Sunday 15 December 2019

James Downey: No more patchwork -- we need equitable tax system

THE founding fathers of the United States had strong opinions on taxation. Their revolution began with the slogan "no taxation without representation". After independence, they argued about how much tax should be raised and how it should be spent.

Thomas Jefferson defended raising revenue to pay for education in his own colourful style: "(The imposition) is not more than the thousandth part of what would be paid to kings, priests and nobles who will rise up among us if we leave the people in ignorance."

Jefferson's heirs did not need to worry about kings and priests.

But the "nobles" of the 18th century have their equivalents today on the right wing of the Republican Party, and the followers of the Tea Party, including Sarah Palin and Michele Bachmann, profit from the general ignorance on economic matters.

Like Europe, the US is drowning in a sea of debt. Everybody knows one simple fact: the government deficit must be reduced.

Just as in Ireland, that means tax increases and spending cuts. There is still time for US President Barack Obama and the Republicans in Congress to agree on these before next Tuesday's deadline and avoid the unthinkable, an American default.

But the Republicans passionately oppose higher taxes, particularly higher taxes for the rich. Their position is compounded of ideology, ignorance (again) and what looks to me like hypocrisy.

They seek to persuade the American public that the rich are already over-taxed.

The reality is that the tax cuts for the highest earners under Republican administrations have contributed heavily to the budget deficit. Meanwhile, the living standards of the middle classes have fallen. Obama's election as president owed a great deal to middle-class discontent.

Maybe they -- and all of us -- will get lucky. Maybe something will be patched up by Tuesday. But even if they reach a compromise, great damage has been done to the American economy and the world economy and the "something" will be no more than patchwork.

That strikes me as an eerie echo of the EU's patched-up "solution" to the Greek crisis. Nobody can imagine that the special arrangements for Greece mark anything more than another turn of the wheel. There will be many more turns -- and more radical turns -- before Europe gets on to an even keel. Or the US. Or Ireland.

We can see similar patchwork in operation here. It's largely forgivable, because the Fine Gael-Labour coalition has had to struggle so desperately to raise revenue while at the same time trying to satisfy our EU-IMF masters and prevent the economy from hitting a brick wall.

What isn't forgivable is that the measures proposed or in train are too timid, not part of any clear programme and in some cases contradictory.

For example, Finance Minister Michael Noonan wants us to spend more. The plea has a respectable history. In 1931, John Maynard Keynes urged "patriotic housewives" in Britain to rush to the shops. But at the same time a campaign has been mounted to get people to buy more government savings bonds and certificates.

It's too soon to tell if the unambitious "jobs' initiative" is having any effect. In fairness, it makes sense to cut VAT and forgo some revenue if the move brings price cuts and stimulates employment. Any benefit, though, will be marginal at best.

And every government has to recall the famous quote from Jean-Baptiste Colbert, French finance minister under Louis XIV a century before Thomas Jefferson.

Colbert said: "The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the least possible amount of hissing."

Unlike Jefferson, Colbert had plenty of trouble with "kings. priests and nobles". His own king's extravagance almost bankrupted France. The clergy and nobility had privileges which came close to rivalling those enjoyed by Irish bankers and property developers in our own time. Any attempt to disturb them produced deafening hisses.

In the case of the €100 property tax, the loud hissing has come from a different quarter. It amused me to hear it from Richard Boyd Barrett.

RBB polled 6,206 first-preference votes, and a total of 10,794 after transfers, in Dun Laoghaire, the second richest constituency in the country, at the general election. I very much doubt if many of the 10,794 will have difficulty forking out €100 a year. But it's still unfair.

Someone with a house valued at €200,000 at current prices (if you could find one in Dun Laoghaire) will have to pay Environment Minister Phil Hogan's €2 a week. Someone with a house worth €2m (there are plenty of these) will pay the same. RBB had a point when he likened the charge to a poll tax.

Of course, we all know that in a couple of years the charge will morph into a genuine property tax based on site value -- and possibly 10 times higher, at the top rate, than Big Phil's €2 a week. That's nothing to hiss about. Almost anybody with a house worth €2m can afford to pay €1,000 a year. By the same token, such a person can afford to pay the extra taxes which will be loaded on to us in December, and December next year, and the one after that.

But it's still money taken out of the economy. And some of us have long memories. We remember the consequences of taking too much money out of the economy at the wrong time -- and putting too much in.

It goes back a long way. The abolition of domestic rates began the undermining of our tax base. Worse would follow as the developers' exemptions sowed the seeds of the crash.

But there's no point in hissing at what's left of Fianna Fail. People will hiss instead at the Government which does the painful plucking. Michael Noonan and his colleagues will just have to get on with it. Is there any chance that they can seize the moment and do more? That they can lay the foundations for a rational and equitable -- and readily understood -- taxation system which will serve us in both good times and bad? Jefferson and Colbert would have approved.

Irish Independent

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