Don’t Aggravate the Donkey
The ‘Disenchanted Donkey Manifesto’ tackles Tax
So I have been thinking a lot lately about corporate tax cuts and all the hot air that everyone expels when it comes to giving the economy a kick start. Should I give a damn? Should I even play a role? Let’s run it up the flagpole and see shall we…
We would all like to stand around our respective flagpoles and make whatever country we live in ‘great’ but the reality is that most of us don’t feel that great. Just saying it doesn’t make it so. Listening to someone say it makes it worse. Having no money certainly doesn’t make it better and when the rich among us appear to be getting another tax break, then that disillusioned anger that you feel in the pit of your belly just festers and grows. So what do we do about it?
What are my qualifications for having a go at this? Absolutely none except that everyone knows the truth. Everyone else has an opinion about it, so why not me? I bring you the Disenchanted Donkey Manifesto.
Across the globe communities are stagnating and it is a group of greying politicians with their feet stuck in the mud of history who are holding us back. Tax and spending. Spending and tax. The perennial problem that no one wants to deal with and which certain ideologies believe both should be lowered without exception.
So corporate tax. We won’t talk about multinationals. They are a different beast all together. Lets just look at your mid-range corporate entity who’s just getting by.
When tax rates are already more or less in a supportive range to allow businesses to grow, won’t a tax cut just mean that the boards/owners will just bank their money and funnel it back into inter-market speculation of some description? What does lowering the tax rate actually do?
Without getting too technical, I introduce you to the Laffer Curve. The curve upon which all conservative policy is based when it comes to growth and tax.
The assumption is that the higher the punitive tax rate, the less tax will be collected. To have a successful tax cut it must be assumed that the actual tax rate of the day is so ridiculously high that businesses are unable to function in the current economic environment. It is patently obvious that overseas and local competition, poor management and an unsustainable business model are usually to blame. Not tax. Businesses would just like to pay less. Wouldn’t we all?
Curves aside, what has been proven is that when any country is in a period of slow economic growth, financial stimulus tax cuts are not exported back to the workforce by virtue of higher wages or more jobs but back to shareholders by way of an increased dividend. What governments are failing to realise is that at a time when interest rates are so low, it should stimulate growth by increasing government spending and promoting the establishment of permanent jobs instead of allowing the workforce to become increasingly casualised and impotent.
Now politically, what does need to happen?
Increasing peoples’ capacity to earn should be a starting point. When wage growth is low or negative as in many first world countries, the struggle for many is real. When the bread line is more or less at your door because success in any regard requires a financial investment that stretches the family budget, the ability to move above your circumstances is limited. There is no common goal of shared prosperity within the community. There is very much an attitude of making my own back yard greener.
In some commonwealth countries politicians look at the principle that the broader populous should take a financial hit to allow the underemployed more access to jobs and thereby reducing welfare funding.
Excuse me for having a shout from the sidelines here but won’t that just mean that more people will have less disposable income and therefore growth will not happen at all? Let’s add in that since 2009 wages growth has been the lowest it has been in the past two decades in nearly every single developed country.
Furthermore President Reagan, the doyenne of the low tax era, only got success through cutting taxes by massively increasing spending and raising the debt ceiling. So this archaic notion that we have to save our way out of debt by cutting government spending is slightly out of step with historic notions.
Suppressing pay locally by allowing companies to move their operations offshore enabling third world labor exploitation while permitting profit shifting and offering hidden tax breaks, is an economic depressor not a stimulator.
Let’s take a look at the miracle of growth in Australia which has had consecutive year on year economic expansion for 25 years. Despite this, Australians are it seems less equal now than they have ever been in the modern era. House prices are in effect beyond most people. Permanent employment appears to be an unattainable dream. Grandparents are becoming child care centres so their children can support the endless cycle of debt.
Something has to give with the median Australian wage barely increasing in the past year and with house prices (in Sydney at least) rocketing by 18% over the same period.
So is it possible for policy makers to curb inequality and raise living standards given the move away from traditional economic drivers? The impact of globalization cannot be ignored and you can hardly put the cat back in the bag once it has bounded up a tree and has no intention of getting back down.
President Obama stated during the terms of his presidency that the minimum wage should be increased but elsewhere that notion is ignored in favour of penalty cuts and wage freezes.
Will Obama’s mentality increase demand or productivity? We won’t give the political answer to that question which will be shrouded in a grey cloud of shapeshifting themes and which would lead to a failing grade at school. ‘Yes/No’ will suffice and the answer to anyone who has been poor would be an emphatic ‘YES’.
To have an expanding economy you have to have a bigger pie for all. Not just the businesses. If people have to work longer to earn the same or less, how much GDP will be added to the economy? If your only outcome is to flatten the ability to earn so there is even less capacity for wage growth, what will be the result?
Our world is changing rapidly and the framers of our legislation are not keeping up. It’s like watching the generals of World War One. They didn’t understand that they were operating in a new paradigm of modernized weapons and as a result millions were slaughtered. They couldn’t change their way of thinking.
That is no different from the current economic war that is being waged in today’s outdated business environment which governments are unable to get to grips with. Their citizens are the troops that are being forced into no man’s land who are in turn being decimated in a hail of profiteering bullets.
Government’s need to hold businesses just as accountable as their citizens not give them a free ride. Internationally there must be some agreement over and an ability to shut down tax havens. The man in the street is angry because they feel that Governments have the lost the power to control what is happening in their own back yard and everyone besides them is benefiting.
So change your thinking in the halls of power. We no longer live in the land of white picket fences and stay at home wives with immaculate aprons. Start thinking about how the world is changing the landscape within which we exist now and into the future.
Thinking of how to solve a modern day problem with a stick and no carrot will lead to a very unhappy donkey. So don’t aggravate the donkey.
The ‘Double D Manifesto’ or ‘DD Manifesto’ or ‘Disenchanted Donkey Manifesto’ are all inventions of J B McCauley author of The King Of Sunday Morning
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