Taxation
In this world nothing can be said to be certain, except death and taxes. ~ Benjamin Franklin
Nothing demonstrates the parasitic nature of government as well as taxation. In all countries, governments at every level mercilessly tax the populace.
“At all times taxes affect the distribution of well-being because they are the principal means by which the cost of government is assigned to citizens.” ~ American economist and tax policy maven Len Burman
In the United States, federal tax collection is handled by the Internal Revenue Service (IRS). States, counties, and municipalities also nick slices out of workers’ pocketbooks. The story is much the same in other nations.
“America is a land of taxation that was founded to avoid taxation.” ~ Canadian educator Laurence Peter
A tax is progressive if its levies are at least proportionate to income or wealth. Conversely, a regressive tax takes a greater percentage from those less well-off: the poor pay proportionately more.
“The power to tax involves the power to destroy.” ~ John Marshall
No modern tax system is progressive. Instead, most are quite regressive.
“The tax collector must love poor people; he’s creating so many of them.” ~ American columnist Bill Vaughan
As the poor spend a much greater percentage of their incomes on goods than the wealthy, sales taxes are regressive.
So-called sin taxes – such as on alcohol and tobacco – are regressive, as self-medication is more popular with the poor than the rich. Low rates of capital gains and inheritance (estate) taxes are grossly regressive, as they disproportionately benefit the wealthy, who make money with money and pass the proceeds on to their offspring. Low estate taxes greatly facilitate sustaining the plutocracy which characterizes the US and other countries.
“Regressive taxation plays a role in early mortality, dropping out of high school, out-of-wedlock births, and crime rates (for property and violent crime). Over time, the more the poor are taxed, the worse these outcomes look.” ~ American sociologists Katherine Newman & Rourke O’Brien
With its ersatz system of resource allocation, capitalism generates enormous inequities. Governmental tax systems come nowhere near leveling the playing field; quite the contrary.
“Concentration of wealth leads to undue political influence, which produces unfair tax policies and encourages corrupt practices.” ~ Oxfam International
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In 2017, along with passing a $1.5 trillion tax cut for the rich, the Trump administration used private tax collectors to target the poor, following a law which Republicans had passed in 2015 that Democratic President Barack Obama refused to use. The program pushes the poor into penury, and costs far more than it recovers. Meantime, the Republican-controlled Congress balked at sufficiently funding the IRS to do its job.
“The IRS doesn’t have enough employees to provide basic taxpayer service.” ~ American tax maven Nina Olson in 2018
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“Billionaires and big corporations decided they wanted more of the pie and they enlisted politicians to cut them a fatter slice.” ~ Elizabeth Warren
With an average annual income of $336 million, the 400 highest-earning US taxpayers paid a 17% rate in federal taxes in 2012; the same rate they would have paid if they had made $100,000. In contrast, the average tax on US wages is 31.5%. (Average taxes on workers in the US, UK, Canada, and Japan all range 30–35%. The wealthy pay much less percentagewise.)
The US has 2 different tax systems: one for normal wage-earners and another for those who can afford sophisticated tax advice. At the very top of income distribution, the effective tax rate goes down, contrary to the principles of a progressive income tax system. ~ American tax law professor Victor Fleischer
Through lobbying and tax lawyers, the super-wealthy in America essentially created a parallel tax system: altering the tax code, creating loopholes, and setting up complex shelters, trusts, and shell corporations that confound even the IRS.
“Why do we call tax expenditures entitlement programs? They’re tax cuts.” ~ Len Burman
“A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform.” ~ American politician Russell Long
Taxes can offer the opportunity to lessen the inequity inherent in the capitalist system. In the US, income inequality has historically been around 1/3rd lower after taxes and transfers than before them. This has changed dramatically in recent decades. Whereas tax policies offset ~60% of the change in global inequality between 1985 and 1995, they have barely had any impact since then. This owes to the success that the rich have had in coopting governments and crafting plutocracies.
Financially, globalization has handsomely enriched the wealthy. Through sophisticated tax avoidance implicitly sanctioned by states, the elite super-rich are able to hide some $25 trillion; a sum equivalent to American, British, and Canadian GDP put together.
“There’s this notion that the wealthy use their money to buy politicians; more accurately, it’s that they can buy policy, specifically tax policy. That’s why these egregious loopholes exist, and why it’s so hard to close them.” ~ American political economist Jared Bernstein
Corporations have the tax laws written to their advantage. In the 1950s, corporations ponied up 33% of the tax revenues collected by the US government. By 2003, corporate tax contribution had dwindled to 7.4%.
40% of the most profitable companies pay no US federal taxes whatsoever. Instead, highly profitable corporations are given subsidies and tax rebates. As of 2019, US corporations have over $3 trillion in profits stashed in offshore tax havens, lazing as unproductive capital.
“When the biggest companies aren’t paying their fair share, that means the rest of us are left to pick up the slack. It means small business and middle-income families are paying more.” ~ American tax analyst Matthew Gardner
Through taxation, government works as an amplifier for the inequities instilled by capitalism. There is no better proof of the systemic corruption of polity than tax policies.
Sovereign Debt
Ancient Greek city-states borrowed money. In the 4th century bce, at least 13 of them bilked their lenders: the world’s 1st recorded sovereign debt default. Not much has changed since.
Worldwide, governments cannot balance their books. Even in good times, states typically spend more than they take in. This stems not only from wasteful spending, but also from refusal by states to effectively tax corporations and the rich their fair share.
Since 1946, Britain managed to attain a tiny government surplus in only 4 years (1998–2001). No French government since 1974 has balanced its budget. Japan’s national debt has done nothing but soar since 1992, after its artificially inflated growth machine crashed.
While the US federal government tallied surpluses in the 1920s, late 1940s, 1950s, and for a few years in the late 1990s, the republic’s total annual governmental debt never went into surplus, as state budgets ran in the red. When the federal government did not dole out to the states, state governments had to shell out.
Germany and Canada have been the only large nations to have government surpluses since 2001. Germany’s surpluses were from prudence; Canada’s from a resource exploitation boom.
Low corporate taxes owe in part to competition between states to draw or keep multinational corporations in their territory. By this leverage, behemoth corporations extract preferential tax treatment.
Based upon modeling that ignores actuality, the conventional economic view of sovereign debt is that it saps the private sector of financial resources. This simply is not so, as the wealthy around the world have huge hoards of money that could be productively invested but is instead tucked away to avoid taxation. Much of it goes into the relatively safe haven of government bonds, which prop up sovereign debt.
Since the 2008 Great Recession, central banks have been practicing “financial repression”: holding down bond yields by buying sovereign debt, and thus wiping it away. The US has been an especially enthusiastic participant to the equivalent of printing money. Normally, such profligacy deflates a currency and sends domestic inflation skyward; but, with low inflation, and the dollar as the world’s reserve currency, the US government has been able to indulge itself at no cost. The root reason is that tremendous private capital is invested in dollars, and so speculation against the benchmark currency would be self-destructive if not futile.
