by Philip Soos
reposted from The Guardian
When we hear talk about taxation, it is naturally assumed to refer to those taxes which are levied by the government. After all, no individual or business can charge anyone else a tax, right?
From the 1980s onwards in the neoliberal era, there has been an effort by policymakers globally, including Australia, to reduce both the total public tax take and marginal tax rates. The standard arguments revolve around promoting economic growth and investment, and reducing disincentives to work.
The debate in Australia is curious given what is not discussed: private taxes. These are sanctioned by government policy (implicitly or explicitly) and levied by market participants upon others. Private taxes come in three forms: intellectual property rights (IPRs), rising asset prices and negative externalities. Unlike public taxes, they are not labelled as taxes, even though they have the same economic welfare effects.
The monopolistic pricing of IPRs acts as a very narrowly-based consumption tax with higher deadweight losses than general consumption taxes (a bad GST/VAT). One of the ironies of the modern economy is that while neoliberal policy has reduced tariffs to minimal levels, it has strengthened IPRs which often results in “tax like” mark-ups into the thousands of per cent above marginal cost.
Today, IPRs saturate every corner of modern economies, reaping monopolistic profits. A major element of so-called free trade agreements, for instance the TPP, will act to enforce these highly protectionist measures worldwide.
Rising asset prices, especially those that inflate well above economic fundamentals, impose a form of private tax on new buyers. In Australia, the obvious example is that of housing prices, which have ballooned over the last two decades. First home buyers must fork out an increasing amount of household income to service mortgages and expenses or miss out, which has the same effect as if homes had simply been taxed.
If appropriate housing-related policies pertaining to debt, tax and planning had been implemented, the housing price inflation may have been avoided, hence keeping purchase costs down. Germany is a rare example of this in the OECD.
Negative externalities result from economic activity which imposes costs onto third parties which they cannot avoid; again like a tax. These effects are widespread and becoming more obvious, especially given climate change, poisoning of the oceans, resource depletion, pollution, and widespread financial sector meltdowns.
One study placed uncorrected negative externalities at 34% of US GDP in 1994. A more recent estimate is a whopping $US7.3tn or 13% of global GDP in 2009. A 1998 report demonstrated the total social cost of a gallon of gas was between $US5.60 and $US15.14, rather than the then market price of $US1. Many industries would not be viable if not for externalising costs; industry profits are often maintained by this perverse dynamic.
Former prime minister, Tony Abbott, had denounced the Labor government’s carbon tax as a “great big tax on everything”. This is false. Carbon emissions result in pollution and climate change; enormous negative externalities imposed upon individuals and the environment. The effect of the carbon tax was to convert a portion of the already existing inefficient private tax into an efficient public tax; hence it was not a new tax.
While progressive parties such as the Greens are typically associated with advocating high public taxes, they could be potentially imposing the lowest total tax take given their economic policies, some of which reduce private taxes. For instance, they seek to mitigate negative externalities by taking action on pollution and climate change, lower land prices via modifying housing tax expenditures and limit the concentration of IPRs.
In contrast, the neoliberal Liberal National party is openly hostile to policies which reduce private taxation. They oppose measures to deal with climate change, to lower dwelling prices or to mitigate the growing monopolisation inherent in IPRs.
Although the wealthiest households and businesses pay the majority of public taxes, they are also the largest recipients of private taxes. While national accounts often provide estimates of public taxes down to the dollar, this is unfortunately not the case with private taxes. This grey area is a gift to its beneficiaries. Given the sum of public and private taxes, it is possible the wealthy pay no net tax while the middle class and poor face significant net tax burdens as a result of the widespread imposition of private taxes.
When neoliberal proponents promote support for lower taxes, they only ever refer to public, not private, taxes. Neoliberals have misled the public into supporting the reduction of public taxes while massively increasing private taxation in its three forms by stealth, without nominating it as taxation.
In Australia, the greatest economic threats to our welfare come from climate change and the housing bubble; direct consequences of allowing runaway private taxation. Nationwide, aggregate private taxation could well measure into the several hundreds of billions of dollars given the suggestions from the aforementioned reports on external costs, revenue from IPR-dependent industries and inflating land prices.
Solutions are readily available to us; the trick is to convert inefficient private taxes into efficient public taxes. Doing so would allow for the removal of many inefficient public taxes which penalise competitive, productive labour and enterprise. The Ken Henry Tax Review estimated Australia has 419 tax and tax-like fees!
Inflating asset prices can be reduced via hefty capital gains, land value and Tobin taxes while extensive “Pigovian taxes” mitigate negative externalities. For IPRs, there has been much discussion in recent years into alternative mechanisms for funding R&D and creative arts without resorting to monopolistic pricing.
The neoliberal tax agenda should be exposed for what it really advocates: big, regressive and inefficient private taxes that benefit the wealthy to the detriment of the public. Whenever calls are issued for reducing taxes, typically from the corporate sector and ideologically-aligned think tanks, we should agree – but with a twist – reducing and removing inefficient and regressive private taxes should be at the top of the agenda.