New Internationalist

Simply… A Defence Of Common Wealth

Issue 220

new internationalist
issue 220 - June 1991

Simply... A defence of common wealth

If we are going to have a society rather than just a collection of individuals
we have to address common needs and problems. Roads, street lighting,
schools, wildlife conservation and public health all cost money. Militant
free marketeers would have it that wealth is the creation of individual
initiative. Yet the entrepreneur has at hand skilled workers, a market,
highways and railways, educated consumers, orderly peace and a whole
social apparatus - the creation of millions of people and scores of generations.
In this sense all wealth is common wealth and should be bent to the task
of sustaining a civilized and sane society. Here the NI suggests how.
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[image, unknown] It is not fair that certain families can monopolize property and wealth generation after generation with little or no regard to the contribution they make to society. Indeed most inheritance is a lottery-like gift deriving from the accident of being born to the right parents. Yet an inherited dollar is normally taxed at a much lower rate (if at all) than one earned after eight hours on your feet waiting table or down a coal mine. Inheritance taxes should allow parents to pass some of their accumulated goods to their children - but passing on blocks of property and corporate empires makes a mockery of equality of opportunity. After a tax break of, say, $150,000, total estates should be subject to a sharply graduated inheritance tax rising to 90 per cent at the top end. Both the public coffers and the social climate would be healthier for it.

 

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An annual eight-per-cent tax on net assets of over $300,000 would produce enough revenue (about $155 billion) to pay off the national budget deficit in the US while affecting just two per cent of the population. A wealth tax would create the potential for true trickle down' economics, with wealth being enlisted in the tasks of rebuilding a decaying infrastructure and refunding social and health programs. Several European countries already have modest versions of such taxes. The major problem here is keeping tabs on fortunes that can easily be disguised, hidden or moved to tax-free havens like Bermuda and the Cayman Islands. It is unlikely that wealth taxes will be successful without an effective international tax treaty that tracks capital and withholds tax at source. In the end it may be easier to tax wealth when it passes to the next generation.

 

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[image, unknown] There is a growing body of opinion that the tax system should be used to reinforce ecological patterns of production. Already so-called 'sin taxes' on alcohol and tobacco are designed to discourage use for health reasons. A series of taxes on carbon emissions, gasoline, pesticides, hazardous wastes and groundwater depletion would be a good source of revenue in the short run. In the long run these and other taxes on environmentally harmful consumer goods like disposable diapers/nappies, batteries and excess packaging will increase the price of such goods and curtail their production.

 

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[image, unknown] Unless society is to be wrenched apart by inequality a program must be devised to provide everyone with a basic livelihood - an Annual Guaranteed Income. A start towards this would be to eliminate taxes for anyone under the poverty line. Poverty should not be defined as mere survival but the minimum necessary to lead a decent life. After that the tax system could be used to top up incomes that fall below this minimum - in effect providing an Annual Guaranteed Income. This would eliminate the duplication and costly waste involved in various welfare and unemployment schemes. To pay for this system we should return to the more sharply graduated rates of progressivity in the income-tax system and close loopholes so that income from capital - stocks, bonds, property, interest - would be taxed at least as heavily as income from labour.

 

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[image, unknown] In the conservative-inspired assault on government spending, the most neglected area is the way public funds are spent through the tax system - simply by not collecting them. This form of spending is known as tax expenditure and it involves giving a tax break to business in order to encourage growth in a particular industry or sector of the economy. The effectiveness of tax breaks in promoting growth is very questionable. They escape the kind of scrutiny received by direct public spending on health and welfare. A more honest approach would be to collect all taxes owing and subsidize the industries in question - and then let voters decide on the effectiveness of this type of spending.

 

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Capital flight is the means by which companies and individuals avoid having to pay tax on profits or capital. Tax havens, currency speculation, transfer pricing by corporations - all of these make it difficult for the tax collector to track down funds that can be transferred at the stroke of a computer key. Capital flight hits Third World countries particularly hard given their limited capacity to keep track of sophisticated financial dealings. And if individual countries try to tighten up they often end up deterring much-needed foreign investment. Ultimately there must be a series of international tax agreements - effectively outlawing tax havens - if capital is to be prevented from playing one country off against another so as to minimize the dollars going into the public purse.

 

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[image, unknown] Sales taxes should be made more progressive by a system of variable rates aimed at maximizing revenues from luxury consumption and as a means of regulating tobacco consumption or the sale of commercial pornography. Using tax as a tool of regulation has proven more effective than using tax breaks as a means of promoting growth and investment. All essential goods such as groceries and basic housing should be exempted from sales tax - as they currently are in the UK but not in North America or Australasia. Any property-tax system should have some element of relief built into it - particularly for the elderly poor who want to remain in their own homes. This might be done with a system of property tax combined with local income tax to achieve more equal results.

 

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An annual levy could be made on the overall government income of wealthy countries (say one per cent) to be used for grassroots development in the Third World. This would be in addition to the present system of bilateral aid that has proved so susceptible to political manipulation and the lure of big-is-beautiful projects. The dollars raised in this way could be dispersed according to a proportional formula going through various levels of Third World government, regional bodies, UN agencies and non-government organizations. Such a mandatory tax would not be subject to the fiscal whims of budget-slashing politicians and would be a small step towards reversing the massive drain of capital from the Third World.

 

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[image, unknown] The conservatives are right when they say we must live within our means. But it is hypocritical to cite spending on the poor as living beyond our means. If you can barely pay your rent and food bills you cannot be expected to tighten your belt. Indeed your means should be increased to meet your needs. Instead we should hunt out waste in the lightly-taxed lifestyles of the rich and famous, in the high salaries and perks within business and government and in perhaps the most wasteful area of all - the bloated military budgets with their million-dollar missiles. This is where real savings can be made.

 

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One of the reasons tax is so unpopular is the sense that it is based on the arbitrary decisions of a remote bureaucracy. While some of this is unavoidable, it should be possible to allow citizens a more direct say about the type and level of taxes they are paying. In this event all tax proposals (including this one) would be subject to popular veto through referendum. Also more local control over the quality of public services would give people a sense of ownership over the things their taxes were paying for. The closing of tax loopholes would reduce alienation by giving citizens the confidence that everyone was paying their fair share of taxes.

 

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