Tuesday, September 04, 2012

Stiglitz on Romney and tax avoidance

The Guardian is carrying an article by Nobel prize winning economist Joseph Stiglitz (pictured here), on why tax avoidance by politicians weakens the bonds of society.  Citing the adage that when a fish rots, it rots from the head, Stiglitz argues that when leading politicians - and they don't come more leading than US presidential candidate Mitt Romney - use aggressive tax avoidance structures to bolster their personal wealth, they demonstrate a lack of leadership and weak commitment to democratic politics.  As Stiglitz comments:

"Democracies rely on a spirit of trust and co-operation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable."

Tax avoidance also harms economies. Innovation and job creation relies heavily on constant, publicly funded, investment in new research and in educating and training creative and productive citizens.  This public investment is important for encouraging private sector investment, and countries that have based their long-term economic development strategies on this commitment to providing these publicly funded goods invariably fare better than those that don't.  It is important to stress the long-term pay back of investment in education and research, since neither provide a quick remedy to counter cyclical fluctuations in the economy.

Back to Stiglitz:

"But public goods must be paid for, and it is imperative that everyone pays their fair share. While there may be disagreement about what that entails, those at the top of the income distribution who pay 15% of their reported income (money accruing in tax shelters in the Cayman Islands and other tax havens may not be reported to US authorities) clearly are not paying their fair share."  

Ouch!  While there's clearly no assertion that Mitt Romney has been doing anything illegal, it strikes us as indisputable that he has been organising his affairs in ways that avoid paying his fair share towards the prosperity of the US economy.

Of course, Romney's not alone in this.  Many politicians around the world do the same (see here, for example) as do the numerous cronies who provide such a large part of political funding these days, but the rot starts at the head, so it is especially important that a presidential candidate can demonstrate clear leadership in the battle against tax avoidance.  To date, Mitt Romney has not been able to demonstrate that he possesses this quality.

You can read the Stiglitz article here.


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