Professors Amy Krings, Dana Kornberg, and Erin Lane recently published Organizing Under Austerity: How Residents’ Concerns Became the Flint Water Crisis, Critical Sociology 45 (4-5), pp. 583-597 [gated]. The article examines the politics of austerity, of interest to tax researchers for lots of reasons but perhaps especially for the expression it gives to the connection between tax levels and democratic preferences through the phenomenon of scalar dumping. Here is the abstract:
What might it take for politically marginalized residents to challenge cuts in public spending that threaten to harm their health and wellbeing? Specifically, how did residents of Flint, Michigan contribute to the decision of an austerity regime, which was not accountable to them, to spend millions to switch to a safe water source? Relying on evidence from key interviews and newspaper accounts, we examine the influence and limitations of residents and grassroots groups during the 18-month period between April 2014 and October 2015 when the city drew its water from the Flint River. We find that citizen complaints alone were not sufficiently able to convince city officials or national media of widespread illness caused by the water. However, their efforts resulted in partnerships with researchers whose evidence bolstered their claims, thus inspiring a large contribution from a local foundation to support the switch to a clean water source. Thus, before the crisis gained national media attention, and despite significant constraints, residents’ sustained organization—coupled with scientific evidence that credentialed local claims—motivated the return to the Detroit water system. The Flint case suggests that residents seeking redress under severe austerity conditions may require partnerships with external scientific elites.As to scalar dumping, the paper explains that:
A central feature of neoliberal governance in the United States has been the production of austerity conditions in cities. Jamie Peck (2012) has described how urban austerity regimes emerge through processes of scalar dumping, whereby financial responsibility for public goods is passed down from national to state and local governments. The logical priority that scalar dumping sets in motion is clear: cash-strapped cities must either raise revenue through taxes, fees, or service costs for public goods or they must cut spending. Scalar dumping disproportionately strains cities like Flint, which have already suffered severely because of deindustrialization, residential abandonment, aging infrastructure, high poverty rates, and racial segregation. Thus, although a city’s municipal budget is shaped by a range of economic factors beyond the control of city leaders, financial hardships tend to be borne by residents.
When cities fail to be self-sufficient, officials may employ legal tools such as emergency management laws to label budget shortfalls as financial “emergencies.” This characterization can provide justification for punitive intervention—including democratic curtailment coupled with cuts to public services—by higher levels of government (state, national, or international). Thus, austerity is indeed a “politically imposed condition”. Additionally, by characterizing the city as experiencing a fiscal emergency, policies that entail additional public spending are removed from contention and effectively blocked from the political agenda. And by focusing on the short-term alleviation of fiscal problems, longer-term structural problems—such as the loss of revenue due to a declining tax base, decreases in state revenue sharing, and growing unemployment—are cast outside the sphere of public debate. [internal citations omitted]The authors explain that “social action is necessary to counter the dangerous effects of austerity policies,” but note that “the possibilities for democratic influence have been severely curtailed. Additionally, as environmental regulatory rules are relaxed, 'the operating principle is that toxic chemicals are presumed innocent of harming human health unless proven guilty.'” They conclude by noting that the emergency management system that led to Flint's water crisis remains in place, and quote Clare McClintock of the Democracy Defense League that “This is a new model of governance that is dangerous and unacceptable. And it’s spreading to a town near you.”
Tagged as: activism austerity civil society governance scholarship tax policy u.s.
The start of a new semester means the return to fundamentals in taxation for me, which always begins with a discussion of the power to tax. Yesterday I asked my students: could Queen Elizabeth say hey Canadians, I notice you still have my face on your dollar and you've got a nice surplus shaping up; over here in England it's all austerity and program cuts. Mind helping out a bit? General consensus: she might as a legal matter be able to tax Canadians to help the Brits out, but she won't. Hmmm. During the discussion a student informed me that Canadians pay more for monarchical services than the Brits do. Well, sharing is caring.
Relatedly and on a more scholarly note, a recent twitter conversation brought me to a chapter in a book on socio-legal tax research (thanks to Martin Hearson for starting that conversation and Judith Freedman for making this recommendation). The book is called Taxation: a Fieldwork Research Handbook, edited by Lynne Oats, and the chapter I had my eye on today is entitled Tea Parties, Tax, and Power, by Rebecca Boden. Boden writes:
History...points to a longstanding power relationship between rulers and those they rule that is articulated through tax regimes. States, whether feudal or modern, need money to operate, to pursue their various programmes, from war to welfare, As citizens may be unwilling to relinquish their money voluntarily, the state must have powers to require payment, with sanctions for non-compliance. By the same token, this power is held in balance in democracies by the principle of consent, exercised through representation. Ultimately, taxpayers give their consent to be dominated and have their money taken away from them.
This contingent nature of the state's powers in taxation - taxation by "consent"- chimes with Foucault's notion that power can never be absolute (Foucault 1977). No, Foucault argues, is power only hierarchical or structural, rather it works in a capillary fashion. As such, the analysis of such power relationships is central to the critical tax project - only by viewing tax structures, policies, and practice through the prism of power relationships that change them can we understand how and why they are constituted and what their effects are likely to be.There is much more in the chapter to reflect upon, but I found this intro intriguing. In my view a lot of mischief takes place in the subtle--maybe you missed it--transition from the use of the word "citizen" to the use of the word "taxpayer." This is a transition all too many scholars make without even noticing it, yet it masks a world of ideology and assumption that frame and define how we think about tax today.
The power to define the taxpayer permeates contemporary tax policy discussion. The question of who can tax whom is one that could or should involve theory but while the scholars talk it over, reality plays out in economic might. In an intro to tax policy principles that I recently prepared for my tax policy course, I wrote:
Perhaps because taxation has been so connected to state-building, most scholars closely associate the act of taxation with the state. Some even go so far as to argue that taxation is a fundamental right belonging to the state as sovereign, often citing Thomas Hobbes for the proposition that “[t]hese are the rights which make the essence of sovereignty … the power of raising money”. None have offered theoretical grounds for the claim that states are in fact holders of rights, however.
We observe throughout history that states exercise powers (mostly through military and economic might), and only declare rights for themselves upon successful domination (such as in constitutions and charters). This observation leads to the likelihood that taxation is not anyone’s right but rather it is a constructed reality, coming about solely by and through human experience. This would explain why so much has to be done to both justify as a matter of theory - and entrench as a matter of custom - the state’s authority to tax.We don't have to work too hard to think of a few examples where defining the taxpayer is an exercise in claiming authority, which fundamentally depends on power. FATCA is an obvious one; anti-inversions, BEPS, and the OECD common reporting standard are less obviously but equally so.
With FATCA, the US is using its sheer economic clout to get the whole world involved in chasing what it deems to be "US persons" for their tax tribute, without any discussion about whether the state's unilateral conferring of citizenship constitutes consent to (permanent and worldwide) taxation. Indeed, it continues to erect ever-higher barriers to shedding that status, without a single policy discussion at any level of government about the merits of this action. Those who think not can be expected to resist per Foucault, or, if it suits your taste better, Locke:
[People] therefore in society having property, they have such a right to the goods, which by the law of the community are their's, that no body hath a right to take their substance or any part of it from them, without their own consent: without this they have no property at all; for I have truly no property in that, which another can by right take from me, when he pleases, against my consent.At the OECD, the common reporting standard, ostensibly modeled on FATCA but in fundamental principles not at all like FATCA, is all about making sure the "right" government gets the info it needs to exert its power over "its" taxpayers. Same idea: a state claims the authority to tax people that live within its territory, but other states have the power to thwart that exercise. (Different in fundamentals than FATCA for two reasons: (1) finding implied consent to tax is a given for residents of a state and (2) the OECD is not currently suggesting countries use economic sanctions to force others to cooperate).
The anti-inversion and BEPs issues are similarly about exerting power over a "taxpayer." Despite bemoaning their apparent helplessness in preventing corporate US persons becoming corporate non-US persons, US lawmakers clearly claim the authority to intervene and they likely have the power, too. But, this involves erecting higher and higher walls to keep the "taxpayers" inside. Internationally, discussions about the global problem of multinational tax dodging focus on the failure of the state to tax corporate persons that come in to the jurisdiction to do business. At the OECD, the BEPS project is very much about who belongs to who, so we can decide what belongs to who. Source and residence as tax concepts have always been about power and they have always been explained with ideas about authority and consent.
Globally, discussions about both corporate and personal income taxation are being forced to focus more and more on unanswered questions about the power to tax, and the issues of authority and consent that are raised when power is exerted and when it is resisted. The full Boden chapter is thus definitely recommended reading and I'm working my way through the rest of the book, which looks promising in several respects. More to come on this subject.
From last Sunday's NY times, opinion write Fintan O'Toole discusses life in Ireland, after it first gorged on a panoply of tax reforms meant to lure in multinationals, and then starved under austerity under financial crisis. Of note:
...Ireland has two economies: a global one dominated by American high-tech companies, and a domestic one in which most Irish workers have to make their living. The first is indeed booming. Not least because of those low corporate taxes, large global corporations find Dublin convivial for reasons other than its pubs and night life. The sheer scale of Ireland’s dependence on this kind of investment for its exports can be judged by the fact that Irish gross domestic product took a serious hit in 2013 when Viagra (which is made by Pfizer in County Cork) went off patent in Europe. Broadly speaking, however, the global side of the Irish economy has remained robust.
But home is where the heartache is: in the domestic economy outside the gated community of high-tech multinationals. Outside Dublin, property prices are still falling. Wages for most workers have dropped sharply. Unemployment remains very high at 12.8 percent — and that figure would be higher if not for emigration. There’s always been a simple way to measure how well Ireland is doing: Go to the ports and airports after the Christmas vacation and count the young people waving goodbye to their parents as they head off to the United States, Canada, Australia or Britain, where they have gone to find work and opportunity.
...[People in Ireland] are not convinced that the cruel scale of the punishment was necessary or that the nasty medicine has, in fact, worked.
Behind both of these propositions looms the great contradiction in the supposed success story of Irish austerity. It was austerity only for citizens. Running parallel to all the cuts in public spending and all the calls for fiscal responsibility has been a program of spending so lavish that it makes a drunken sailor look stingy.The converse proposition is that when it comes to contributing to the mechanisms of the state--rule of law, infrastructure, educated workforce, etc etc, which fully support those multinational gated communities--the state looks primarily to workers to do the bulk of the heavy lifting, in the form of personal income taxes (41% at the top) and consumption taxes (23% on most goods). But Ireland is not alone in this political decision.
The story of feasts for corporations, famine for workers is a familiar one, and the trade off is supposed to be the positive externalities corporations bring. In other words, the political tradeoff that politicians think they are making goes as follows: we can give up our tax on corporate income if that lures more corporations into our jurisdictions which then hire our workers, whom we can then tax on their incomes and then again on their consumption, to pay for luring in more corporations, in a virtuous cycle. O'Toole's column strongly suggests that the externalities are not anywhere near what was expected or would be needed to continue the virtuous cycle.
The problem for the state is that the owners of corporate capital have received their benefit up front, but when they do not produce their side of the equation in exchange, there is no way for government to demand a refund.
Thus we can add Ireland's story to the multiple examples that exist in various iterations of it around the world, including for example the constant intra- and inter-state fights to lure in manufacturers, filmmakers, and sports teams. Maybe governments should be thinking about adding a carve-back clause to the fiscal bargain that creates oases for bargain-seeking multinationals, which would disgorge untaxed profits when it is clear a party to a tax incentive-fueled deal is not bringing what they said they would or could.
Tagged as: austerity budget corporate tax deficits fairness globalization
I posted a draft of this paper on SSRN some time ago but neglected to post it here, so here it is. I argue that because governments chase wage-earners and consumers doggedly while selectively overlooking or ignoring other taxpayers, the imposition of income taxation as it is practised by states today is fundamentally unjust. Abstract:
The story of our time may be the awakening of society to an epidemic of global tax dodging by the world’s elites. Citizens, watchdog groups, and even government officials are puzzled, frustrated, and sometimes outraged by the phenomenon, wondering where the nation-state lost its way in regulating its people and its resources, and why it is standing by, apparently helplessly, as its tax base erodes while austerity measures undermine the welfare state. This paper demonstrates that the sequence of tax base erosion-austerity-welfare state erosion is a story about a crisis of tax justice. It does so by revisiting how Canada's historic Royal Commission on Taxation, in its search for guiding principles for tax reform, turned to tax justice as the central component for any tax system. It shows why nations have consistently failed to meet these guiding principles, instead taxing the easy-to-tax more or less comprehensively, the hard-to-tax more or less randomly, and the impossible-to-tax not at all. It demonstrates that the result is that no state today imposes taxation justly: instead, taxation as exercised around the world today is overwhelmingly characterized by arbitrariness and injustice. The paper concludes that if governments cannot or will not pursue justice in taxation, they have at minimum a duty to explain to society why this goal is no longer worthy of pursuit.This paper includes a discussion of who should be considered a "taxpayer" by a state. I argue that citizenship-based taxation is unjust from both a human and statist perspective, and I therefore make the case for residence-based taxation. As always, comments are welcome.
Tagged as: austerity fairness rule of law scholarship tax culture tax policy
Tens of thousands of people filled a Lisbon boulevard during Saturday's protests and headed to the finance ministry carrying placards saying "Screw the troika, we want our lives back".
The troika is a reference to the European Commission, the International Monetary Fund and the European Central Bank, the lenders behind the country's financial bailout.
Many protesters were singing a 40-year-old song linked to a 1974 popular uprising known as the Carnation Revolution.
Portugal is expected to suffer a third straight year of recession in 2013, with a two percent contraction. The overall jobless rate has grown to a record 17.6 percent. The marches were powered mostly by young people among whom unemployment is close to 40 percent.
...After several years of tax increases and welfare cuts, austerity is poised to deepen as the government looks for another $5.2bn to cut over the next two years. The national health service, education, pensioners and government workers are likely to be the hardest hit. The government is locked into debt-cutting measures in return for the $102bn financial rescue set up in 2011.More tax hikes and spending cuts are on the way for Portugal: when it comes to the IMF, you must pay your debts regardless of the consequences. That was always the IMF way of course, but when austerity plus regressive taxation was being imposed on impoverished countries with disastrous social and economic results, the global North didn't seem too bothered by it. One protestor in Lisbon is quoted as saying, "This government has left the people on bread and water, selling off state assets for peanuts to pay back debts that were contracted by corrupt politicians to benefit bankers." That scenario is lifted straight out of the IMF's playbook throughout Africa in the 1990s.
Tagged as: activism austerity civil society governance IMF protests tax culture
Fix the Debt: bipartisans fooling some of the people all of the time (a primer on the solidarity of the 1%)
Tagged as: untagged
Tagged as: lobbying tax policy u.s.
Film money is the hottest of hot investment money, fast in and fast out. Production is very mobile, and studios have become adept at extracting subsidies from governments for a few trinkets and promises of jobs.
- a highly educated workforce
- that can't organize or demand high wages
- a well organized legal system that protects contracts and property rights
- but only (or mainly) of multinationals
- a well-organized financial system that protects the investment from currency/inflationary etc pressures
- but only if multinationals don't have to support it with taxes
in the US ... state and local subsidies rocketed from US$2m in 2003 to about US$1.5b in 2012. Film subsidies are epidemic in Europe, where countries compete to attract and retain productions. And it has been a major part of New Zealand's cultural and industrial policy, where more than US$400m has been invested in The Lord of the Rings, Avatar and a handful of other productions over the past decade.
But competitive subsidies are the quintessential sucker's game, in which winning is losing.
For keeping Warner Bros happy, Prime Minister John Key - a former Merrill Lynch currency trader - got a replica magic Hobbit sword from President Obama...
Tagged as: austerity culture exports film tax incentives lobbying
Just in time for the holidays: the Quebec government has announced it will cut another $140 million from University budgets this year; schools will have to come up with the cuts by April--yes, in 4 months. That's on top of the rolled-back tuition increases, which represented about another $40 million. This is not a good surprise. It's especially harsh when the PQ is raising taxes all over the place and we all know into whose pockets some outlandish proportion of our taxes go. From the Montreal Gazette:
the PQ repeatedly promised to maintain funding to universities for this year despite cancelling the strongly opposed tuition hike that was to have gone into effect this fall. Universities have been waiting for compensation for about $40 million in lost revenues from the aborted increase.The student protesters see this as an unintended consequence of their success:
Even the Fédération étudiante universitaire du Québec (FEUQ), which has suggested that universities are more mismanaged than underfunded, was shocked with what president Martine Desjardins called a “hasty” decision.
“We talked about a redistribution of money, but we never wanted to see university budgets cut,” said Desjardins. “We’re shocked. We fear it’s services to students that will be cut, that students will have to pay the price again.”I doubt the students alone will pay the price, but the juxtaposition of widespread & rampant corruption, steadily increasing taxes, and steadily increasing cuts to education reads like a serious governance crisis.