May 23, 2018

Politics and Economics: The Shaping of Taxes

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Economics Lecturer at GSM London, Anna Zimmerman, talks political economics and the shaping of taxes.

Every casual observer knows that, even with waning interest in foreign news, the US gets a disproportionate amount of airtime.  For most, this may seem a natural tribute to the world’s largest economy and military power.  For a select group of misery connoisseurs, there is an enduring fascination to the sheer awfulness of US dysfunctionality, much like crowds once paid to gawp at the ranting madmen in Bedlam. This is not to imply that other nations do not exhibit intriguing lunacy, but where the US excels is in the gap between the self-congratulatory bombast, epitomised in the doctrine of ‘American exceptionalism’, and the reality of life for many citizens, particularly in these post-industrial, debt be-laden times.

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For those who like a little purpose to temper their voyeurism, there is another reason. What starts in the US invariably spreads elsewhere; a kind of socio-political Ebola. It was with some alarm therefore that I recently read an article in the US magazine Mother Jones, analysing the underlying reason why police shootings of poor blacks are escalating in the US.

Superficially the deaths in Ferguson and elsewhere that have jolted thousands out of their political apathy and spawned the ‘Black Lives Matter’ movement seem yet another wearying chapter in an interminable race relations problem.  The pattern of black people being arrested, beaten, choked and shot for trivial offences – Eric Garner for selling cigarettes on the sidewalk, Walter Scott and Sandra Bland for driving with broken taillights – is portrayed as symptomatic of bent cops venting their racist spite.  This is the story that has been spun in the US itself and the rest of the world. However Jack Hitt, reporting in Mother Jones, has picked up on research carried out by the Public Land Institute in 2014, analysing the transformation of US policing into a profit centre as a result of a slow-burning fiscal crisis at the state and municipal level:

When you ask why such “bad” cops are nevertheless armed and allowed to patrol the streets, one begins to see that lurking beneath this violence is a fiscal menace: police departments forced to assist city officials in raising revenue, in many cases funding their own salaries—redirecting the very concept of keeping the peace into underwriting the budget.

We saw a glimpse of this when the Justice Department released its report on Ferguson in March. In his statement, then-Attorney General Eric Holder referenced a lady in town whose life sounded Walter Scott-like. She had received two parking tickets totalling $151. Her efforts to pay those fines fell so behind that she eventually paid out more than $500. At one point, she was jailed for non-payment and—eight years later—still owes $541 in accrued fees.

The judge largely responsible for the extraction of these fees from Ferguson’s poor, Ronald J. Brockmeyer, owed $172,646 in back taxes, a sum orders of magnitude greater than any late fine coming before his bench. Even as he was jailing black ladies for parking tickets, Brockmeyer was allegedly erasing citations for white Ferguson residents who happened to be his friends. After the report’s publication, he resigned so that Ferguson could “begin its healing process.”

But consider: In 2010, this collaboration between the Ferguson police and the courts generated $1.4 million in income for the city. This year, they will more than double that amount—$3.1 million—providing nearly a quarter of the city’s $13 million budget, almost all of it extracted from its poorest African American citizens.

Evidence also suggests that this new form of raising revenue—policiteering?—goes far beyond Ferguson.

Land of the free?

Hitt also cites the escalating number of trivial offences that are being placed on statute books, as a trap for the juridically unwary. In Pagedale, a suburb of St Louis, it is illegal to have a hedge more than three feet high, position a basketball hoop or a barbecue in front of one’s house, consume alcohol within 150 feet of a barbecue or wear trousers below the waist in public. It is also prohibited to park further than 500 feet from a streetlamp during the night. Even the hanging of domestic blinds has been strictly regulated. Hitt traces these laughably Draconian strictures back to a law passed in Missouri in 2010, which put a cap on the amount of revenue that could be generated by traffic stops. The intentions were good, but the unintended consequence was an explosion in penalties for trivial offences, in the absence of any other method of generating revenue.  It is clearly the barbecuing, alcohol-swilling poor who are the targets. This is not to deny that racism is significant in any analysis of the problem, but of equal importance is the general victimising of the unrich in contemporary America.

This raises the question of why states and cities are so frantic to shore up their revenue that they will invent all sorts of spurious ‘crimes’ that the police can use to bully an income stream out of the population. Here the explanation is a complex one, implicating globalisation and the off-shoring of jobs, de-industrialisation, financialisation and urban planning – but above all, tax policy.

In 1930, 75% of state revenues in the US were obtained from land and property taxes. This was in accordance with classical economic theory which advocated taxing unearned economic rent, rather than productive labour or capital. This policy had a number of significant benefits; taxes were strongly progressive, hard to evade, provided stable revenue and discouraged speculative bubbles in land and house values. They also helped ensure that the cost of living stayed relatively low, and hence labour costs in general – encouraging employment and industry. By 2007 the percentage of revenue from property taxes was down to 16% as policy has steadily switched towards taxing labour and sales, reversing the positive effects of classical free market tax policy. The result has been ever-rising land and property prices fuelled by a huge expansion in bank credit, a rise in the cost of living and dampened consumer demand as ordinary people struggle with their mortgage debt (now commonly 40-50% of disposable income in the US), the discouragement of job creation, and an epidemic of tax evasion amongst large corporations and the wealthy. Together with the dwindling employment opportunities in old industrial cities as multinationals spirit jobs away to cheaper locations, the result has been a fiscal disaster. Given that the problem is deeply structural, it is little wonder that it would take a complete overhaul of economic policy in the US to rectify.  Given the political stranglehold of the wealthy on US policy, reform is unlikely any time soon. It is undoubtedly unfortunate that the underlying problem of economic class war against the poor has been obscured by the race relations problem, as without a proper examination of the deeper structural issues matters are set to worsen rather than improve.

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Plus ca change

So is it likely that this particularly nasty strain of economic virus will also strike here? There are certainly echoes in our own experience. The UK has also witnessed a shift away from a broadly progressive to a deeply regressive tax policy, where land and capital provide only token and insignificant tax revenues and the bulk of the burden falls on shrinking employment and consumption rates. Our housing bubble is every bit as frothy, and every bit as deflationary and burdensome. We also have a fiscal crisis of our own, aided by the rampant tax evasion/avoidance which is promoted by one of the most significant tax havens in the world – the City of London – and similarly foisted onto the general public in the form of austerity. It is certainly true that recent governments have introduced some instant penalties for minor offences, which cut court costs, but run the risk of summary ‘justice’ motivated by spite. Are we about to see a trend of British bobbies shooting people for nose-picking and sporting dreadlocks in a crowded area?

Two factors suggest not. Firstly, conditions mercifully unique to the US – so far – are the widespread ownership of guns and the escalating militarisation of the US police. There is a general creep to militarisation elsewhere, but in the US it is far advanced – and gathering pace. Space does not allow a full exploration of this topic, but it gives a sense of the extent of the problem to cite House Bill 1328, passed in August 2015 in North Dakota, that allows domestic drones to use ‘less than lethal’ weapons. The awful prospect of unmanned police drones bearing down on protestors with rubber bullets, tear gas, Tasers and anything else they can pass as ‘non-lethal’ is possibly about to become reality. It should be noted that Tasers have killed 39 people in the US in 2015 alone. Given that US police are famously gun-happy, it is a natural development for more deaths to result from the already strained relationship with the public being worsened by the fiscal imperative.

Secondly, the fiscal structure in the UK is very different to that in the US. In the UK the majority of local government income comes from a block grant from the central government. This has the disadvantage of strangling local democracy, but the advantage of ensuring a greater redistribution of income from richer to poorer parts of the UK. In contrast, in the US, where a much greater proportion of income is raised locally, local governments can and do go belly-up, as conditions deteriorate. President Ford’s verdict on New York’s imminent bankruptcy in 1975 may have been apocryphal (he was misquoted as snarling they should ‘drop dead’), but the refusal to help was all too real, as are the more recent difficulties in Detroit, Harrisburg, Stockton and many other post-industrial bleakscapes.

Does this mean we should resist further devolution in the UK as a handcart to fiscal hell? Yes…and no. Clearly devolution without economic and political restructuring would be disastrous and would no doubt lead to a fiscal chase to the bottom, social security decimation and paralysed infrastructure renewal. This is as true of devolving nations as it is of regions. However the problem would not be devolution per se, but the dominant global imperative towards regressive taxes that can be easily avoided by the wealthy, reliance on debt financing, social inequality, unchecked globalisation and the accompanying thrust to deindustrialised, high unemployment economies. All of these inevitably create huge disparities between different regions and different social strata, leading to local financing exigencies.  It should be noted here that this is as true in relations between nation states as it is between cities and regions.

Public policy is all about hard choices; effective policy is handicapped when the complexity of the issues and their interconnectivity is not made clear. It is all too easy to focus on the famed nastiness of the US police, but this is clearly the tip of a large iceberg of policy failure that requires the political courage to identify the linkages. Putting cameras on police caps and enrolling more black police will not solve the structural problems in the US, which are unravelling the putative social contract between the government and the people. Until the Black Lives Matter movement succeeds in publicising and addressing this wider framework, we will have more fiscal desperation, more ‘policiteering’, and more grainy footage of ugly cops choking black people on sidewalks.

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The article in Mother Jones can be read here:

Information about the new drone law in North Dakota can be found here:

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