Cyril Northcote Parkinson’s Law from back in 1955 states that work expands to fill the time available and nowhere has this Law been more noticeable than in the US these past few weeks and months. The lawmakers have known for some time that their debt ceiling of a dizzying £14.3trn would have to increase to ensure default is avoided on August 2nd (rumoured to be closer to August 10th in some quarters) but, here we are, days to go and Republicans aren’t returning the President’s phone calls, Democrats are squeezing in last minute amendments and there’s £350bn gaps being found in the proposed solutions. The hard work clearly didn’t get done soon enough and Parkinson’s 56 year old dictum strikes again.
So the great American dream is something of a nightmare right now but how can you enforce tax increases on a flabby country that largely aspires to be rich in the future and is a few falafel sandwiches short of a Socialist picnic? The creaking structures of a nation long past its best are coming apart and the refrain that no entity is too big to fail may well be getting put to the ultimate test sooner rather than later. My personal preference is that economic disaster can be stalled long enough, while looming real enough, for a democratic and political consensus to come through at the ballot box agreeing to tax the rich, fix social welfare, move away from oil and lead towards a more sustainable future under the stewardship of Barack Obama, all the while maintaining the broadly beneficial global might that the US of A has historically enjoyed (giant foam fingers optional).
The irony is, this could have been Europe’s moment right here to supplant the US as a leading superpower if it didn’t have its own problems going on right now with Greece, Italy, Ireland, Spain, Portugal etc falling like dominoes. We Scots are regularly told that we are stronger together and weaker apart but that European strength does not seem to be in abundance right now and nor does there seem to be the enthusiasm from our current member state to drive that strength in numbers and economies of scale forwards. This is a shame. Greater European integration brings progress quicker for greater numbers and for all that the Euro is facing touch problems right now, Britain would still be better off inside it than out. Growth figures of 0.2% and an exchange rate that is weaker against the troubled Euro today than it was a year ago do not give much confidence in the shaky, stuttering Sterling. Yes, having one’s own currency provides a necessary agility when times are tough and what Ireland and Greece would give to go back to punts and drachmas we all know, but refusing to trade with most of the rest of the Continent in their shared currency because you like the Queen on your coins and notes is an odd decision. We shall remain the Continent’s distant cousin while we remain so pointedly on the outside, at our choosing.
The most worrying aspect of the European and American troubles and the impact on the UK are the yo-yoing share prices, primarily in the banking sector. Someone, somewhere is creaming large profits from these share prices by selling at the peaks and buying at the troughs and you can be sure that it isn’t Mr and Mrs MacShoogle down the road that are making these gains. There are investment banks and equity houses that are straddling the globe right now, unable to believe their luck at the prolonged bout of opportunities for speculation and arbitration that a fluctuating stock market provides.
What does it all mean? For me, it all means that inheritance tax has to increase drastically. I’m talking punitive levels that ensure that individuals make their own luck in this world, as it should be. The current capitalist system is unlikely to change but there exists a structural imbalance that rules that, if you are born into the right family or get into the right fast-track career stream at JP Morgan, you will enjoy a life of luxury that will make your eyes pop and that wealth will stay with you, stay with your children and stay with your children’s children and beyond unless a colossal error is made somewhere down the lineage. It’s a rot that has set in America, a rot that has set in the UK and is creeping all over the new world as wealth spreads across an elite few.
Global economics is all about supply and demand and if the supply is being hoarded by the few, is compounded by taking advantage of disarray for the many and the demand is squeezed by food shortages, energy uncertainty and the need to print more money, something is not right. Inheritance tax is one of the largest levers available to flatten out the inequality that we see grow each day before our very eyes and in all corners of the world and, regardless of whether the US defaults or not over the next week or so, that lever needs to be pulled.
Or we can stick with Parkinson’s Law and put the problem off for another day, week, month, year,…..
#1 by Random Lurking Scotsman on July 28, 2011 - 11:34 am
I’m quite glad that the Scottish and UK Parliaments have a system where the head of the government is simply the leader of the largest party in the Parliament, rather than the separated system they have in the US.
Even if I disagree with the government’s slant, at least it means that the country can keep on running in some form, whereas the US seems to shut down the moment the President and Congress fall out. The worst part of all this, though, is thanks to the stubbornness of the Tea Party-backed GOP House Reps., the entire world suffers if America defaults.
It’s annoying that there’s nothing that we in the UK can do to break the impasse…
#2 by Lost Highlander on July 28, 2011 - 5:02 pm
Sorry Jeff I do have issues with your views on inheritance tax problems. The simple reason is that if you increase inheritance tax then you increase the funds flowing out of the country.
Simple reason is that people want to help there children become better than they are. This is biological.
Still it does not matter when it comes to the banks they tend to operate on the who you know basis and that is not taxable.
#3 by Jeff on July 28, 2011 - 5:23 pm
It’s a valid argument LH but I personally have never been convinced of it. Sweden has a top rate of tax of some 90% and they have more than balanced the books; clearly the wealth isn’t slipping away from them.
I also think that if a person’s main rationale for living in a country is based on money rather than emotional attachment or pride or enjoyment in what that country is, then do we really want to bend over backwards to keep them? Surely it is best to start with what is fair rather than what is best for the elite rich?
People do want their children to be better than they were but that doesn’t necessarily mean ‘better off’. I like to think there are more people out there wanting their kids to start from scratch than we perhaps tend to give credit for. At the end of the day, resetting each generation to close to zero and ensuring all lives have as equal potential as possible is the best way to make the improvements that we all want to see.
Maybe I’m too idealistic though so, yeah, I do definitely get where you’re coming from.
#4 by Douglas McLellan on July 29, 2011 - 6:26 pm
You are actually very idealistic. Whilst I didnt have any friends growing up who were the scions of multi-million pound trust fund households (probably because there are actually very very few of those) I did know many kids whose parents the very definition of middle-class. Not one of those families wanted their children to start from scratch.
At what age do you want the reset to happen anyway? Surely it has to happen at birth rather than the death of the parents. It is parental ability and respect for things like reading, school and employment that give children the best start in life. Since we cant stop the parents who shout and swear at teachers or the parents who tell their kids not to bother cause “the welfare” will pay for their home etc from having kids how do we create equal potential for all lives. After all for every hand up richer parents give their kids are many more kids whose parents hands pressing them down.
Also, didnt Sweden abolished inheritance tax a few years ago (prior to the credit crunch) and the Swedish Gov Tax calculator has a max tax take of 52%?
#5 by Jeff on July 31, 2011 - 12:38 pm
I went for inheritance tax because increases in income tax in the UK seems so unlikely. Sweden did abolish inheritance but it has an average tax take of 58% (they pay both national and municipal income tax rates which is why I think your 52% maximum is so low?).
And I think you’re not only taking this reset thing too literally (there is no button) but oddly suggesting I’m saying it’ll work on its own. Of course parents, all parents should invest in their kids with Reading, writing and counting but money plays a part in that – paying teachers, building schools, broadening curriculums. I’m beginning to think scrapping private schools is the way to go (Sweden doesn’t have them!) and that comes back to my resetting each generation (again, note the lack of a button).
#6 by Douglas McLellan on July 31, 2011 - 5:32 pm
I played with a Swedish tax calc website but given my Swedish is non-existant and google translate is only so effective it may be that your % is more accurate than mine (although in the pdf that Angus has linked to I cant see the very high top figure you mentioned.
I may have been taking the reset thing to literally but did explain why very high inheritance tax would not really solve the problem of educational attainment.
Private schools could not just be abolished. There would need to be a mechanism to stop even further house price rises in the catchment areas of good schools to stop parents using those fees to pay more for homes. Or even stop them paying for after school tutors? (too literal again, I’m sorry).
There does need to be an examination of schooling, including understanding about why so many parents of those kids who would benefit the most from it seem to disrespect it so much. There also needs to be a clear understanding that those children who have the ability are pushed to their maximum not merely streamed into basic three tier system, which from a personal perspective, is useless.
#7 by Jeff on July 31, 2011 - 8:13 pm
Well, I never said that very high inheritance tax would solve the problem of educational attainment so that’s fine.
The private part of ‘private schools’ could be abolished. Just make them state schools. Simple. But no, of course private tutuors wouldn’t be stopped.
Definitely agree on pushing kids to their maximum; I actually find that a very Scottish problem – settling for less and being ashamed of succeeding. But we’re wandering off topic I suppose!
#8 by Angus McLellan on July 28, 2011 - 9:26 pm
Whether it’s idealism or not, it’s certainly unrealistic. And no vote winner. Improving education and legalising recreational pharmaceuticals seem like they might be better route to take if you want to prevent wealth remaining concentrated across the generations.
But I think you’re mistaken on the Swedish tax system. There is an English-language tax yearbook published by the Swedish government here (if the HTML works). It has a worked example (p. 10) of taxes paid by someone earning around £37,000. If I compare the net income in the Swedish example and what would be left out the same gross income in the UK, the difference is of the order of a thousand pounds or so.
The top Swedish state income tax rate is only 25% and other taxes only seem to be levied on income which was paid in such a way as to avoid social security being assessed on it. The inheritance tax rate in Sweden has been zero since it was abolished in 2004 (p. 15). If anything, the UK looks to have relatively high levels of inheritance tax, but relatively low taxes on the assets of the rich while they are living.
#9 by CassiusClaymore on July 29, 2011 - 11:22 am
Jeff
You must be off your rocker if you think that we’d have been better off in the Euro. The UK would be in far worse condition if we hadn’t been able to slash interest rates and print money – neither of which we would have been if we’d been in the Eurozone. Right now, the ECB are actually RAISING interest rates. Can you imagine the effect that would have on our stuttering recovery? In addition, we’d just have had to sign up to surrendering control over national fiscal and budgetary policy, as the other Eurozone nations seem to have done last week. Time to face reality – the Euro has been a failure and unless monetary union is supplemented by political union, it will eventually collapse. There is no prospect of the UK joining, ever. Neither should an independent Scotland – if tax rates, national budgets and interest rates are decided in Brussels/Frankfurt, we’re not independent at all.
On the broader point, and as I see it, the UK is currently a high-tax country but without the attendant high-quality services that other high-tax countries have (and Sweden is a good example).
As such, we have the worst of both worlds.
I really don’t think there’s any appetite for more tax rises. Folk are overtaxed as it is.
Even worse, our current tax system is damaging our economy and probably reducing the tax take. The received wisdom in tax circles is that the 50p rate is actually costing the country money rather than raising it – the Treasury are investigating that point, and we’ll know the truth soon enough.
The fundamental point is that we are still borrowing £1 of every £5 we spend, that public spending is still increasing and that the national debt continues to grow. The UK currently spends billions in an increasingly embarrassing attempt to remain a world power – involvement in every available war, nuclear weapons we’ll never fire, subs on constant global patrol, IMF funding, foreign aid, PM flying all over the world as though we still had an empire, and so on. This costs SERIOUS money and is patently unsustainable, whether we like it or not. If the UK Establishment can’t get comfortable with the UK’s diminished position in world affairs, they’ll bankrupt us all.
And still some people say that we’re better off in the Union!
CC
#10 by An Duine Gruamach on July 29, 2011 - 4:05 pm
CC – dinna forget billions on thae Olympic Gemmes an aw!
#11 by Lost Highlander on July 30, 2011 - 1:55 pm
I have to agree with CC here the Euro has severe structural issues least of all is the North/South divide that leads to economic policy which to keep it running hurts the South.
The Euro needs much tighter fiscal union to work and that is a tax system the same right across Europe and that it just wont get from European voters.
So will Scotland want to join a currency that will likely split in two before long. Not likely it does not make sense that when independent that we need to change our money just to go visit south of the border. I know it works for the Ireland/Northern Ireland situation but that has been longstanding and we will have much more important things to do.
#12 by cynicalHighlander on July 30, 2011 - 9:17 pm
What the Ratings Agencies really do. Liars Lexicon – Support Uplift
and
Terry Smith says the world is living in a fantasy
Hard hats at the ready as the cliff edge is beginning to get unstable.