition despite German workers having some of the highest wages and best benefits in the world and despite lots of regulations, unions, environmental laws etc. Japan does great in export markets also, even while their workers are well-compensated and the state has big social safety net and population is quite aged. Brazil is making great strides from a dismal starting point, not by less government but by strong government programs, including social safety net programs that paid poor people cash and educated their kids, who are now entering the Brazilian middle class.
Philosophically, to me, its not about end-result equality, that can never be accomplished even if it was an over-riding goal. Rather, it is about equal opportunity, equal protection under the law, and equal resonsibility under the law.
No society can thrive to its fullest potential if there are entrenched economic classes, where being born poor or born to a discriminated-group (due to religion, ethnicity, party affliation, whatever) means little to no access to education, training, networking or funding.
Also, no society can thrive to its fullest potential if laws, are not determined by democratic processes, or are not uniformly and equally applied to all, or both. If laws are determined by party cronies, military cronies, royal families, rich cartels etc to benefit and protect them only, and punish and deny the majority of others, then regular people will be furstrated and discouraged from striving. If laws are unfairly and inconsistently enforced, the faith and trust in a system that encourages action and innovation is squashed. To get fairness in laws, a government must have strength, it must not be weak in the face of riches or military or violent power. The people's will can not rule if the government does not implement and enforce its will. Of course, governments have checks and balances to avoid tyranny from the government, such as rights that can not be abridged even by majority vote. So to do wealth and markets need checks and balances.
Someone in a country, in an economy will always have power. So to me, it best that the population as a whole, via one vote per-person democratic controls, and a democratically determined constitution of court systems and rights. For those democratic controls and checks of court system to work, government of people, by the people must have power. If a democratic government relinquishes power over enforcement of any sector, say street crime, financial crimes, then it is denying democracy, and giving others, whether they are gansters, or Wall Street cronies. Just as our constitution seeks to check govt power by dispersing power to different branches and requiring democratic controls on each of these branches, so our economy must have checks and balances, to avoid permanent underclasses, to avoid excessive concentration of wealth and market power that squashes innovations or parasites off of consumers.
I think given America's history, even the most libertarians would agree that anti-trust laws and laws against monopolies and cartels are suitable government interventions. Without such democratic controls, there would a few monopolies making great individual wealth, but also stifling competition, innovation, opportunity and providing little value to consumers. Sometimes technolgies or geo-political shifts can, on their own, break-up long-standing monopolies, but the private markets alone do not always deliver controls needed to quash monopolies and keep markets competitive.
Also, criminal, state enforced laws against fraud, determined by people/democratic controls and enforced fairly an effective means to achieve thriving, trustworthy markets that private businesses and civil lawsuits do not deliver as well. Civil court actions can take 10 or 20 years, even when small companies have compelling cases against big companies. Even financial fraud in U.S. being constested by big boys against big boys (MBS fraud lawsuits) do little quash future fraudulent behavior. Criminal sanctions that happen in real-time (1-2 years) provide productive transparency and trust in markets. Even with good DOJ enforcement of bid-rigging and kick-backs and price-fixing, such schemes crop up every few decades in various states, how much more so if we shut down governments power to intervene. Would civil action alone provide better results?
You left out "Tiger Teams"
Remember those?
from the land of the caste system the world is informed how to cure inequality! My name is Kahn and I am not an infidel, you let be pray 5 times a day (on the clock), for 1 hour (takes time to wash feet) or I will sue you.
This political talk of "addressing inequalities" pisses me right off. It's a load of rubbish spouted by moulded paradigm minds that couldn't recognise an epiphany if angels starting singing around their head.
The reason why we have so much inequality is because governments have tied up the little man until he is trying to wobble around in a strait jacket; they have turned him into a serf with so much tax, regulation, law, legislation that he can't do anything apart from blow his own nose. The elite are recognisable by the complete lack of regulation, tax and legislation over their lives.
If politicians were serious about inequality, they would pull the bottom 50 percent out of income taxation entirely and create tax perks that favour asset accumulation for the bottom 50 percent as well.
You know, historically, states would reward returning soldiers with land. What do we see in the 20th century? In Britain, you got social housing, which meant paying rent your entire life, which meant working for wages until you retired, which meant the bastards could tax you on your income, which meant you had no property or land to leave to descendents apart from some meagre savings if you had any.
The whole thing is just a joke. The little man is fodder for the system of keeping the elite at the top of the pile.
I am glad Achtung gets it!
The key words are 'know how to steal it.'
Of course. Rising taxes on banks, corporations in general, the wealthiest; and using that money to prop up those in need at the bottom would never work, right? That's why we should lower taxes on banks, corporations in general, the wealthiest, etc... ... right?? They'll support society, right?
It's easy to understand, if you pay zero attention to how much taxes have been lowered on them in the past 30 years already.