Monday, July 02, 2007

An astonishing month

It has been an astonishing month for the Tax Justice Network agenda, particularly in the UK, where the mood has been changing decisively and rapidly. There has also been important progress in the United States, too, not least the remarkable outcomes from the conference in Washington on June 28.

As we have already noted, a healthy discussion has broken out on both sides of the Atlantic on the tax treatment of private equity, with remarkably similar views being aired by important folk. Following UK private equity godfather Nicholas Ferguson’s comments in the FT (“Any common sense person would say that a highly-paid private equity executive paying less tax than a cleaning lady or other low-paid workers, that can’t be right. . . I have not heard anyone give a clear explanation of why it is justified,”) a resounding echo was subsequently heard in America, when Warren Buffett said, in a story published on June 28: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.” Even The Economist magazine, which has published much drivel in support of tax havens this year, was sympathetic to our position, and quoted TJN’s Richard Murphy in a story about the issue.

We have already covered the private equity issue in this blog. What is more remarkable, however, is the more broad-based coverage that is now emerging. This is exactly what TJN originally set out to do: change the terms of the debate. There has been plenty of it, but probably the most visionary entry came in the Financial Times, in an editorial on June 25th. It is worth quoting this one at length, for they have penetrated to the heart of the matter.

The survival of unchained financial capitalism cannot be taken for granted. It will endure only if a sizeable portion of humanity decides that it serves their interests. . . . At the core of the financial system remain the big banks, which are insured, explicitly and implicitly, by governments. Regulators have to ensure that excessive risk-taking is not going on, with the gains once again privatised and the losses shifted on to taxpayers. . . . Democracy rests on the perception of fair treatment of its citizens. Most people accept the wealth earned by successful business activity. Far less acceptable, however, is the ability of the rich to avoid almost all taxation. The case for a neutral tax system, with few loopholes, is stronger than ever. Regulation must be global. Moreover, such regulation must include taxation. As finance goes global, so must the depth of co-operation among fiscal authorities. A world in which a global plutocratic class pays little or no tax, while benefiting from the stability generated by taxes imposed on the "little people", will prove unsustainable.
On the same day, an editorial in The Independent newspaper aimed at incoming Prime Minister Gordon Brown with the headline: Here's one challenge Brown can take on... shutting down the world's tax havens). The article said this:

The populist potential of an international crusade to make the mega-rich pay their fair share is vast. First he could close the loopholes for foreign billionaires and private equity kings in Britain. Then, to stop the minority of the super-rich who would actually act on their threats to leave Britain, he could lead an international battle to shut down the world's tax havens, which act as stinking drains on progressive governments everywhere. This is the new centre ground of British politics, where even the moderately wealthy can sweatily see that a grossly unequal society is dangerous for us all.

All of this came in the context of a related, older political thread: worries about fast-rising inequality, as evidenced in two stories in the FT, one about a wall of Middle Eastern and Russian money pushing the price of top-end houses in London up by 46 per cent in the past two years, and another about individuals with incomes in the top 1 per cent of the UK’s taxpayers pulling away even from the merely well paid in the final years of Tony Blair’s premiership, with the incomes of the top 0.1 per cent having grown most strikingly of all.

We will finish off here with an article by Madeleine Bunting in the Guardian, quoting Lloyd Evans in the Spectator, highlighting the ridiculouslness of the London property wealth effect. "In theory, we're halfway to being millionaires. Yet we don't have a car, we can barely afford a holiday, and when we go for a drink, we sit on the green outside the pub, quaffing Tesco £2.99 Frascati to save money."The headline of her article summed up the mood: “The middle classes have discovered they've been duped by the super-rich."

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