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Overcharged: the high costs of high finance

POSTED ON September 28th  - POSTED IN Blog, Financial Regulation, The Harms

From the Roosevelt Institute in the United States, a long report that seeks to generate an overall estimate of costs to the US economy of the financial sector, over and above the benefits that the finance sector provides:

“What has the flawed financial system cost the U.S. economy? How much have American families, taxpayers, and businesses been “overcharged” as a result of these questionable financial activities?

After some detailed work, an answer is in:

“In this report, we estimate these costs by analyzing three components: (1) rents, or excess profits; (2) misallocation costs, or the price of diverting resources away from non-financial activities; and (3) crisis costs, meaning the cost of the 2008 financial crisis. Adding these together, we estimate that the financial system will impose an excess cost of as much as $22.7 trillion between 1990 and 2023, making finance in its current form a net drag on the American economy.”

New U.S. Research Shows Millionaires Less Mobile than the Rest of Us

POSTED ON May 27th  - POSTED IN Blog, Tax

CTJFrom Citizens for Tax Justice, a blog that’s worth reproducing in full, as yet more useful ammunition to wheel out against those who keep banging on about tax cuts and so-called ‘competitiveness.’

New Research Shows Millionaires Less Mobile than the Rest of Us

A new study (PDF) released today provides the best evidence yet that progressive state income taxes are not leading to any meaningful amount of “tax flight” among top earners.

Stanford University researchers teamed with officials at the Treasury Department to examine every tax return reporting more than $1 million in earnings in at least one year between 1999 and 2011.  They found that while 2.9 percent of the general population moves to a different state in a given year, just 2.4 percent of millionaires do so.  Even more striking is that for the most “persistent millionaires” (those earning over $1 million in at least 8 years of the researchers’ sample), the migration rate is just 1.9 percent per year.  As the researchers explain: “millionaires are not searching for economic opportunity—they have found it.”

A graphical assault on supply-side tax cuts and tax ‘competitiveness’

POSTED ON April 21st  - POSTED IN Blog, Tax
War Games, Tax Wars

War Games, Tax Wars

The author of today’s FG blog has just had a piece in the Washington Post entitled Five Myths about Tax Havens in which Myth 5 goes like this:

“5. Cutting corporate taxes helps nations compete with tax havens.

Reducing corporate taxes to attract wealth back from tax havens sounds plausible — “Republicans call [tax inversions] the inevitable consequence of a flawed tax system,” Bloomberg View recently observed, “and say the only solution is a full revamp of the tax code, including lowering the corporate rate and limiting taxes on foreign profits.” But it doesn’t work that way. Tax cuts at home don’t persuade corporate bosses to ease up on tax avoidance, and there are always more lucrative shelters abroad.

Thorstein Veblen: The Thinker Who Saw Through the Competitiveness Agenda

POSTED ON February 29th  - POSTED IN Blog, Competitiveness - the history files

Thorstein Veblen

There are many instances in the history of economic thought where economists did not use what today has become the concept of ‘national competitiveness’ but nonetheless wrote about things that look eerily familiar when viewed through the lens of the modern-day Competitiveness Agenda. Veblen’s 1904 Theory of Business Enterprise contains many important passages of this nature. Business leaders, he noted, had become remarkably successful at presenting themselves as the selfless foot soldiers in a national struggle for international economic pre-eminence. Yet for Veblen this was all a carefully constructed smokescreen. They could hardly be seen as guardians of the national interest, he argued, because they enacted significant damage on the economy’s social provisioning capacity in the self-serving desire to protect the social inequalities from which they benefited so handsomely. This latest post for Fools’ Gold by Matthew Watson captures the essence of Veblen’s original argument, while drawing out its implications for understanding the modern-day Competitiveness Agenda.

New research: ‘competing’ aggressively on tax reduces growth

POSTED ON January 5th  - POSTED IN Blog, Tax

Dr. Nikolay Anguelov

Recently we posted an article entitled New studies: do ‘competitive’ corporate tax cuts boost growth? – to which the answer was a qualified ‘no.’ Well, now we are delighted to host a guest blog by Prof. Nikolay Anguelov of the Department of Public Policy, University of Massachusetts, Dartmouth, who has produced an important new working paper looking at this question. Entitled “Lowering the Marginal Corporate Tax Rate: Why the Debate?” it provides a range of further evidence and insights. (This article will be permanently stored on a section of our site called The Harms.)

How ‘competitive’ tax and incentive policies hurt small U.S. businesses

POSTED ON September 29th  - POSTED IN Blog, Tax, The Harms
Not biased towards small businesses

The Competitiveness Agenda, in a pie chart

Recently we have written about how supposedly ‘competitive’ national policies on tax and the financial sector in Britain tend to favour large multinational firms over smaller, more locally-based ones, and how they also tend to lead to less competition in markets too.

This is the result of what we sometimes call the “Competitiveness Agenda”, which pushes the idea that you have to pamper and give subsidies to mobile capital, for fear that it will flee to more hospitable jurisdictions. Of course the firms that are most able to flee (or partly flee) to foreign jurisdictions are naturally the internationally-focused ones – and that usually means larger multinational corporations. The smaller locally-focused ones, which are most rooted in the local economy won’t generally flee.

U.S. accounting rule: “a historic development of tectonic proportions”

POSTED ON September 9th  - POSTED IN Blog, Competitiveness: the weasel words, Tax

Yesterday we received an email containing our quote of the day:

“this decades-overdue accounting rule is a historic development of tectonic proportions. It will enable analyses never before possible and vividly tie the opportunity costs of economic development to other public priorities.

Our emphasis added. We wrote about this recently, but thought we’d underline its importance, with this quote.

This comes from Greg Leroy of Good Jobs First, a non-profit organisation dedicated to exposing and opposing corporate welfare and the race to the bottom between U.S. states on taxes and subsidies. This is of great interest to us at Fools’ Gold, because so many of these subsidies and pork are handed out in the name of ‘competitiveness’ (or some other weasel word.) 

The ALEC rankings: does smaller government mean higher growth?

POSTED ON August 17th  - POSTED IN Blog, Tax

There are a lot of ‘competitiveness’-related rankings of countries and states out there, from the World Economic Forum’s Global Competitiveness Report, to the World Bank’s Ease of Doing Business rankings. (We’ll address some of these in due course.) It’s interesting to note, for starters, that the highly taxed, highly regulated Scandinavian economies seem to do just as well as their low-tax, lightly regulated peers. Recently we made up a little graph to illustrate this, looking at the WEF’s ranking:

Source: WEF, Conference board. The sample of countries included those with comparable levels of GDP per capita, and excluding micro-states which often have their own ‘tax haven’ growth dynamics. The cut-off was to use states with GDP per capita (PPP) of above $20,000 on average from 1989-2013. Source: Conference Board data tables.

Source: World Economic Forum, Conference Board. The sample of countries included those with comparable levels of GDP per capita, and excluding micro-states which often have their own ‘tax haven’ growth dynamics. We used states with GDP per capita (PPP) of above $20,000 on average from 1989-2013. Source: Conference Board data tables.

There’s no obvious trend here, is there? The high-tax countries seem to be just as ‘competitive’ as the low-tax ones, it seems, even on the WEF’s measures, (which are somewhat skewed toward the low-tax, light regulation model.) The non-trend you see in this graph is just as Martin Wolf, Paul Krugman and various others would have predicted.

U.S.: new transparency on corporate tax breaks

POSTED ON August 17th  - POSTED IN Blog, Tax

Across the world corporations are showered with tax breaks and other inducements in the name of ‘competitiveness.’ In most cases these tax breaks don’t affect investment decisions in any way. They are pure giveaways. In many countries it’s been hard to track the scale and extent of these giveaways, although recently we reported on one such effort by Kevin Farnsworth in the UK, which noted that the race to the bottom between nations and states on tax and corporate subsidies doesn’t stop at zero: it just keeps heading on downwards.

In the United States there has been some very good work done by nonprofit groups, notably Good Jobs First, to expose what’s been going on. (Greg Leroy, Director of Good Jobs First, attended the Fools’ Gold inaugural meeting in Warwick, UK, in February this year.

Now they report in a press release on an excellent development – a form of transparency that’s recommended for all countries.

Quote of the week: Bill Gates on corporate taxes

POSTED ON May 19th  - POSTED IN Blog, Quotations, Tax
Photo: World Economic Forum, Creative Commons

Photo: World Economic Forum, Creative Commons

From a Bloomberg report on a Bill Gates interview:

Gates scoffed at comparisons linking taxes and regulation to slower growth. “The idea that there’s some direct connection, that all these innovators are on strike because tax rates are at 35 percent on corporations, that’s just such nonsense.” ‘


“The highest economic growth decade was the 1960s. Income tax rates were 90 percent.”

This is part of a much bigger picture: that low (or high) corporate taxes do nothing to make an economy as a whole more (or less) ‘competitive.’ Read more about all this here.

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