There's only one way to pay for current government spending habits.
By PINCHAS LANDAUglobal agenda 88(photo credit: )
'Let me tell you how it will be, There's one for you, nineteen for me, 'Cos I'm the Taxman, Yeah, I'm the Taxman.
"Should five per cent appear too small, Be thankful I don't take it all… ("Taxman," The Beatles, 1966)"
Many of today's prosperous young professionals are unaware that in the mid-1960s - as the Beatles bitterly noted - the cumulative marginal rate of income tax in the UK reached 95% (and even 98% in some cases). Indeed, not only are they unaware, in many cases they are openly disbelieving that such a state of affairs could ever have existed.
But it did, as the Beatles quickly found out after they became stars, triggering George's protest song. A response of a different sort was that of one of the flamboyant Anglo-Jewish millionaires of the period, who was wont to tip doormen and other flunkies with a pound note and the comment "that's worth a shilling to me".
On second thoughts, however, just explaining that anecdote to younger people (a. in those days, a pound was still a note; b. it went a long way; c. a shilling was one-twentieth of a pound) requires more effort than its illustrative value… The point is that although shillings are gone and the shrunken pound is now mere loose change, high taxation is about to return, all over the developed world.
Among economists there is no real argument on that point, although there is certainly intense debate as to the desirability of this trend, how far it can be allowed to go and which kind of taxes should be preferred. But the basic fact is that, given the massive obligations that Western governments have assumed in the course of the financial and economic crisis, and especially since the Lehman collapse and AIG rescue last September, the bill is going to have to be presented to taxpayers. Given its magnitude, this bill will have to be paid off gradually, over many years, via higher taxes. The consequent burden on economies will result in higher interest rates (when the crisis period ends), lower investment and lower growth - leading to a very slow rise in countries' standards of living.
All this is baked in the cake, as far as economists are concerned - but that doesn't mean that politicians have accepted these new realities, let alone that they are prepared to spell them out to voters. Yet in the new, post-crash, world it seems likely that voters are now better aware of the unfairness of life, and in particular that debts must be repaid and cannot for ever be increased.
Being thus enlightened, they know - or at least strongly suspect - that they will have to pay for bailing out the banking systems of numerous countries (notably the US and UK), supporting bankrupt companies and industries (almost everywhere) and keeping people in fictitious and/or artificial employment (notably in Germany and Japan). Even those who currently grudgingly accept the necessity for these measures may change their views in five, ten and more years time, as the repayment of the loans taken by government, whether from their own citizens or foreign investors, drags onerously on.
What the social and political fall-out will be when voters, taxpayers and citizens vent their growing anger and frustration over this burden, will surely prove to be the main theme of developed-world politics in the coming decade.
A trailer for that blockbuster epic is on show already, in a growing number of American states - led, as ever, by California. Bankruptcy now stares these states in the face and their response is, as it must be, to make wide-ranging and very painful cuts in their spending - as well as raising whatever taxes (sales, property, etc) they are authorized to levy. Note, however, that borrowing more is no longer an option - the price has become exorbitant and, in the new environment, most banks and investors simply won't lend to them at any price. Printing money is also not an option to American states, nor to member-states of the EU - they do not control the printing presses. But even the US, UK and countries that have a theoretical option to inflate their way out of debt won't be able to use it should they want to, because it is too transparent and the markets will prevent them. So the buck will stop with taxpayers, who will find themselves with a decreasing share of the fruits of their labors and very little they can do about it.
landaup@netvision.net.il
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