Transfer of wealth

*Warning* – lefty politics ahead (as in left-wing, not left-handed, that would be a bit surreal).

This week we got the news that a former Swiss banker, Rudolf Elmer, has passed information pertaining to the financial operations of 40 international corporations to Wikileaks. Once the information is verified, it will be publically disclosed. Of course the details of this information isn’t yet known, but since Elmer worked in the Swiss banking sector, a well-known tax haven, I think it’s fair to say that the leak will relate to tax-dodging activities.

Now Dylan Ratigan is a very prominent liberal voice in the American media, and he invited Johann Hari of the Independent to come on and talk about this issue. The interview has an oddly American nationalist taste to it (as far as I know, the companies involved aren’t specifically American, and I have to wonder if the whole ‘Wikileaks=AntiAmerican’ narrative has become so prominent that it’s difficult to escape), but the message as a whole is good. Here’s the video:

Ratigan and Hari make an excellent point in this video, and it’s one that I wholly agree with. Through not paying their taxes, wealthy individuals and big corporations are passing the burden of paying for public services onto those who are less able to afford it, and governments seem only too happy to let them get away with it. This represents a transfer of wealth from the poor to the rich, the exact opposite of a progressive system. A reverse Robin Hood system, if you will.

But this is just one way that wealth is transferred upwards instead of downwards (remember the trickle-down effect? What a joke that is now…). Look at the way governments past and present have run advertising campaigns against benefit fraud. Who do the adverts target? It’s always some guy with a market stall, or a builder who get paid under the table or something like that. Here’s an example from 2006 – under the party that supposedly represents the working class.

Do you know how much money is lost through benefit fraud each year? It’s £1.5bn. Not a small sum of money, but not exactly outrageous when you consider that £3.7bn is lost through error (ie. someone in the office ticking the wrong box). And really not that outrageous when you consider that lots of money (between £4bn and £8bn according to estimates) is saved because the system is so complicated that people aren’t necessarily receiving the full amounts they’re entitled to (that’s deliberate if you ask me). Meanwhile hundreds of thousands of people are being harrassed about their benefits claims when they’ve done nothing wrong.

But all of this seems Liliputian compared to the massive amount that is lost each year in tax evasion. Estimates vary as to how much this is, but even by HMRC’s own figures, it’s more than £70bn. So why isn’t the government putting more resources towards that? Instead, this present government in particular seems more intent on letting corporations get away with it.

How else is the government deciding to tackle the deficit? It has cut corporation tax, it has introduced a bank levy (which is effectively a tax cut because it is raises less revenue from the banks than the tax it replaces, and because the effects are wiped out by the corporation tax cut), and it has refused to tackle bankers’ bonuses. No problems for them then – who was it who caused the recession again?

Meanwhile it has raised the rate of VAT to 20%, so that when people go and buy things, it costs more. George Osbourne calls this progressive, but I call him a liar. Everyone pays VAT on things they buy. It is a tax shared by rich and poor alike. But the money raised from VAT will be used to cover a tax gap left by the rich through tax avoidance, and through the tax cuts for the rich. So the poor are left paying more than their fair share. A real progressive tax system would be based on direct taxation, not indirect taxation.

How else is the government attacking the poor? Through the cuts! Let’s start with benefits. Child benefit has been frozen for at least the next 3 years, effectively a cut due to inflation. Job Seekers’ Allowance has been cut, housing benefits have been capped (which even Boris Johnson referred to as “Kosovo-style social cleansing“). Perhaps most worryingly, Disability Living Allowance claimants will be subject to new medical tests, the only object of which will be to reduce the number of claimants. Why is the government choosing to reduce the deficit by making the poorest and most vulnerable pay more?

Other cuts will also have a big impact. It seems strange to me that whilst they’re trying to save money by cutting job benefits, they’re also sending more people onto the dole queue, cutting public sector jobs left, right and centre. Doesn’t sound like a very consistent system to me. Councils will be cutting lots of their public services like libraries and community centres. Staff numbers in the NHS and police are being cut down. The Education budget is being slashed by 25%. Higher education funding is being massively cut and the costs are being passed onto students, meaning that people from poorer backgrounds, where there is a culture of staying out of debt, find it harder to go to university.

Public services are used much more by poor people than they are by rich people, and they are more valuble to poor people too. Quite simply, rich people can afford to do things privately whereas poor people rely on things that the state provides. That’s why cuts to public services disproportionately affects poor people. The extra money being raised to help reduce the deficit is coming 77% from public service cuts, and 23% from higher taxes. When you consider that poor people are also affected significantly by the higher tax rates, and that actually there’s a huge hole in taxes left by the rich anyway, it’s obvious that this government is determined to attack the poor. It is ideological.

As the placard slogan goes, ‘they only call it a class war when we fight back’, which leads me to wonder: what is it the rest of the time? A class massacre?

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3 Responses to Transfer of wealth

  1. Richard T says:

    Then factor in the objections the rich have to paying taxes at all and the pressure on governments from the business sector to cut spending and red tape (aka basic employment protection) and you have a class war by the rich on the rest of us – let alone the poor whose fate in clear. Many years ago there used to be a very prominent slogan painted on a wall between Liverpool Street and Stratford in East London – SMASH THE BOSS CLASS. It’s about time indeed.

  2. Richard T says:

    Can I add a PS please. I saw that heap of anaemic excrement Mervyn King prating on about folk (except the bankers) having to accept a fall in real wages because of the financial crisis, which was preceded by the drivelling admiration on TV and in the press for the plutocrats’ ghetto somewhere in the West End of London, the renewed pressure on benefits ‘cheats’ and the exposure of the UK government’s connivance at the tax havens for the rich. The effrontery of the sense of entitlement of these just leaves me speechless with rage. I’d like to think that Labour might see advantage in a serious campaign against this but pigs or Ballses might fly first.

  3. Alex Zorach says:

    I think you make a lot of really insightful comments here about how a lot of these phenomena you discuss here are hidden wealth transfers. I think it’s particularly sinister because our (global) financial system is so complex and hardly transparent, so people really do not see the degree to which it has regressive effects on society.

    I think progressive tax also has the advantage, even if you toss out (subjective) notions of “fairness”, that it is more sustainable. I recently wrote a page called sustainable taxation on which I argue that an ideal tax system would protect vulnerable people and businesses (i.e. those struggling to make ends meet) from taxation–making them pay no tax until they reach a level where they are more than able to support themselves comfortably. Not only would this be perceived as “fairer” to most working people, but…it would be more sustainable because the tax system would no longer be placing economic hardship on vulnerable people–it would only be taxing those who could afford to pay.

    A couple additional notes:

    I am not a fan of VAT for the same reason that I am not a fan of income tax–both tax activities associated with wealth creation. I also agree with you that VAT tends to be more regressive. Ideally though I’d like to move away from income tax and sales taxes, and towards consumption taxes and taxes on holding of cash. I explain why on my master page on taxes.

    I think a more progressive, and sustainable tax would be a small tax on cash deposits in bank accounts. This would mostly hit corporations, as wealthy individuals tend to invest in stocks and real estate. I think this would have a stimulating effect on the economy, much like a small, predictable amount of inflation stimulates business by encouraging businesses to invest in productive things and also stock more inventory.

    I think everyone would come out ahead with these changes–even the wealthy. Our system has been so regressive for so long, people are suffering, the economies of the world are in a state of dysfunction. This doesn’t benefit anyone. Everyone, including the wealthiest people, will be better off if the poorest people are better off. Squeezing wealth out of the poor is only a strategy that pays off in the very short-term.

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