The Tax Justice Network says that the richest people around the world have hidden between $21 and $30 trillion in tax havens, safe from the demands of their fellow citizens that they participate in funding the operations of governments by paying taxes. What do the rich do with that money? We know they play speculative games with the money, trying to profit from other rich people or pension plans, and money people are trying to save for retirement or for college expenses for their kids. But the main thing they do with money is lend it out. One of their favorite borrowers is the US government. It won’t default, and that interest check shows up when it’s due.
That’s our deal with the rich: they don’t have to pay taxes to fund the government, we just borrow from them, and pay them interest forever.
The figures for government debt growth are astounding. Thirty years ago, the world embarked on a massive tax-cutting program, led by the US. In that time, according to the Bank for International Settlements, governmental debt in 16 OECD economies (deflated by consumer prices) quadrupled. We are all paying interest on that to the people who own those sovereign obligations. If governments had raised that money by taxation, we wouldn’t be paying for the privilege of operating a government. Other non-financial sector debt has grown at similar rates.
As a side note, when trying to explain why this massive increase in debt loads, the Bank for International Settlements didn’t mention the massive tax-cutting regime in the developed nations.
The implications of this tax and borrow deal are infuriating. For one thing, billionaires like Peter Peterson can scold the government about its massive debt, while sucking out guaranteed interest payments, directly, and indirectly through their foundations and corporations. They can use their fellow travelers, like Bloomberg columnist Caroline Baum to persuade the gullible that we don’t have any money to fund Social Security and Medicare, because we have to pay the interest on that debt, and we can’t raise taxes because that would be useless, and reflective of an unattractive urge to hurt the rich for no good reason.
Since the Great Crash of 2008 we’ve been trying to muddle through and get back to some golden age of normal, like the 2000s, so the financial sector can continue its pillage. That isn’t going to work, and the ever alert Zero Hedge is, as usual, ahead of the curve. Last September, they posted a discussion of a study by Boston Consulting Group on the enormous fiscal problems facing the world. BCG isn’t impressed with the kick the can down the road approach that politicians in every nation have adopted. They think we need to restructure debt; hence the title of their paper, Back to Mesopotamia, a reference to a Debt Jubilee idea of that ancient ancestral society. An easy way to finance that restructuring is to tax existing assets. I didn’t realize polite people would say things like this in public:
Many politicians would see taxing financial assets as the fairest way of resolving the problem. Taxing existing financial assets would acknowledge one fact: these investments are not as valuable as their owners think, as the debtors (governments, households, and corporations will be unable to meet their commitments.”
This tax isn’t some piddling thing, either. The US would need a one-time tax of 25% of wealth. The Boston Consulting Group admits the evident unfairness of this in the context of recommendations for solving the housing crisis in the US:
Such a course of action would pose a significant issue of moral hazard, benefiting those who were reckless and imposing a share of the burden on those who were careful [or lucky]. But the government could conclude that the total economic and social costs of a prolonged period of low growth and deleveraging are so huge that unconventional measures are justified. After all, inflation would have even worse side effects.
(Me in brackets). As they say, we can’t keep on with this pretend solution regime forever. Maybe we’ll inflate away the savings of millions of Americans until we have social disruption, or maybe we’ll try austerity until we have social disruption. The debt won’t get paid. The only realistic way out is to inflict that loss on the people who can bear it best, the richest among us. Thus spake Boston Consulting Group.