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Why California’s decision to raise taxes on its richest is historic

by Owen Tudor     November 12, 2012 at 9:40 am

The re-election of President Obama on Tuesday was undoubtedly an historic event – cementing universal healthcare, for example, and bucking the trend of anti-incumbency politics that has unnerved politicians in the developed world.

But it may be that the ballot in just one – albeit important – state of the union was the crucial event on that fateful day.

The national and state election races in California saw Democrats triumph with thumping majorities, and as more than one in ten US citizen lives there, it’s a pretty important state to win.

But more important is the story of two referenda 34 years apart. In 1978, California voted for Proposition 13 which capped state property taxes and is widely regarded as having marked the start of the global movement against taxation that has defined political life in the developed world for a generation.

Last Tuesday, the Californians who sparked the ‘small state’ revolution may well have acted as midwives to its end by endorsing Proposition 30 by 54%:46%. They voted for a temporary (7 year) progressive increase in income taxes on Californians with annual incomes over $250k, $500k and $1m as well as a 0.25% sales tax increase (expiring after 4 years), to prevent $6bn in spending cuts this year alone.

A clue to the cause of this major turnaround in California is that, like much of the developed world, the gap between rich and poor has ballooned since the 1970s. The Financial Times reports (£) that:

“During the 1970s, the richest 1 per cent in the state earned 10 per cent of personal income – then about $135bn. Their share has since increased to 22 per cent, while personal income has soared to $1.8tn.”

Small wonder that opponents like the Koch brothers, who last year bankrolled Wisconsin Governor Scott Walker’s attack on union collective bargaining rights (he now has the first openly gay senator in US history to pay for his troubles!), donated $11m to the campaign against Prop 30.

[Another propositions aiming to reduce union political activity was also defeated]

A longer version of this post is on Touchstone blog

The European Robinhood Tax overcomes a major hurdle

by Owen Tudor     October 24, 2012 at 10:01 am

Yesterday the European Commission gave the green light to the adoption of a Financial Transactions Tax (FTT) by 10 European countries, bringing a Robin Hood Tax that could raise €37bn a year one step closer.

The Commission’s decision means that the proposal is legal under EU law, and meets the criteria for a process known as the Enhanced Co-operation Procedure (ECP) where a subset of EU member states want to do something where unanimity cannot be achieved.

The Tax Commissioner, Algirdas Semeta, said:

“in difficult times, fairness matters. And the FTT is the epitome of a fair tax. It will also help to deter the casino-type trading we’ve seen too much of, and re-focus the financial sector more on supporting the real economy.”

The next step is for the Finance Ministers’ meeting (ECOFIN) on 13 November, to agree. It’s still possible that other countries could join in, and there is still scope to improve the measure originally proposed by the Commission in September 2011 (for example to prevent avoidance by adopting the same principle that underpins the UK’s stamp duty on shares).

There’s an excellent summary of what was decided today, and what the next steps are.

Alternatively, it is also still possible for a blocking minority to be mobilised to prevent the coalition of the willing proceeding – but so far governments like the UK seem willing to let the measure go through as long as they don’t have to join (there’s a curiously balanced approach to the issue even in the comments on this dead straight ConHome blog by Iain Anderson.)

The 10 countries which have already written to the Commission indicating that they want to proceed is Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain, including four of the five biggest economies in the EU: no prizes for guessing which one is the odd one out! Estonia, which had been expected to sign up, could well still do so, and unions and campaigners will be lobbying several other governments to join in.

Not surprisingly, the Robin Hood Tax campaign are delighted.

The Conservative rejection of Europe will only backfire in their faces

by Owen Tudor     October 15, 2012 at 9:16 am

Conservative voices calling for UK membership of the EU to be reviewed, with Michael Gove and Philip Hammond joining the chorus, is almost certainly very bad politics for the Conservatives – it will keep the party split over Europe open and festering.

But it’s also very bad news for British workers, too, if those who want to restructure the relationship between Britain and the EU get their allegedly middle way.

The party politics is clear. Labour needs to steer well clear of this spat, although the Liberal Democrats could use the issue to rebuild some of their deservedly lost political capital by being the grown up part of the coalition.

But for Tories able to think just two or three moves ahead, this is a slow motion car crash in action. The Conservative debate is being played out between outright and ‘moderate’ scepticsm, with the Prime Minister dragged along behind them, which is not really what ‘leadership’ traditionally means.

Conservatives are justifiably worried that UKIP, whilst unlikely to secure any MPs, could easily unseat Conservatives in key marginals.

The problems with such strategies for Conservatives are legion. There’s a zero-sum game element to Europe: to move rightwards to shoot UKIP’s fox, the Conservatives have to ditch many things that appeal to centrist voters who thing euro-scepticism is extremism, back the idea of the EU despite its faults, consider the benefits outweigh the costs, or welcome the elements Conservative euro-sceptics dislike such as paid holidays, equal pay, safety at work etc (I’m generalising here about categories that are, of course, not homogenous).

Worse still, Conservative arguments over Europe revive memories about the toxic atmosphere of John Major’s government, paint the Prime Minister as a prisoner of his party, and widen the fault-lines in a coalition that needs to survive until 2015.

But this debate is also bad for workers. Although this year’s TUC Congress voted overwhelmingly against a referendum and withdrawal, it would be a mistake to see this as a knockout blow by europhiliacs or federalists.

Unions are deeply hostile to the austerity being forced on countries like Greece and Ireland, and to the EU fiscal pact that prohibits Keynesian economic policies regardless of whether they get an electoral mandate.

And our concern that the EU is being used to force through reductions in wages, social protection and collective bargaining remain strong. It really might not take much to make unions eurosceptics themselves, although that hasn’t happened in the countries worst affected.

A longer version of this post is here

The IMF finally admits that government austerity depressed our economy

by Owen Tudor     October 10, 2012 at 8:51 am

The IMF’s world growth forecasts issued Monday night were, bizarrely, not front page news in most papers yesterday morning, despite the UK’s growth estimate being cut by more than any other OECD economy bar Italy.

Slashing the growth rates of most industrialised and emerging economies (apart from the USA, where the growth prediction went up, on the assumption that a deal is reached on the budget) is only part of the news though.

Far more revealing is the IMF’s explanation of why the IMF’s growth estimates have been persistently over-optimistic – covered in the report in a two-page box on page 41 co-authored by IMF Chief Economist Olivier Blanchard.

An admission – what follows is really over-simplified, for clarity and brevity – apologies.

The IMF now accepts that for every £1 cut from government spending, the reduction of economic activity as a whole is potentially as much as £1.70 – far higher than the £1:£1 ratio the IMF’s original predictions were based on, and of course in completely the opposite direction that British Government policy is based on: that cuts in Government spending will be more than replaced by increased private sector expenditure (based on the so-called ‘crowding-out hypothesis’.)

So, the IMF is now said to be alarmed that the relentless austerity measures of most of the developed world could lead to weaker and weaker growth even in the emerging economies like Brazil and China. But, bizarrely, this hasn’t stopped the IMF from continuing to support the cuts that Governments like Britain’s are imposing. As former European trade union economist Andrew Watt puts it: “the patient is dying, increase the dosage!”

The argument that changes in Government spending have a greater impact on the economy than 1 is of course central to Keynesianism, and while Keynes is most famous for arguing that increased Government spending creates a ‘multiplier’ of greater than 1 (hence his counter-intuitive allegory involving the state paying workers to bury cash, and letting the private sector dig it up again), cuts in Government expenditure also have a multiplier effect greater than 1. As the IMF now appear to have realised.

Instead of continuing austerity, we urgently need measures to restore growth, because that is the only sustainable (let alone morally acceptable) way to cut deficits.

Another G20 country starts Robinhood tax

by Owen Tudor     August 10, 2012 at 10:00 am

Hard on the heels of the rather limited French extension to taxes on financial transactions, the South Korean government has announced plans to start taxing index options and futures.

Set low (0.01% on options and 0.001% on futures – because margins are so low), the new taxes complement Stamp Duty on share sales of 5%, ten times the level of the UK version.

Extending existing Stamp Duty to derivatives is exavtly what the Robin Hood Tax campaign has been urging on UK politicians and now on the French Government, and although South Korea has a smaller financial market than Europe, it is a significant move because the Asian economic powerhouse is a G20 member state.

Another one bites the dust, and the Robin Hood Tax moves a step closer. When will UK and US politicians feel comfortable with making a move themselves?

France implements Robinhood tax: has the sky fallen in?

by Owen Tudor     August 2, 2012 at 9:10 am

Yesterday, France implemented its own Robin Hood Tax. It is a small start, covering only shares in larger companies, and at 0.2%, it’s still lower than the UK Stamp Duty on which it is modelled.

But it was only ever intended as a step towards a wider, bigger European tax which the French, German and 10 or more other governments will be negotiating this autumn.

And it is proof that such taxes can be introduced without the financial system crashing down around anyone’s ears (much more likely to result from the finance sector’s own incompetence, immorality or illegality!) and without a mass exodus of financiers from the Paris Bourse to London’s Stock Exchange.
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Ed Miliband’s speech set out a new direction for policy on immigration

by Owen Tudor     June 23, 2012 at 4:09 pm

Ed Miliband’s speech about immigration on Friday was much trailed and much commented on, but I suspect it was little read.

So I’ll try to concentrate on what he actually said rather than what everyone thinks he meant by it. It’s one of the hazards of immigration policy: all too often, people search for hidden meanings rather than concentrate on the actual proposals being made.

One of the other odd features of immigration policy is that a lot of the time what affects actual immigration and actual immigrants isn’t immigration policy at all.
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Financiers break ranks to back RobinHood Tax

by Owen Tudor     June 21, 2012 at 12:31 pm

Tomorrow the finance ministers of Europe will gather in Luxemburg to discuss the problems besetting Europe’s economies. It will be a grim meeting.

But at the end of the agenda, like ‘hope’ at the bottom of Pandora’s Box, there is a potential solution to at least some of Europe’s economic woes: the Robin Hood Tax.

So now is a great time for 60 current or former financiers to break ranks with the anti-Robin Hood Tax consensus in the financial sector, and back the financial transactions tax in an open letter published today .

They say:

“As individuals with first-hand knowledge and significant experience in the financial industry, we urge you to introduce small financial transaction taxes (FTTs). These taxes will rebalance financial markets away from a short-term trading mentality that has contributed to instability in our financial markets. They also have the potential to raise significant revenue.”

And while they rightly stress the revenues that can be generated to spend on global public goods – combatting poverty at home and abroad and tackling climate change – the authors are actually more interested in the impacts of a Robin Hood Tax on the markets they know so much about:

“Concerns have been raised that FTTs could damage growth. But a growing body of evidence suggests that by reducing volatility and raising much needed revenue, the overall effect would be positive. Critics have also wrongly associated trading volume with efficiency-enhancing liquidity and failed to sufficiently take into account market resilience and trust that are undermined in a world where very short-term trading dominates the financial system. As many notable economists have observed, a modest transaction tax will actually improve the functioning of markets.”

The letter gives further backing to a tax which is already clearly popular with electorates, as the ITUC’s multi-country opinion poll demonstrated earlier this month, and has the endorsement of a thousand-strong list of economists.

It’s unlikely that we’d ever get a majority of the financial sector to support the Robin Hood Tax (although the unions representing bank workers do, here and globally), but the fact that some people who know the sector inside out back the tax makes it all the more urgent that the EU finance ministers make progress this week.

The IMF now thinks equality is great, but doesn’t prescribe it

by Owen Tudor     June 13, 2012 at 9:01 am

IMF managing director Christine Lagarde delivered a speech yesterday in Washington on “Back to Rio—the Road to a Sustainable Economic Future”, which contained some interesting elements, to say the least.

Strangely, her positive comments about equality never seem to make it into the IMF’s assessments of Government austerity measures (eg her admittedly lukewarm support recently for Britain’s economic policy) or the conditions the IMF places on countries seeking loans.

On this occasion, she cited recent IMF research showing that

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Robin Hood tax: backed by the rich AND the rest, says new poll

by Owen Tudor     May 26, 2012 at 2:36 pm

There’s lots of interesting material in the opinion poll released to mark the launch of the new CLASS think-tank today, and there will no doubt be a lot of further analysis of the resuts.

But I have a special interest in the Robin Hood Tax, so the question which asked whether voters would support or oppose “a tax on financial transactions by investment banks” was particularly interesting.

It’s not surprising that overall, 61% supported the tax (half very strongly) with only 19% against (mostly in the “tend to oppose” category).
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