Tuesday, 25 August 2015


One definition of tax is that it’s the fair dues we all pay to participate in our society – to fund significant projects that benefit us collectively and to provide a safety net for society. Tax is and probably always will be (and probably always has been) a subject that stirs people up. The trick to realising that you have been sold a pup, is to notice, the Party formally known and New Labour and the Conservatives have been hooked on the idea that either by cutting, reducing taxation for the rich (and corporations) or even perhaps by turning a blind eye to tax evasion, avoidance, etc - that wealth will trickle down from the top to the rest of us. 

This theory pumped out by Ronald Reagan (and Mrs T) in the 1980’s is still dominant; it’s not a new theory. US Presidential candidate William Jennings Bryan (in 1896); who noted ‘that if you will only legislate to make the well-to-do prosperous, their prosperity will leak through to those below’. ‘Trickle-down theory’ first appeared in the 1932 US Presidential campaign, when Democrats used it to hammer Republican Herbert Hoover’s plan to engineer economic recovery by making the rich richer.  

Fifty years later even Ronald Reagan’s supporters struggled to sell the idea to their own party, even George Bush (Senior) mocked Reagan’s theories of supply-side economics as ‘voodoo economics’ at least until he got the Vice Presidential slot. On this side of the pond there were monetarists who told Mrs T straight that the idea was nonsense and that it would not deliver results  - naturally she did not listen.

Reagan’s first budget brought in a moderate reduction in the basic tax rate, this was followed by the a drastic reduction of the top tax rate from 70 to 50 percent and later still to 28 percent. If the theory was correct then, the public coffers should have swelled with enough extra revenue to balance the budget within one to two years. Unfortunately, the theory was incorrect, within the eight years of Reagan’s Presidency the total Federal deficit soared from around $900 million to some $3 trillion dollars.

What followed has been described as an orgy of speculation in stocks, shares and real estate (this was the era of ‘Greed is good’), ordinary Americans stopped saving and started spending. Through the 1980’s there was a near continuous decline in long-term capital investment – on which economic growth and jobs were dependent.  To make matters worse the USA went into recession and the Federal Reserve had to raise interest rates to hold down the inflationary consequence of the tax cuts, by 1981/82 unemployment in the USA rose about 10% for the first time since the aftermath of the great depression in the 1930’s.

The gulf between the wealthy elite and the rest of the population became a chasm, the rich got richer and parallels have been drawn between the 1980’s and the Gilded Age of the 1870’s (income tax was abolished in the US and was only reintroduced during the First World War).  The 1980’s for the mega rich in the USA was an era of conspicuous consumption and extravagance – yet oddly enough very little of this prosperity tricked down to the American middle and working classes.

Average US family incomes did not return to the level they were at in the 1970’s until 1987 – wile this may have sounded good, the harsh economic reality was that Americans were now working harder and longer – in 1973 an average American worker had 26.2 hours of leisure time per week, by 1987 this was down to 16.6 hours per week. Jobs were also now less secure, Americans now worked on short-term of temporary contracts in increasingly un-unionised working environments. For blue-collar workers the 1980’s were a disaster, wages fell through the decade as employers threatened to move production overseas because the workers had priced themselves out of employment.

The right wing, in the US and here in the UK crowed about how government should not interfere with (or regulate very much) the ‘free market’.  This hands off attitude was also duly applied to the US savings and loan industry, laying the groundwork for the collapse that was to follow in 2007. The only exception being that if things went really pear shaped then it was expected that Government would collect the tab. One side effect of all this was fraud, 650 savings and loan companies collapsed, with the $1.4 trillion dollar tab being picked up by the US government.

On this side of the pond, building society after building society were floated on the stock market – and within a few years were readily absorbed by increasingly greedy banks.  In the US, exploitative working practices and sweatshops reappeared encouraged by the effective withdrawal of regulation and inspection. The 1980’s also saw the growth of increasingly powerful media empires and a concentration of power in fewer and fewer hands despite much reputed mantras from government about greater competition and choice for consumers.

We are all still living with the consequences of that period in the 1980’s when an ideologically driven obsession with the ‘free market’ and ‘privatisation’. Heaven help anyone who dare question these sacred truths – the very heavens may fall. The problem is that the market was rather than being ‘free’ it was pretty much increasingly unregulated as Governments in the USA and the UK largely looked the other way – tax collections fell and ironically tax evasion soared.

This state of affairs was tolerated by the long time dying Major Government and largely encouraged by the former New Labour governments of Tony Blair and Gordon Brown and barely mentioned by the former Con Dem government. Even the crash has not changed things - there was some talk about tacking tax evasion matched by continuing (significant) staff cuts to HMRC.

It is interesting because tax evasion and tax avoidance, at least outside of the UK, is rarely out of the headlines with many heavily indebted governments being particularly keen to hunt down every tax dollar / euro / pound that is owed by tax evaders avoiding (unlike the rest of us) paying their fair dues to society. The Westminster elite privately at least regardless of whatever they say publically, appear to pay scant respect to the idea of fair taxation and fair representation, we now appear to be as close as possible to being governed by the sons of bankers and the sons of the City in the interests of the City (of London).

The big problem is that the UK Government is in up to its neck when it comes to tax evasion. The UK Westminster is heavily involved in aiding and abetting tax evasion worldwide. British Overseas territories, including the Cayman Islands, help to hide around trillions from pounds from the different nation’s tax authorities.

In the belly of the Westminster beast lies the City, which may explain why the former New Labour government, the former Con Dem coalition government and the current now unrestrained Conservative government (were and) remain reluctant to do anything about the problem as some (but not all) of the city banks are hand in glove with drug dealers, dictators, rogue states and terrorists when it comes to money laundering . The inertia may be explained by the lure of comfy lucrative seats on the board for former Westminster politicians.

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