Tax avoidance by the obscenely wealthy

[Tamas]

Grumbler is a poor choice for a last straw, B. 

Listen to the man.  At least choose someone who engages in ad homs or strawman arguments, or red herrings as your last straw.

That's not what I meant and you know it. 

[Eddie Teach]

First Rule of Languish: When you find yourself debating Grumbler, stop.

[PDH]

First Rule of Languish: When you find yourself debating Grumbler, stop.

That's not what a Michigan Man would say.

[grumbler]

First Rule of Languish: When you find yourself debating Grumbler, stop.

That's certainly true if you are debating an issue and taking the position with inferior evidence. 

[Sheilbh]

I think taxing wealth is necessary now because inequality that concerns me and I think is reaching socially dangerous levels is around wealth not income. I don't really think there's a significant difference between wealth or inheritance tax on this because these structures exist to avoid all sorts of tax - you'd still need to work out the corporate structure around someone's wealth to tax it in their life as to tax it after they died. But I also think taxing wealth would have very positive side effects such as increased transparency and crack-downs on tax havens and highly engineered multi-jurisdictional coroporate structures to hold investments.

I think at the minute the IMF estimate is that 10% of the world's wealth is hidden in tax havens - but we don't know. Trillions of dollars every year flow from the world's poorest countries to the world's richest because we have created this entire artificials world of South Dakotan Trusts and Scottish Limited Partnerships and Cypriot holding companies for our own rich, but I think it fuels a morally outrageous level of theft globally. I don't entirely think we can just sit there teling Nigeria or Ukraine to be less corrupt when it's very well paid British, Dutch, American etc lawyers who've created the global infrastructure for corruption. It wouldn't end corruption but it would certainly increase the risk if they had to rely on off-shore accounts in less reputable/rule-of-law focused jurisdictions which would be a start.

I think a lot of the transparency and controls necessary for a wealth tax would also be very helpful in exposing that and beginning to tackle it.

[Josquius]

Even on income things are becoming grossly skewed.
Its all very logical how it has ended up this way.
Once upon a time you needed 100,000 workers to produce the needed number of widgets in your factory. Now you only need 5,000 to produce the same amount. Sure those workers are paid 2-3 times as much. And you've probably passed on some of the savings to the consumer. But there's a lot of money flowing into the hands of the owner that historically wouldn't have been.
Meanwhile that 95,000 people he would otherwise have been employing are out of work.

Money makes money of course. This builds up exponentially over time. There needs to be a look at wealth too. But even on income things need fixing. And its definitely an international problem. Without international cooperation the old fallacy of  "all the rich will just move if you tax them!" gains a kernal of truth, albeit its their assets rather than they themselves.

The trouble is I don't see how to get international cooperation on this. The countries profiting from it have a vested interest in keeping things so. Britain in particular seems keen on a  new pirate nation status.

[The Minsky Moment]

Even on income things are becoming grossly skewed.
Its all very logical how it has ended up this way.
Once upon a time you needed 100,000 workers to produce the needed number of widgets in your factory. Now you only need 5,000 to produce the same amount. Sure those workers are paid 2-3 times as much. And you've probably passed on some of the savings to the consumer. But there's a lot of money flowing into the hands of the owner that historically wouldn't have been.
Meanwhile that 95,000 people he would otherwise have been employing are out of work.

If that logical story were true, then most of the increase in capital share of income would be seen in manufacturing sectors that are rapidly automating; that is not really true in the US. you would also expect to see increasing levels of productivity; the opposite is true.

About 1/3 of the increase in the US occurred in real estate and extractive industries. Those industries exhibited "supercycles" during the relevant period - basically owners were able to take advantage of quick spurts in the prices of the commodity.  Another big contribution came from wholesale and retail services, transportation and services and communications - these were all sectors that experienced high levels of industry consolidation (mergers) - an example of old-fashioned oligopoly power in action.

[alfred russel]

Tyr, I don't know that businesses are especially profitable compared to what they have been historically.

But a change that has happened is that the world is far more stable and that people have less children. It used to be that major wars or other upheaval came along to reset everyone to zero relatively frequently. For those few places lucky enough to escape that, if all the wealthy people have 10 kids starting at age 20, it doesn't take long for the inheritances to get whittled away to nothing.

Now it is really rare that a developed country goes through major upheaval, and with globalization that doesn't even necessarily upend the wealthier parts of society (most of the super wealthy in venezuela had wealth parked offshore). And then if you only have 2 kids starting at age 30-35, inheritances don't get diluted away but returns on investments can keep accumulating.

[Sheilbh]

The trouble is I don't see how to get international cooperation on this. The countries profiting from it have a vested interest in keeping things so. Britain in particular seems keen on a  new pirate nation status.

British company law is pretty good - we're just incredibly bad at enforcement of white collar crime. I think part of it is just laziness because it's complicated and expensive so one or two big failures - like the collapse of the SFO's Jubilee line corruption case have a big impact. It cost tens of millions of pounds but unlike normal criminals these guys have the resources to hire lots of very good lawyers so it kind of needs to be perfect. I think we sort of need some form of almost an FBI whose job is to investigate white collar and serious crimes (like organised crime or terrorism) on a national basis. At the minute I think it's dispersed to each police force but the Met provides support.

But an anti-corruption campaigner has said the ideal situation would be British style company law (which is very transparent and publicly available) with American style enforcement - the FBI and the SEC prosecute far more aggressively and successfully than we do in the UK and, anecdotally, I've heard similar complaints about other European police forces.

British lawyers help engineer it - and there are these British outposts (which we don't actually run) like the BVI or Cayman who basically get their tax and corporate laws written by American and British lawyers for the advantage of their clients. But our domestic law is pretty good in theory, just very under-enforced.

Money makes money of course. This builds up exponentially over time. There needs to be a look at wealth too. But even on income things need fixing. And its definitely an international problem. Without international cooperation the old fallacy of  "all the rich will just move if you tax them!" gains a kernal of truth, albeit its their assets rather than they themselves.

Yeah - the money absolutely does just move anywhere. But I think on a national level income inequality is less extreme than wealth and I think it's growing less quickly - plus I have less of an issue with someone earning lots of money (as long as they pay their taxes) than accruing enormous wealth which becomes generational.

[The Minsky Moment]

Tyr, I don't know that businesses are especially profitable compared to what they have been historically.

They aren't, at least in the US.
That doesn't quite tell the whole story because there can be distributional impacts from things like generating the same gross proportion of profits from increased leverage or from the fact that reported gross profit levels may be suppressed by changes in industry composition, among others.

Also, always need to keep in mind Pikettys finding that increases in the inequality of distribution within wage and salary income is as significant a contributor to overall widening inequalities as increases in capital share of income vs labor share.

[Josquius]

If that logical story were true, then most of the increase in capital share of income would be seen in manufacturing sectors that are rapidly automating; that is not really true in the US. you would also expect to see increasing levels of productivity; the opposite is true.

About 1/3 of the increase in the US occurred in real estate and extractive industries. Those industries exhibited "supercycles" during the relevant period - basically owners were able to take advantage of quick spurts in the prices of the commodity.  Another big contribution came from wholesale and retail services, transportation and services and communications - these were all sectors that experienced high levels of industry consolidation (mergers) - an example of old-fashioned oligopoly power in action.

It was a simplification of the complexities of the global economy. You're over thinking it a bit there.
The point is the number of workers required is dropping, thus decreasing the chunk of the pie going to workers, whilst business people are pocketing more of the profits.
Even from the business POV this is a dangerous precedent as it cuts down on the number of consumers available.

[alfred russel]

The point is the number of workers required is dropping,

I don't think this is true: total employment is higher than ever (cheating a bit since population is higher than ever), and while I can't speak to global unemployment rates in the US they were near all time lows pre pandemic. Real wages are also up and global poverty rates down.

[Josquius]

The point is the number of workers required is dropping,

I don't think this is true: total employment is higher than ever (cheating a bit since population is higher than ever), and while I can't speak to global unemployment rates in the US they were near all time lows pre pandemic. Real wages are also up and global poverty rates down.

The correlation between official employment rates and actual employment rate has completely fallen out of sync since 2008.
Under employment, zero hours contracts, etc... are a huge problem.

[The Minsky Moment]

The period from roughly 1950-1973 was one of decreasing income and wealth inequality in the OECD nations.  It was also a period of high productivity increases and automation. Ever since the industrial revolution got going it has *always* been the case over time the number of workers needed to produce X goods goes down.