MICHAEL HUDSON, THE MAN WHO SACKED ALAN GREENSPAN

 

 

 

Wow!  Nice story, Michael!

What a pity Greenspan didn’t stay sacked!

However, I guess if someone’s proved to be an obliging and ‘amenable’ economist, there’s always a chance to rise to the top at the Fed?

 

 

 

Abbott’s selective indignation on reverse tariffs

LVRG Blog — Friday, May 11, 2012:

[Letter in Crikey, May 11, 2012.]

Gavin R. Putland of Prosper Australia, writes:

Tony Abbott is quite right: the carbon price “amounts to a reverse tariff” in that it taxes the carbon intensity of Australian products but not imported products. I’ve been complaining about reverse tariffs for more than four years. Welcome aboard, Mr Abbott!

What Abbott didn’t say is that the carbon tax, which will raise about $8 billion a year, will be only the fourth-biggest reverse tariff in Australia’s tax system.

The third-biggest, which raised about $18 billion in 2010-11, is payroll tax, which taxes the labour content of Australian products but not imported products. This discriminatory quality strengthens the claim that payroll tax, in so far as it applies to labour embodied in goods, is an unconstitutional duty of excise.

The second-biggest, which raised something like $54 billion in 2010-11, is the payroll tax masquerading as the superannuation guarantee. A federally-mandated, employer-funded 9% super contribution is equivalent to a federally-funded 9% contribution paid for by a 9% federal payroll tax. Doubling the GST, though I don’t recommend it, would be a far more sensible way to pay for super, because the GST is “border-adjusted” (taxing imports while sparing exports) but otherwise affects prices in much the same way as a payroll tax.

State payroll taxes and the federal super guarantee are patently worse than the carbon tax, not only because they raise more revenue, but also because they tax something desirable (jobs) rather than something undesirable (pollution).

But the biggest, baddest reverse tariff, which raised about $200 billion in 2010-11, is income tax in all its forms. Australia’s income tax penalizes income earned in production of Australian products but spares income earned in production of imported products. In other words, it amounts to a value-added tax without border-adjustment. If it were called a “VAT” or “GST” without border-adjustment, it would not pass the laugh test in any developed country. But separate the value added by labour (wages) from the value added by capital (profit), tax them separately, shoot them full of loopholes, re-brand the whole sordid mess as “income tax”, and you get the mainstay of the tax system in almost every developed country. It’s one of the great con-jobs of the last hundred years.

Hence I am pleased that the carbon price will at least raise the personal income-tax threshold, allowing employers to offer useful amounts of part-time work without having to withhold personal income tax (or any part of the low-income tax offset).

I confess that I will be more pleased if the carbon price is converted to a simple tax before it creates any private property rights. We discourage smoking and drinking by taxing tobacco and liquor, and I fail to see why pollution should be treated any differently. We didn’t create tradable rights to smoke or drink, and I fail to see why we should create tradable rights to pollute.

But those who are concerned about reverse tariffs should have bigger fish to fry.







BUDGET FOREGOES QUANTUM BENEFITS OF RENT

So, Wayne Swan’s “tight” federal budget aims to get an extra $3.6 billion from iron and coal miners for Australians from the new minerals resource rent tax (MRRT) – out of the more than one-third of the economy which is the annual land and resource rent available to be tapped.

Big whoop!

Kevin Rudd’s proposed resource super profit tax (RSPT) at 40% of all miners’ net profit would have yielded tens of billions of dollars back to the Australian people and still have left the companies with more than adequate profit.

You see, the mining business is a partnership with the Australian people.

But the big miners have never seen it that way. They believe federal company tax and state royalties are more than sufficient for us.

If you saw Monday’s “4 Corners” story about how the historic Mabo Case finally overturned the racist dictum of “terra nullius”, you’d have noticed the big miners and Charles Court also fought long and hard against a decision in favour of Eddie Mabo and Australia’s aboriginal people.

The self-interest of miners and their shareholders v. what’s morally right had a lot to do with the overthrow of elected prime minister Kevin Rudd by Julia Gillard, too.  Their power and greed knows no bounds.  Just look at Clive Palmer’s throwing his weight around strutting the political stage.

Unfortunately though, the vast majority of people are ignorant of the amazing ‘quantum leap effect’ of a revenue switch from taxes to land and resource rents.

It may therefore be worth revisiting the following article by professor Fred Foldvary, senior editor of The Progress Report in order to get our head around these incredible benefits.

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THE GAFFNEY QUANTUM LEAP EFFECT  – by Fred E. Foldvary

In economics, the waste of resources caused by a tax has two names. One is the “deadweight loss”, a loss to the economy with no offsetting gain. The other name is the “excess burden,” since the burden on the economy is in addition to or in excess of the tax payment.

For example, suppose a bookstore has 20 employees, and has to pay a taxes on the payroll as well as sales taxes on the books and taxes on its profits. These expenses are on top of the costs of the inputs that would be there aside from the taxes: the labor, the space, the books, and shelves. The store has to add the tax expense to the input expense, and pass the tax on to the customers. The higher price of books paid by the customers makes them buy fewer books, so the books that would have been produced and sold and enjoyed do not get made. This is a waste of resources, as the customers will shift to less valued uses for their incomes. The overall deadweight loss reduces production, investment, and economic growth.

The amount of deadweight loss depends on how responsive the customers are to the change to a higher price. If they cut back a lot on their book purchases, then there is a greater excess burden. The overall excess burden of taxation in the USA has been estimated at about $1.5 trillion dollars, more than 10 percent of total output. So roughly, our standard of living would be ten percent higher if the deadweight loss were eliminated.

But this loss occurs every year, so if there had been no excess burden during the past several decades, the economy would have grown faster and would now be twice as high per capita as it is now. So the cumulative damage from excess burdens is huge.

Geoclassical economist Mason Gaffney has discovered that the excess burden is even worse, much greater than the effect from higher prices. People can buy books from catalogs and World Wide Web sites. When there is a global price for a book, the local seller cannot raise the price, since buyers will shop elsewhere. The taxes come out of his profit, and if profit becomes less than normal, the owner shuts down the firm.

The land won’t remain empty, as the use would shift to something else, possibly a use that generates less output and employment. Suppose a gas station replaces the book store, and with self service, requires only one worker instead of the 20 who worked at the book store. Since one can’t buy gas from far away places, the tax on the gasoline can be passed on to the customers. The 19 workers who lost their jobs would have paid taxes, so that revenue is now lost to the government. Those workers would have bought goods; now they have moved away, so there is less business in the area. The bookstore would have generated a greater market value of services than the gas station, and more taxes, so there has been a great reduction in output and taxes due to a shift in land use. That is the Gaffney quantum leap effect.

Possibly a firm that generates a high output but also has high costs is replaced by a firm that has much less output and employment, but a higher profit per item, so even if both firms cannot pass on the tax, the second firm with the higher profit will use the land. There is a quantum leap down to much less production, because the land use has shifted to one which has less output.

Quantum mechanics is a branch of physics that studies units of energy called “quanta.” The amounts of energy in a particle such as a photon of light have particular numerical values rather than a continuum. The quantum effect in physics is a leap from one energy state to another, as when electrons jump to another orbital shell around an atom. Gaffney has adopted the quantum term in physics as an economic analogy when one land use replaces another, and there is a huge jump or fall in production.

The loss of production due to quantum leap effects is unknowable, but most likely enormous, and increasing. Any shift from market-based output to punitive-tax-induced output will be to a less valued and less productive use. In a global economy, goods sold world-wide impose a market price ceiling, making it impossible to pass on tax costs to the buyers. The taxes eat into profits, and those enterprises with lower profit margins get squeezed out. This could be happening on a colossal scale.

Taxes on gross revenues are especially destructive, as they squeeze out the profit more than taxes on income, which is gains minus costs. With taxes on gross revenue, costs are irrelevant to the tax. Sales taxes are on gross income, which makes sales taxes much more destructive than income taxes, due to the greater quantum leap effects.

But taxes on income also have quantum leap effects, since if a firm was only making normal profit before taxes, and it can’t raise prices, the tax will squeeze profits below normal, and the firm shuts down. Only if the land rent the firm pays gets also reduced can the firm survive.

Thus with quantum leap effects, much of the tax is at the expense of land rent, since reduced profitability generates less land rent. The reduction in rent depends on how much of added cost they can pass on to customers and workers. The income tax also falls on wages to the extend that workers worldwide are not perfectly mobile, as they indeed are not.

The only way to eliminate the Gaffney quantum leap effect is to directly tax rent instead of indirectly taxing it via taxes on revenue and profits. A shift to land-value taxation would therefore not just eliminate the deadweight losses caused by a reduction of the quantity of goods produced, but also the much greater quantum losses due to shifts to less productive products.

With the elimination of taxes on wages, sales, buildings, and entrepreneurial profits, the economy would take a quantum leap up to dazzling productivity. The demand for labor would surge and wages would jump to now unimaginable levels.

That’s quantum economics, not as difficult as the quantum mechanics of physics, but also far from obvious. The Gaffney quantum leap effect is the feather in the Georgist hat and should be taught in any enlightened and full-spectrum economics course.

Thanks to Mason Gaffney, the theory of the excess burden of taxation has now taken a quantum leap beyond those little triangles in graphs that economic textbooks show as the deadweight loss. We need to think big!  Gaffney has given us a quantum leap to greater economic understanding.






BUDGET WEEK

The farce of another Australian federal budget will take place on Tuesday night.

Following the budget:-

–          Some people with kids at school will receive a handout to help spending happen.

–          Education will remain desperately short of adequate funding.

–          Public health will remain desperately short of adequate funding.

–          Infrastructure will remain desperately short of adequate funding.

–          Businesses failure and unemployment will accelerate.

–          Taxation will remain unreformed along the lines recommended by The Henry Tax Review.

And

Greedy billionaires will be allowed to continue plundering, hand over fist, the one-third of the economy that is Australia’s economic rent – the publicly-generated rent of our land and natural resources.

That’s because they’re powerful and well-connected, and we, the 99.9%, are stupid.

Economic collapse will proceed apace because the tax regime continues to reward rent-seeking.

Here’s Britain’s Ann Pettifor breezily exposing banks to be our biggest rent-seekers.

Tell politicians to stop doing the bidding of these parasites.

 








WHO REALLY BELIEVES THEY ARE ‘ENTITLED’, JOE HOCKEY?

Don Edgar’s article “No more poor excuses” in THE AGE on Thursday 26th April  reversing Joe Hockey’s understanding of the “entitlement” mentality was very timely.

Of course, the main example of entitlement is the manner in which landlords across much of the world continue to capture the publicly-generated annual rent of land. Increasingly privately captured (because politicians run scared of the landlord lobby), land rents therefore became capitalised into gigantic real estate bubbles across much of the western world.

Even worse, however, the Australian property lobby not only claims land taxes which might keep a lid on these bubbles is unfair, but also argues buying second, third, or fourth properties, etc., should be subsidised by taxpayers, via negatively geared tax arrangements.

Renters and average homeowners can’t do this, so it’s simply a privilege granted by governments.

Nor can Joe Sixpack recover every dollar he’s ever paid in taxation by means of the uplift in his total land values as many of the wealthy are able to do. If the way our tax system encourages this rent-seeking mentality hasn’t come to be seen as an entitlement for the elite, just try to get rid of it, as Prosper Australia has tried to do!

Don Edgar is correct.  It is indeed the wealthy who have developed the greater mendicant mentality and written those ‘entitlements’ into our tax laws.