On Taxes, and Unfairness

Today we have some wonderful examples of tax plans that are grossly unfair. Let’s take Cyprus first.

Bank accounts are going to have a percentage of their balances removed by the state. This is part of a deal demanded by the Eurozone bankers, in particular Germany and Angela Merkel, who does not want to be seen as letting the Cypriots get away with paying for BMW’s and Mercedes with bad loans.

Russia is furious: a lot of money in Cyprus is of Russian origin, some of it claimed to be money laundering, some of it tax evasion. Very large accounts are held by very powerful people. This means problems between Russia and the Eurozone.

In addition, there are runs on Cypriot banks. People will start using mattresses again, and home invasions could go up as a result.

Net Net in Cyprus: those who save, shall be punished. Those who borrowed, shall be bailed out by those who saved.

Second wonderful example: paying for transit improvements in Toronto, Canada. The Toronto Board of Trade has claimed that gridlock costs businesses billions of dollars a year in the Greater Toronto Area (GTA). So, they want gridlock fixed, or to put it another way, improvements to public transport, roads, et cetera.

How do these businesses suggest this get paid for? by taxes, not on the businesses that will benefit, but on the workers who will increase their profits. The suggestions include a regional sales tax (on consumers, eh?), a parking space levy (on drivers, as the parking lot will clearly pass this one along, eh?), a regional vehicle fuel tax, and high occupancy tolls. The latter would allow a vehicle not highly occupied to use the HOV lane, for a price.

The (Greater) Toronto (Area) Board of Trade (which just renamed itself as per the parentheses) thinks these are great ideas, since they won’t have to pay for them.

I am reminded of other suggestions that might have changed the financial meltdown:

  • a very small tax on very large currency movements. This idea was killed without a trial; those moving large amounts of cash, as noted above, are influential.
  • preventing banks from gambling with other people’s money.
  • improving real credit ratings by rating agencies.
  • making banks that make bad risks pay the price, not their depositors.

Instead, we are in the throes of austerity programs that are, clearly, making the crisis worse.

Meanwhile the United States Federal Reserve is doing ‘quantative easing.’ This means, the government prints bonds, the Fed prints money, and buys the bonds. This is clearly inflationary.

Inflation is an indirect tax on those who hold cash or equivalent. In short, it is a tax on savings accounts. Cyprus, anyone?

The Fed is also buying up really bad mortgages held in mortgage backed securities. The issuing of these mortgages, their repackaging into securities, and then into ever more complex derivatives, was a big factor in the collapse. So who pays? first, the mortgagees lose their homes. Then, belatedly, the government bails out … not those told to borrow, but those who lent without proper due diligence. The government gets the money to do this in one of several ways:

  • quantitative easing or equivalent, i.e. print money, a tax on all cash equivalents
  • cutting benefits, preferentially to the disadvantaged: health, welfare, education
  • raising taxes. Note that raising taxes for the rich is extremely hard to do in the USA.

Unfair. Comments, anyone?

One thing I forgot to add. At one point in the non-recovery from the financial crisis, it was pointed out that corporations in Canada and in the USA were sitting on billions of dollars of cash, which, if invested, would create jobs and end the recession. It was then suggested that cash held by corporations be taxed at a very small, but incentive rate. The idea was to make cash invested in modest returns more attractive than idle case. Notice that the idea of taxing cash held by hugely profitable corporations was anathema, but taxing cash held by all Cypriot bank users is supposed to be OK. Double standard, anyone?


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