Friday, July 13, 2007

Land of opportunity, land of the free?

Can more freedom make us less free? It seems like an odd question. But an editorial in the New York Times provides an interesting answer. It looks at the effects of unfettered markets.

When questioned about the enormous income inequality in the United States, the cheerleaders of America’s unfettered markets counter that everybody has a shot at becoming rich here. The poor, we are told, can use their own bootstraps. Unfortunately, the American dream is not that broadly accessible.

Why might they say that? Read on.

Recent research surveyed by the Organization for Economic Cooperation and Development, a governmental think tank for the rich nations, found that mobility in the United States is lower than in other industrial countries. One study found that mobility between generations — people doing better or worse than their parents — is weaker in America than in Denmark, Austria, Norway, Finland, Canada, Sweden, Germany, Spain and France. In America, there is more than a 40 percent chance that if a father is in the bottom fifth of the earnings’ distribution, his son will end up there, too. In Denmark, the equivalent odds are under 25 percent, and they are less than 30 percent in Britain.

America’s sluggish mobility is ultimately unsurprising. Wealthy parents not only pass on that wealth in inheritances, they can pay for better education, nutrition and health care for their children. The poor cannot afford this investment in their children’s development — and the government doesn’t provide nearly enough help.

Tax, of course, pays for education, nutrition and health care for children, and thus provides people with a route to more social mobility and more freedom to move up the rungs of the income ladder. The mood in America and other parts of the English-speaking world seems to be swinging away from the demonisation of tax, on all sides of the political spectrum. Globalisation is one reason why people worry: take, for example, the words of Matthew Slaughter, one of President George W. Bush’s former economic advisors, or of Murilo Portugal, an IMF deputy managing director. Or look at the debate over the distorted tax treatment of private equity that has been raging on both sides of the Atlantic. (Read more about it in these July 2007 stories in the New York Times, the Financial Times, and Newsweek; TJN has submitted evidence to the UK House of Commons' Treasury Select Committee examining private equity. Read about it here.)

The more level the playing field on tax, the more freedom people will have to prosper. And, while we're on the subject of freedom, better international tax co-operation and exchange of tax information between countries would also provide democratically elected governments with more freedom to set their own tax policies without having to succumb to the pressures exerted from crime-addled tax havens and other jurisdictions. We will be turning to this tax competition shortly . . . .


Anonymous Anonymous said...

You might be interested in the following letter to the Financial Times, unpublished alas!

----- Original Message -----
From: Dane Clouston
To: Letters Editor Financial Times ; Rt Hon David Cameron MP ; George Osborne MP ; Rt Hon Oliver Letwin MP ; Martin Wolf ; Heather Davidson
Sent: Thursday, July 19, 2007 10:56 AM
Subject: Private Equity and Inheritance - Working rich, good! Undeserving rich, bad?

Letters Editor
Financial Times

June 19 2007

Dear Editor,

Private Equity and Inheritance - Working rich, good! Undeserving rich, bad?

Heaven preserve us from "animosity against the working rich"! (your leading article today on the taxation of private equity). But what about animosity against the undeserving rich? What about those who inherit tax-free vast fortunes of assets exempt from the so-called 'Inheritance' Tax - actually a tax on the cumulative total of lifetime giving and deathtime bequeathing. Such exempt assets are too numerous to mention here. However, they do include all unquoted private equity as well as any equity quoted only on the Alternative Investment Market.

Not being horrible or anything - like having an outburst of animosity to the undeserving rich - but is it right that ordinary asset and home owners pay 40% on the lifetime total of anything that they give or bequeath above £285,000, while owners of exempt assets too numerous to mention pay no tax at all on giving or bequeathing? Might your editorial one day call for the reform not only of taxes on private equity income and capital gains but also of the inheritance and receipt of all unearned capital - capital the undeserving rich have done absolutely nothing to create, earn, make or save themselves?

A judicious redistribution of the private ownership of wealth in each new generation of our increasingly unequal democratic capitalist country is long overdue. The conservative Disraeli used British Universal Suffrage - votes - on his terms - to gain power. Might the conservative Cameron use British Universal Inheritance - capital - on his terms - to gain power? Or will the socialist Brown beat him to it? Oh for The Liberal Party (not the EU-fanatic LIb Dems)! - whose policy it already is.

Director, OPPORTUNITY - The Campaign for British Universal Inheritance
(Formerly Liberal Parliamentary Candidate for Newbury,1970 and Feb and Oct 1974 - Con 24,000, Lib 23,000, Lab 10,000.)
PO Box 1148 Oxford OX44 7AT
Tel; 01865 400421

4:40 am  

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