May 16 2011

Has the U.S. reached an inflection point on tax?

Posted by: Nick Shaxson in: Thoughts

Take a look at the first graph in this picture.

Now take a look at the right hand column of that graph. Even allowing for the fact that the y-axis doesn’t start at zero, it constitutes a dramatic illustration of the scale of the problem faced by the United States, and the pace with which things have changed.

Keynes noted that such a state of mismatch between government revenue and spending can be sustained for a while, with government playing the role of replacing what the private sector can’t provide. But Keynes also noted, this isn’t a state of affairs that is sustainable indefinitely. The mismatch will have to be addressed one day. The question is: when, and by how much, to stimulate? (I won’t answer that  here, though personally I feel more trust for the likes of Paul Krugman than for George Osborne.)

In this context, there’s an interesting article in the U.S.-based Fiscal Times headlined “GOP “No New Taxes” Position Is Rapidly Crumbling” which includes the following summarising paragraph:

Democrats have been oddly reluctant to explain the truth about the deficit. They seem paralyzed by fear that they will be attacked for being tax increasers. Consequently, the Republican mantra that spending must be slashed, even if it means effectively abolishing Medicare, and any tax increase, no matter how small, will destroy the economy, is just about the only budget option voters ever hear.

The Democrats seem fearful of breaking out of this deadlock, even though opinion polls show that the public is quite happy to accept tax increases as part of a deficit solution. The article cites a range of polls, in fact, which make the Republican position look out of touch. And it also discerns a recent change in mood:

Republicans are working hard to enforce their no-tax-increase-ever orthodoxy, but there are signs that the dam is beginning to break. On April 7, former Reagan budget director Dave Stockman said, “It is simply unrealistic to say that raising revenue isn’t part of the solution. It’s a measure of how far off the deep end Republicans have gone with this religious catechism about taxes.”

It cites Alan Greenspan as saying that rolling back the Bush tax cuts is “imperative;” it cites Mike Huckabee along similar lines; it cites a Republican staffer calling his party’s position ‘intellectually dishonest, and describes move by Kent Conrad to put together a package involving half tax rises, and half spending cuts.

Is it true, as the Fiscal Times says, the the Republicans’ no-tax-hikes-ever position is ‘crumbling?” Perhaps. Look at that graph again: it will have to happen some day. Why not now? (I remain a bit timid in reaching a definitive conclusion here, given all that’s at play, and all that’s happened – though last time I was timid on a change of mood in the U.S., I should not have been.)

Once that happens, tax havens will inevitably move up the U.S. domestic agenda again. And not before time.

And in a very different but ultimately related area, I also note another shift in mood on international tax – in a blog I wrote elsewhere, entitled Developing countries are finding their voice. If this is indeed the start of a new trend then it, too, is long overdue.

11 comments so far

AlienEdouard 5th May, 2011 9.36 pm

Nick – you are right that the Republicans have boxed themselves into a corner with the “no-tax increase ever” position. Tax increases must be part of the solution, which includes rolling back some of Bush’s tax cuts. The majority of the new taxes will be indirect though, there is plenty of room for a modern federal sales tax.

Your point about US Uncut is rather ridiculous though.

Nick Shaxson 5th May, 2011 11.41 am

You may be right about more indirect taxes being brought into play, but we’ll see. Do tell, though, what is ridiculous about the US Uncut comment. I said in my first post last year “why shouldn’t something like UK Uncut happen in the US” and then that is exactly what happened. Not sure what your point is here?.

AlienEdouard 5th May, 2011 12.01 pm

The point is that US Uncut managed to attract about an average of, being generous, half a dozen protesters for its events, including the British media representatives who seem to be the only news outfits with any interest.

So you were probably right to be timid about US Uncut. Leave these guys alone to have a haircut and a shave.

Nick Shaxson 5th May, 2011 2.19 pm

Ah, the calculated sneer. Often the best approach when you haven’t got much of an argument. And at the US Uncut event I attended, there was a U.S. documentary film crew, about 25 people, Swiss TV, a Danish journalist, and various others. This particular event got some quite nice coverage in the Nation too.

AlienEdouard 5th May, 2011 7.11 pm

Nick – I would have thought you were a better sport than that. I have plenty of argument, as demonstrated by the fact that I have come on top during every single exchange we have had in recent weeks since I have started reading your (very good) blog.

The problem with the Uncut(s) is that they do NOT HAVE an argument. And 25 people…… Even Ralph Nader can do better.

Nick Shaxson 5th May, 2011 8.18 am

What are you saying here? That your arguments stand? Your arguments have fallen apart on closer examination! Just take a look. Have a think about what you’ve said, and then what I’ve said. Really. I suggest you take a look at this

AlienEdouard 5th May, 2011 10.15 am

Good to see you have a sense of humor in defeat. I look forward to more.

Nick Shaxson 5th May, 2011 8.03 am

Well, look, why not go back to the incidence debate? Your contribution was interesting, but on examination it turned out to be complete and utter nonsense. I am being polite here. And ditto for your understanding of the resource curse, and your sticking by the fact that nobody ever worried it would strike Brazil. And . . . it goes on and on. Again, please look at this

AlienEdouard 5th May, 2011 10.24 am

Nick – your biographies never indicate your educational background. It would be interesting to know where you went to college. It would also be nice to know where you wrote your PhD, who refereed it and how it was published.

It is great to know that you were born in Africa and have done a fair bit of globe-trotting, but it would be equally great to know that you have trained and researched at a major American university.


Nick Shaxson 5th May, 2011 8.19 am

First of all, it is very peculiar that you insist I, a British citizen, ought to have gone to an American university. I studied at Cambridge university in the UK, and then I spent all my life actually living and researching these places for (commercial) media outfits. I wrote well over a million words for the Economist Intelligence Unit, for instance. I guess if I’d spent my life working in the field as an accountant on corporate tax, you would have sniffed at that because I wasn’t instead studying accountancy at an American university.

Next, I would suggest that you take a good read of Yves Smith’s Econned, which I’m currently enjoying, as an exploration of the dementia that has gripped the economics profession in particular (and I think this is the profession we are really talking about here.) If I had studied at Chicago, for example, and actually believed what they told me, I would never have understood what I was writing about. In fact, I’d never have tackled offshore, because my theories would have told me that this stuff can’t be a problem, or perhaps that it can’t even be happening. Really, read it. We all kind of knew how bad things were, but this stuff is absolutely shocking.

When it comes to oil-in-Africa, there was no economist or academic researcher, apart from perhaps Ricardo Soares now at Oxford University, who ever really showed me that they had a proper understanding of the blood and guts of what was actually going on in these places – in contrast to those few of us who actually did the stuff, spoke to the people, interviewed everyone from presidents (I have met 10 in my time) to peasants, spooks, oil engineers, mercenaries, billionaire arms financiers, and so on. You have to talk to the people who are doing it to understand what is going on. And you have to do this without an ideological veil over your eyes. That’s why I hate being categorised as right-wing or left-wing or any-wing, for instance. For me these are blocks to real understanding.

When it comes to tax havens – has there ever been a book like Treasure Islands? Even remotely so? And has anyone ever knocked down any of its main arguments? Nobody has come close. God i sound egotistical here, but the truth is the folly of your commentary actually irritated me.

One final thing – one of the things I’ve noticed through the years is that those who know their argument is a weak one always turn to the last resort – tackle the man, not the message. It’s a regular pattern. So I challenge you, as a non-troll, to get back to what matters.

Joanne 5th May, 2011 1.59 am

AE: On the matter of US Uncut’s turnout numbers, you are as wrong as wrong can be. I have personally attended three actions staged by the San Francisco Uncut group. Their very first had an already robust 75 or more in attendance, the second one at least half again as many, the third one nearly 150 in all. And I can cite you numerous, well-documented examples of actions elsewhere in the US that have had far more than 25 people turn up at them, let alone the “half a dozen” that you have claimed here.

Now, it is a fact that that there is quite a bit of easily accessed evidence out there supporting the much larger numbers that I have just attributed to many of the Uncut actions that have already been staged here in the States, which lay absolute waste to your claim. And in the face of so much available evidence refuting it, there are only three possible ways to explain why you have, nonetheless, made it: 1) you have simply cherry picked only the data that props up your rather poorly informed point-of-view here; 2) you never even bothered to really look into yourself; you simply made it up with that same end in mind, or; 3) you have intentionally misrepresented the facts as you know them in this regard.

So on this matter, you have either been intentionally and deliberately deceitful or inexcusably sloppy with your research. It is one or the other. And, based on just that alone, you’ve really got no credibility left to work with here to apply to any of your other arguments either.

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