Monday, July 23, 2007

Dark Thoughts

A new Financial Times poll provides further evidence, if any were needed, that the pendulum is swinging decisively away from the demonisation of tax. Read this excerpt from the front-page story on the UK edition, revealing the results of a poll on globalisation:

Large majorities of people in the US and across Europe want higher taxation for the rich to counter a widespread belief that rewards are unjustified. . . In response to fears of globalisation and rising inequality, the public in all six rich countries surveyed wanted their governments to increase taxation on those with the highest incomes. . . The depth of anti-globalisation feeling in the FT/Harris online poll, which surveyed more than 1,000 people in each of the six countries, will dismay policymakers and corporate executives. Their view that opening economies to freer trade is beneficial to poor and rich countries alike is not shared by the citizens of rich countries.

You may be surprised to discover which countries have felt the strongest backlash, in this follow-up story:

The results open the way for populist politicians to win support by anti-globalisation rhetoric and promising greater regulatory control of economies. . . Even though defining globalisation defies many experts, the people in rich countries think dark thoughts when they hear the term. In no country polled did more people believe globalisation was having a positive effect on their countries than thought it was having a negative effect. Britain, the US and Spain stand out with less than a fifth of respondents thinking globalisation was beneficial. . . . And everywhere, in Europe and in the US, a large majority supports more taxation for the highest earners. Contrary to many preconceptions, the lowest support for higher taxes on the rich came in France, where a still-sizeable 52 per cent were in favour.

More than three-quarters of respondents in every country except Spain thought that inequality was rising, the survey showed. (They would be right, as recent research from the IMF shows.) In addition, studies of inter-generational inequality show that the children of the poor are much more likely also to be poor in the US and in the UK than in continental European economies. More market freedom, it seems, can make you less free, as our recent blog illustrates.

And then we turn to another story in the same edition, entitled "Global corporate tax rates fall. It starts like this: "Competition for investment is driving down corporate tax rates around the world." This was a study by KPMG, whose report, like so many of the company's utterances, said something quite ridiculous, illustrating the blindness of so many tax-related organisations to the real world, as they stumble about inside their politics-free moneyboxes. Raising indirect taxes to make up for cuts in corporate tax rates was "likely to be in the long-term interests of countries seeking inward investment. . . . Tax is having an ever greater influence on where companies choose to operate, according to nearly nine out of 10 companies polled in a separate KPMG survey of 50 UK-based multinationals." Yesterday, KPMG's head of tax said “It looks as if international tax competition has some way to go yet.”

We have demolished this blinkered thinking elsewhere. If you haven't done so already, read it. There should be a lesson here for the politicians. Trends in taxation are driving inequality wider. And ordinary people don't like it.

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