Ah, it’s Saturday, so let’s turn to the latest defense of the economic status quo in the Irish Times… September 10, 2011
Posted by WorldbyStorm in Economy, Irish Politics.trackback
…And what better man to make it than Stephen Collins? But wait, what’s this?
The sale of State assets, to which the Government is committed in the EU-IMF bailout programme, would normally be expected to generate considerable friction between Fine Gael and Labour, but that does not appear to have happened, although final decisions are yet to be made. Ironically the easiest way for the Government to meet its fiscal targets would be to ratchet up income taxes rather than widen the tax base or cut spending. Many of those who are railing against the modest €100 property charge would probably make far less fuss if €1,000 a year was loaded on to their income tax bill and simply deducted at source.
The income tax option was taken during the 1980s and it prolonged the recession and stifled growth.
This is a very strange argument. At the start of the 1980s the top rate of tax was 56%. Okay.
But, according to CSO figures [by way of ICTU] in 1992 the top level of income tax was 52% in 1992. In 1993 it was 48% where it remained until 1999. It then dropped to 46& in 99/00 and then to 44% in 2001. In 2002 it dropped further to 42%.
That delicate creature, the Celtic Tiger, somehow survived an entire decade of the 1990s where the top income tax rate was in the 50s through to the high 40s. And Collins seriously expects us to believe that increasing tax to – say a median point of 46 -48% would somehow constitute 1980s rates?
Moreover if he doesn’t believe that growth is possible at higher rates, he should again peruse the CSO figures and note that in 1994 [Top Income Tax Rate - 48%] growth was 6.3, the next year 8.3, the next year 7.8, the next year 9.7, the next year, 1998, 7.9. Two years later at 46% it was 10.2. Indeed inconveniently for his thesis [and I make no great claims for absolutely causality here, but am merely taking it on the terms he frames the discussion] in 2001 when tax had dipped to 44% growth fell to 3.8. In 2002, at 42%, it fell to 01, and thereafter was 2.5% and 4.3%.
Just for clarity, the standard rate of tax was 30% in 1990, fell to 27% by 1992/3, remained there until 96/97 when it was reduced by 1%, then reduced by 2% in 1998/9, 2 % in 00/01 and then stabilised for the rest of the decade.
All of this is complex. Ireland was playing catchup through the 1990s. It was the beneficiary of EU largesse. But to suggest that there’s an easy and uncomplicated argument as Collins does wherein 1980s levels of Income Tax will kill growth is to ignore the point that there are points we can get to well short of such levels where we see growth wasn’t simply good but was excellent.
There’s more though…
An over-reliance on further increases in income tax to solve the deficit would be both bad for the economy and in breach of the terms of the EU-IMF bailout. The problem is spending cuts and a widening of the tax base are harder to sell to voters.
Really? In ‘breach of the terms’?
>Let’s turn to the Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding from December 3 2010 to see what it has to say on such matters…
An income tax-led revenue package—sized at over €2 billion in a full year—will supplement the above expenditure measures in 2011. Over the past decade, the proportion of citizens exempt from income tax has risen to 45 percent and tax credits have doubled, resulting in a comparatively low burden of tax on ordinary incomes. This is no longersustainable. Accordingly, we are widening the tax base, by lowering income tax bands and credits by 10 percent, and by reducing various pension-related tax reliefs. We are also taking action on other tax expenditures, and distortions arising from the existence of multiple levies.
And…
24. To secure our fiscal targets, a number of fiscal measures have been identified for 2012–14…. On the tax side, we will build on the base-broadening measures outlined above and establish a sound basis for sub-national finances through a new residential-property based site value tax. The Finance Bill 2012 will contain necessary provisions to bring into effect the already signalled VAT increases in 2013 and 2014.
I’m genuinely puzzled as to how he could interpret in light of the above that increases in taxes would be ‘in breach’ of that letter.
Still, why should the IT worry about whatever their columnists write when SFA people will actually go back and look at the source materials?
Here’s an useful overview of the period of the 1980s…
You have very thoroughly exposed the fallacies in Collins article. And one could go on and point out that lowering income tax in our expanding economy contributed to over-heating – put money in peoples’ pockets and accelerated the rise in house prices and other commodities and services.
I think your second point is spot on. I know myself from being on the lower rate across the 90s and into the 00s there was a significant sense of increased money at ones disposal… even on a lower wage.
While that sense of having a bit more helped, it’s worth remembering that what really fuelled the madness on the demand side – leaving aside the supply-side chicanery around tax breaks for developers – was the deluge of no-questions-asked credit: plastic, loans, 100% mortgages, etc.
Very true. That completely shifted the terrain.
Have had the tax argument with various people over the last 8-10 years and have come to the conclusion that the average Irish citizen would rather pay for the rent of the RDS for a FF Ard Fheis with a personal cheque than pay more tax.
You know, that’s the way it happened, isn’t it? But, given those tax rates shown above there was a point when citizens were willing to tolerate much higher tax burdens than currently.
As in so many areas, we’re becoming more American. I’ve been spending a lot of time there recently, mostly in the company of academics and teachers. It’s struck me again and again how often the subject of income tax is a conversation-stopper.
My interlocutors would consider themselves to the left of the Democrats , strongly anti-Bush, ashamed of the Tea Party and somewhat disappointed in Obama for not pushing more strongly on what they considered the left wing programmes they’d elected him to implement.
But what about, say, better maternity and paternity leave in the US? ‘Well, sounds like a good idea … but not on our taxes.’ Even, most memorably of all, the question of the death penalty, pretty much a finished argument in Europe. I was astounded to find most of my ‘left’ friends favoured it – ‘Do you know how much it costs to keep a man on death row?’
They reminded me of the rich guy in the bible story who’s willing to do anything to follow Christ – except give away his riches. Liberals to the core, except when it means paying for liberal programmes through their taxes.
Quick question. Is it a case that they themselves won’t pay higher taxes or that they believe that the majority of US citizens won’t?
I guess either way it’s a depressing situation, to put it mildly. I also wonder about a liberalism that isn’t willing to cough up. That sounds to me like conservatism with a socially liberal face. A real indication as to how the centre of gravity has shifted rightwards.
I’ve always found that cliche about Americans, that they all believe they can be rich one day, so they see the roch man’s point of view, has a lot of youth in it. You meet people who are in the most leftward 1percent of the population and they laugh in bafflement at the’generosity’ of our old age pensions. Is it the Puritan DNA of the US that makes them so resistant to the idea of ‘something for nothing’? The genuine stigma attached to the word ‘welare’ is an eye-opener
That’d be ‘welfare’ of course.
Isn’t a lot of it to do with the notion of the ‘frontier spirit’. One of self sufficiency. How their forefathers had landed in the US with little or no money and had through hard work and often suffering worked their way up to provide a better life for their children and so on.
Functionally then they’re not really very left, or at least so it sounds.
People swallow, and are swayed by, neo-liberal arguments too easily. It’s the sincerity of the proponents that I reckon is to blame for a large extent. When you have the likes of Colm McCarthy and every other establishment figure out defending neo-liberal policies, people with very forthright arguments and perspectives, it’s hard to question their points because they make them so well. Even if they are utter tripe like this one.
After all, these people are ‘educated’ and hold important sounding positions. They even seem objective, after all when they talk about giving tax breaks for the rich or the need to privatise X, Y and Z in the interests of ‘efficiency’, they don’t usually have any personal interest in it themselves. And that, I’m afraid, sways alot of people. Even my own family, when talking about the McCarthy report, believed that he was simply a disinterested academic, and not an ideological hawk. It shows how deeply capitalist ideology is embedded in public discourse and how hegemony can be exercised so openly, while remaining hidden.
+1
That’s it precisely, it’s unquestioned because it is the hegemony.
Another small thought, odd is it not that in this era the opportunities to call out – say – Stephen Collins should be fairly easy, but check out the online version. No space for comments. I don’t think this is true of all his Saturday pieces, but unlike the Guardian where more or less everything that is comment is open to some question at least the IT has a curious approach of sometimes open to comments, sometimes not.
Interesting to consider the filtering effect of that too.
An aside but no doubt related to the topic above …..
Am I alone in hearing from people the likes of … “brother in Law/ Friend/ cousin/ wifes friend/ man who walks the dog in the morning in the park etc works in the Dept of Finance and basically it’s the IMF calling the shots over everything”
an example of some cut or lack of cut would be given.
The truth, in the department I know most about – education – is the opposite. officials are using the cover of IMF/ECB requirements to impose long-wished-for cuts that would never have got past the unions before the CPA.
I guess left-leaning Americans see no contradiction in being liberal in every way but fiscally. The further rightwards our centre of gravity shifts, the more similar our Labour Party seems – not so much the new Greens as the new PDs.
That’s a good point… thinking about the Green Party, they had no real problem with raised taxes, indeed sought precisely that in certain areas, whereas the LP seems much less comfortable with them than previous incarnations – and who can forget the proposal of 2% off the standard rate in 2007?
How neoliberalism rose to hegemony, intellectually and politically, is little understood. Its infiltration into the ‘left’ is one of the reasons for the inadequate response of the left to the current great crisis of capitalism.
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