Do we need Public Service Cuts?

[mintogrubb.livejournal.com]

In the Uk, we call CEOs 'Company Directors' - but the fact is , they still earn far more than the people at the bottom of the pay scale. i forget where i read it, to be honest, but I'm pretty sure that they used to earn about 20- 30 times as much as the people on the bottom a few decades back - but now in the UK, they earn almost 100 times as much as the poorest workers do.

the rich are getting richer and the poor are getting poorer. The problems happen when people like 'Fred the shred' take out loads of midddle layer people and pocket the difference. It isn't that the organisation got better, it's just that the workload for middle layer managers increased, and there was less payout on wages and salaries.

And for this, Fred gives himself a bonus.

now the Cameron government is in on the act. The "Big Society" simply means that one guy gets paid a few grand a year to mow the grass on the village playing field. the government fire him and get some other guy to do it on a voluntary basis, and the other guy goes on Welfare.

So, instead of paying a bit of income tax, he is now picking up taxpayers money instead - but the government is still saving money on one side of the balance sheet and not telling us the rest.

What ought to be happening is a big investment to keep people in work - useful, community based services instead of the arms industry, for sure, but paid employment trumps a welfare payout, right?

And this could be afforded if we closed the tax loopholes. The fact is that if you live in the UK, you can simply sign everything over to your wife, have yourself be paid a salary by a limited company that she owns, and stuff all the excess money into an off shore tax haven, where it collects minimum taxes and you can pick it up and take it with you when you choose to retire. I kid you not, this really happens.

A system whereby CEOs could only earn 10 times what their lowest paid worker earns would handle the wealth distribution problem better than taxing the rich directly- yes, let the bankers have a hundred grand in salaries and a big bonus besides - so long as the workers who make it happen share the wealth and get at least 10% of what the fat cats earn.

And why not close the tax loopholes too? Rather than closing schools and hospitals that serve the whole community, we should be closing tax loopholes that only serve the very rich. rather than putting people out of work, we should be putting our house in order and having a more equal pay scale, with less of a gap between the top and bottom earners in our society.

We are not all in this together - some of us are going first class and the rest of us are travelling in steerage.

Comments

[johnny9fingers.livejournal.com]

I quote from last week's 'Private Eye'.

TAX HAVEN BRITAIN

Applying the breaks

"I WANT Britain to be the place international
businesses go to, not leave." So said George
Osborne as he ushered in changes that make the
United Kingdom the world's largest tax haven.

Osborne's corporate tax changes -
choreographed with advertising company WPP's
announcement that its HQ would return from
Dublin - may attract companies" head offices, but
these produce little in the way of jobs or tax.

The lowering of corporation tax to 23 percent
may have been completely unnecessary, but at
least it's up-front. Osborne's offshore tax changes
are much sneakier breaks that will far exceed the
couple ot billion they are officially slated to cost.

The giveaways, first highlighted in Eye 1277,
include a tax exemption for UK companies' tax
haven branches and what Osborne called the
"ultra-competitive 5.75 percent rated on overseas
financing income", to achieve which multination-
als will have to set up offshore finance companies
a la Vodafone. So much for the "end to tax
havens" promised by the G20 two years ago and
the promise Osbome made to "target... offshore
tax havens". The new micro-tax rate beats even
what the Swiss offer (around 6 percent) for profits
earned by a multinational lending money to other
parts of its empire.

• Osborne's tax changes firmly stuck two fingers
up to the world's poorest economies, meanwhile.
Since Nigel Lawson introduced them in 1984, tax
laws have presumed that when a British
multinational dumps profits in a tax haven
subsidiary company they will still be taxed. Now
Osborne has announced that if the profits are
diverted from a country other than Britain the
taxman will no longer touch them. This removes a
compelling deterrent to British companies
siphoning off profits from the poorest countries.

The development NGO ActionAid estimates
this could cost the developing world up to £4bn a
year. If it does, Osborne will have taken back with
one hand more than half what the Department for
International Development (which was not
consulted) dishes out in aid with the other.

• Last year's coalition agreement promised to
follow the ami-tax avoidance policies pledged by
Vince Cable. This Osbome has technically done
by unveiling an "avoidance strategy", closing a
few loopholes and sending some eminent tax
brains away to look at a "general anti-avoidance
rule" - but for the biggest multinationals there will
be no need to go hunting for loopholes, as
Osborne has enshrined in law the results that tax
consultants long schemed away to create.

They won't be short of work, though. The
other coalition promise was to review.how
"non-domiciled" people are taxed. The hint at a
clampdown has turned into the major concession
that non-doms' offshore income won't be taxed
even when brought into the UK, with the vague
condition that this is "for the purpose of
commercial investment in UK business".
Kerching! could be heard across the City when the
beancounters and lawyers saw that invitation to
invent w heezes for rich clients to get their hands
on some offshore readies.

What a complete fucking shower.

[lai-choi-san.livejournal.com]

A system whereby CEOs could only earn 10 times what their lowest paid worker earns would handle the wealth distribution problem better than taxing the rich directly.
In France, Jean-Luc Mélenchon (Left Party) shares the same approach as you, the only difference being that he calls for a maximum salary twenty times the minimum wage.

[il-mio-gufo.livejournal.com]

wow! that's quite a financial ceiling, isn't it?

[lai-choi-san.livejournal.com]

Yes, it remains comfortable and yet CEOs earning the equivalent of 770 (or more) minimum wages a year would call it a financial floor.

[il-mio-gufo.livejournal.com]

and i'm sure they call it so without even a wince of shame. what puzzles me is what the highest salary must have looked like before the agreement of a maximum salary.

[policraticus.livejournal.com]

I'm with you on closing tax loopholes. I can't speak to the UK, but in the US too much of our tax code is used to tinker with the market. Flattening and lowering the tax rate would be a good thing, but I'm not holding my breath.

Why do you think capping CEO salaries would necessarily benefit workers? Don't you think people who work at gardeners or cooks in these CEO's houses, or the builders and designers who construct them for that matter, will lose their jobs?

In NJ a few years ago we targeted the luxury yachts that are often owned by millionaire fat cat capitalists with a hefty tax that was supposed to help us close the budget deficit. The problem was that the tax destroyed the jobs of hundreds of people. Rich people just stopped buying new yachts and "suffered" with last years model. The local yacht builder in our area laid off most of its workers and the town in which it is based was plunged into a recession as suppliers and restaurants and other shops had to make due with a poorer clientele. The tax was repealed, and luckily the builder was able to survive, but the town is still not what it once was.

[mintogrubb.livejournal.com]

Why do you think capping CEO salaries would necessarily benefit workers?
I am not actually capping them - they can earn however much they like - so long as the benefits get passed on at a meaningful level to the lower echelons of the society that all work to produce the goods and services.

As far as 'tax the rich' goes, then I am against it. As you say, taxing luxury yachts and cars simply dries up the market.
Just let the rich people have as much as they want, but like we make it law that we never allow kids to skip school to go work in the fields, we also make it law that we tie the level of pay at the bottom to the level of pay at the top. that way, if rich people want to earn more money, they have got to pay their workers first.

[policraticus.livejournal.com]

that all work to produce the goods and services

Are you implying that CEO's, or other business owners, don't work?

Economic ignorance -- popular can also be wrong

[montecristo.livejournal.com]

So, instead of paying a bit of income tax, he is now picking up taxpayers money instead - but the government is still saving money on one side of the balance sheet and not telling us the rest.

The idea that a government worker "pays" taxes is symptomatic of the economic ignorance underlying "government services" in the first place. The hypothetical lawn guy is paid by the government in the first place. His entire wage is a net tax payout. Having this person "pay" taxes has the same effect, for him, as cutting his wages, but from the government's position, taxing him adds yet more bureaucracy and overhead to manage the tax accounting for the lawn guy.

No matter how you slice it, the lawn guy is a net tax consumer. He will never be a net tax payer in any sense other than someone's economic fantasies.

Economies are not closed systems, little mercantilist.

[squidb0i.livejournal.com]

Labor is turned into profit.
Finished goods exceed the sum of the value of their components.

Every time money is spent between people for goods or services, regardless of its source, it creates additional wealth for whomever is turning a profit in the deal.

And those taxes paid in your example are no less real: ask those paying them.
Tell them how their taxes are fake. I'd wager you'd get at least a dirty look if not a punch in the nuts.

Re: Economies are not closed systems, little mercantilist.

[montecristo.livejournal.com]

Tsk tsk, calling names, and we haven't even been properly introduced. Love the atmosphere in here. It would be right at home in any junior high school playground. Let's boil this out and see just how dumb you look for using a term like mercantilist when you probably have very little understanding of what it means at all.

Every time money is spent between people for goods or services, regardless of its source, it creates additional wealth for whomever is turning a profit in the deal.

Patently false. Government spending of tax money is most certainly not "money spent between people for goods and services" it is other people's money, taken with no regard to their own wishes, and spent upon goods and services a politician deems beneficial or necessary. Wealth is created when parties engage in voluntary trade to mutual benefit via the division of labor. Value is subjective. The only way to be sure that both parties have benefitted from a transaction is to establish that they traded their respective values after each has examined his own opportunity cost evaluation of the transaction and then voluntarilly participated in the trade.

Furthermore, what I said was true about Lawnmower Man. His entire salary is composed of tax money. What he "pays" in taxes could have just as easily been collected by the government simply by lowering his salary by some amount in the first place and the government merely retaining the difference, and that second approach would not have wasted resources used in overhead accounting when the government pays Lawnmower Man out of one hand and re-confiscates a portion of the money with the other. Lawnmower Man is, by nature of the transaction, a net tax consumer. He will never be a net tax payer unless the service he provides is objectively more valuable to the net tax payers (who do NOT work for government) than the salary the government pays Lawnmower Man. In addition to this, we have already established that this is not the case, specifically because mintogrubb has already informed us that the government got "some other guy to do it on a voluntary basis," — prima facie evidence that Lawnmower Man was being paid "a few grand a year" more than the market would bear for his service.

To compound folly, the original premise behind the post seems to be the fallacy that there are are a specific, set number of jobs in the world and that government politicians find and allocate them to people. In such a world, Lawnmower Man does inevitably go on welfare when dismissed by the government because of the original poster's hypothetical zero-sum game, not mine. The original poster implicitly assumes that there are no other jobs for Lawmower Man to take, no additional wealth for him to create, outside of cutting the grass on the village playing field. In actuallity, when the volunteer is found to mow the lawn for the government, essentially as a donation, then the tax payers pick up the value of the lawn service and Lawnmower Man is now free, not necessarilly to go on welfare, but to offer his services to someone else at profit to himself and them.

Re: Economies are not closed systems, little mercantilist.

[mintogrubb.livejournal.com]

Indeed. I get that the lawn cutter is being paid out of public money, so his taxes are really paying back something of what he has been given, whereas a private sector guy is not doing the same thing - but put him on welfare and he is paying *nothing* back at all.

And does not have a job , or the self esteem that often goes with it in our society. It would be better all round if society actually paid people to do what needed doing instead of hoping for retired and jobless people to step up and volunteer.

Re: Economic ignorance -- popular can also be wrong

[underlankers.livejournal.com]

Oh please. Government employees work for the state, to be sure, but they definitely do pay taxes. Dick Cheney donating to charities he owned and calling that tax deductions is much more problematic than civil servants paying taxes.

Re: Economic ignorance -- popular can also be wrong

[montecristo.livejournal.com]

"Paying taxes" is nominal exercise when discussing the salaries of people who work for the state. Their wages derrive entirely from taxes. Unless they are paying 100 percent of their wages back to the state, government employees are, whether you consider that a good thing or not, net tax consumers. There is nothing of opininon in stating that; it is merely a statement of fact. Any taxes that a government worker "pays" is effectively merely a reduction in the cost to government of employing them in the first place.

Re: Economic ignorance -- popular can also be wrong

[mintogrubb.livejournal.com]

. He will never be a net tax payer in any sense other than someone's economic fantasies.
It is not like he has to be.
Ok, the private sector guys will pay the taxes that keep everything moving, but teachers, nurses, police and all the people who work for the government in the UK still put some tax money back in the kitty- they also provide a useful service - and so does the guy who cuts the grass.

Now, even if you keep the cops and nurses in a job , if you put the Lawnmower Guy on welfare, he pays NOTHING back. nothing at all.
And you get him sitting at home, losing self esteem , getting into alcohol abuse and all the rest of the stuff that soars when unemployment goes up.

Net consumers are not something we have to avoid, or reduce in our society. Teachers, GPs, firefighters and the police are mainly state paid with relatively few exceptions in the UK.

Welfare recipients, on the other hand, generate social problems rather than social services. poverty goes hand in hand with alcohol abuse, drug addiction , teenage pregnancies, crime - especially violent crime and other social evils.
Welfare dependency is what we need to address, and governmental services are ideally placed to make this happen.

Re: Economic ignorance -- popular can also be wrong

[foolsguinea.livejournal.com]

But he's not a net economic consumer. His income allows him to purchase goods & services in the market.

If we eliminate Bob the Civil Servant's position, then we're not compensating whatever volunteer spends his time doing the job for free. And time is money, so we just taxed that volunteer for the job instead of spreading the cost around society.

The opportunity cost of relying on unpaid workers is entirely on those civic-minded volunteers. But if we use the state to accomplish the same ends with civil servants, we spread the cost around.

Re: Economic ignorance -- popular can also be wrong

[montecristo.livejournal.com]

But he's not a net economic consumer. His income allows him to purchase goods & services in the market.

We can say that it is likely that at least some of the taxpayers will evaluate the mowed lawn as being worth more than the estimated share of their taxes that paid for it, but that still doesn't mean that the deal was the best one that could have been achieved for everyone. In fact, we have prima facie evidence to the contrary. The government was paying several thousand dollars to have the lawn mowed when someone was willing to do the job for much less — in fact, for free — he was willing to make a gift of his time to the people of the community.

If we eliminate Bob the Civil Servant's position, then we're not compensating whatever volunteer spends his time doing the job for free. And time is money, so we just taxed that volunteer for the job instead of spreading the cost around society.

Almost entirely true. Agreed. The people did not tax the volunteer, by definition. The volunteer made a gift of his time and effort. The point is though, because the transaction is voluntary, we know that the voluneer values the mowed lawn, or perhaps the perceived service to the community, more than he values the time he spent doing the work.

The opportunity cost of relying on unpaid workers is entirely on those civic-minded volunteers. But if we use the state to accomplish the same ends with civil servants, we spread the cost around.

This is also entirely true. On the other hand though, in using confiscated money and substituting the judgement of a politician over the individual judgements of those who supplied the funds, value information about the worth of the labor is distorted or destroyed.

First problem with your suggestion

[rasilio.livejournal.com]

I don't have the numbers for England and am not inclined to go hunt for them to verify but what you seemed to miss in my post yesterday is that this is largely a red herring. Yes the mega rich make extreme amounts of money, however that is on an individual basis. The problem is that there are not enough of them to make a difference on a national scale.

Lets for the moment assume that for the sake of argument the numbers are comparable between England and the US, just adjusted for size of the country.

In 2008 there were 319,000 tax returns filed with over $1 million in income. Their combined income was just shy of $1 trillion, of that $323 Billion was capital gains leaving $677 Billion in wages

Now for the sake of argument we will assume that 100% of that money was wages paid to high level of corporate executives (it wasn't, there are actors, athletes, doctors, and small business owners who report their companies profit as personal income as well) and we pass a law capping their income at $200,000 a year going forward. That would reduce their income to $63 Billion leaving $614 Billion to distribute to other workers.

Assume for the sake of argument that this money was divided evenly to all households in America with an income under $100,000 a year (roughly the upper limit if middle class). Well there are 90 million of those leaving each household $6800 a year in additional income effectively a 12% payraise for someone at the median income and about 30% for someone at the poverty line.

This income would then have to be taxed at an effective rate of 28% Federal and ~20% (State + Local) in order to maintain government revenues (this is the effective rate the rich paid on it) which would leave them with somewhere around $3500 annually after taxes which is a nice little bonus to be sure but in the grand scheme of things will not alter the course of someone's life.

Re: First problem with your suggestion

[rasilio.livejournal.com]

Oh hey I actually found something that breaks down the mega rich by industry...

http://visualizingeconomics.com/2010/12/29/highest-paying-jobs-in-the-us-2005-2/

So for the US 61% of wage earners at the peak of the income scale work in either corporate management or finance. Everyone else is either a doctor, lawyer, athlete, entertainer, inventor, or small business owner.

So if we assume for simplicity's sake that the income is divided relatively evenly that $6800 drops down to $4100 annually and around $2200 after tax in additional income

Re: First problem with your suggestion

[mintogrubb.livejournal.com]

Iin actual fact, it was your post that inspired this one.
Central to my OP is the idea that we don't need service cuts because they are damaging.
we ned cuts and closures in the tax loopholes for the very rich.

Re: First problem with your suggestion

[rasilio.livejournal.com]

"Iin actual fact, it was your post that inspired this one."

Yes I know, that is why I referred back to my post from yesterday.

"Central to my OP is the idea that we don't need service cuts because they are damaging.
we ned cuts and closures in the tax loopholes for the very rich"

First I would argue with the idea that cuts in services would be inherently damaging but that is a discussion for another time and I'm not going to go into it here.

Second however I know that it was the point of your OP, however the point of MY op yesterday was that your theory was flawed because as rich as the mega rich are there are not enough of them to close budget loopholes enough to avoid significant cuts in services.

Now of course my analysis was only valid for America and it is certainly possible that your analysis is valid for England however I doubt it because in just about every study on the issue income inequality is higher in America than any other industrialized country and if there is not enough rich here to solve the problem I doubt there is anywhere else.

Note, I am not saying we shouldn't raise effective tax rates on the rich as much as possible to minimize the cuts in services that will be necessary, I am saying that there is simply not enough income for rich people for raising their taxes to make up for more than a small fraction of the budget cuts America needs to make.

Second problem with your suggestion

[rasilio.livejournal.com]

Ok, lets say there is enough income disparity caused by high salaries to corporate and finance bigwigs and you pass a law limiting said salaries to a multiple of the lowest salary in the company.

Do you really think this will work?

Seriously?

There are a million and one ways around such a requirement.

just off the top of my head...

1) Outsource to contractors all low paying jobs
2) Reorganize the company such that all of the "working" divisions are independent corporations which are wholly owned subsidiaries of the parent company which just becomes a holding company whose only employees are the directors of said subsidiaries. This makes it so that the Plant manager of a widget factory can only make 10 times the lowest paid worker on the floor, however the CEO of the company can make 10 times what the plant manager makes because the plant manager is his only employee.
3) Go offshore with all of the low level work
4) Leave the country entirely.
5) Restructure executive compensation such that it minimizes salary and instead provides other benefits such as company paid vehicles, housing, food, and entertainment options.
6) Stop all operations which employ low skill workers
7) more stock options in leiu of salary for executives
8) Allow executives to "double dip" by reclassifying positions to be part time and hiring them into multiple positions simultaneously


And that is just off the top of my head

Re: Second problem with your suggestion

[fizzyland.livejournal.com]

Sure I can accept your proposition that the wealthy and powerful are clever enough to game the system so they continue cleaning up but the question I want to ask you is why CEO salaries are so top-heavy in the U.S. compared to say, Japan and Germany?

Re: Second problem with your suggestion

[rasilio.livejournal.com]

Oh I'm not saying CEO's are not over paid.

They are.

In fact IMO every executive from VP on up at a major corporation is over paid because the value difference between good and horrible ones is so tiny (that is they contribute so little to the bottom line it is virtually impossible to tell the difference between good and bad execs) and the measure of the quality of their work is entirely subjective.

The only place where a good executive is worth his weight in gold is at a small growing company and it is usually pretty easy to tell in that environment which execs are the good ones and which are not and it is pretty hard to over pay the good ones because they are often the difference between the survival and death of the company.

As far as why this phenomona is more prevalent in America than other developed countries I don't know. My guess is it is a combination of a more individualistic identity leading executives to demand higher wages, a slightly less progressive tax policy leading to a greater benefit for those execs in demanding the higher salaries, a streak of hero worship for "captains of industry" that runs stronger in America than elsewhere (what other country in the world can a corporate executive become as much of a celebrety just on the basis of being a corporate exec as they can in America), and a few hundred other factors that are going to be incredibly difficult to discover or even prove exist.

That said the idea that you can fix the problem of excessive exec pay by mandating a maximum salary ratio is ridiculous, the idea that you could fix it by any dictatorial government action is ridiculous, the only thing that will change it is a change in the attitude of the people who then proceed to punish companies who overpay their executives.