Showing posts with label Quantitative Easing. Show all posts
Showing posts with label Quantitative Easing. Show all posts

Sunday, November 14, 2021

Reform the tax laws to make the super-rich pay


Barbados Prime Minister at COP26. 
Pic courtesy: Reuters

Among all the heads of the state that made headlines at the ongoing COP26 negotiations in Glasgow, the chances are you wouldn’t have been told what the Prime Minister of Barbados, Mia Mottley, said in her eight minute address. The mainline media didn’t talk of it, and what she said was uncomfortable for the big business as well as for the global leadership to even acknowledge. Each line of her powerful address brought out the bitter truth that the world tries so hard to push under the carpet.

Mia Mottley talked of quantitative easing, an instrument of monetary policy that has remained outside the purview of TV discussions, and in fact is not even deliberated much in the economic classrooms. As an economic expression it means buying bonds to lower the interest rates on savings and loans but in simple terms it means printing surplus money. She talked of $25 trillion of surplus money printed by Central banks of the wealthy countries in the past 13 years: “Had we used those $25 trillion to purchase bonds to finance the energy transition, of how we eat, of how we move around in transport, we would have today reached that 1.5 degree limit that is so vital to us,” she stated.

As I had explained in one of my earlier articles (The Tribune, May 22, 2021) $ 9 trillion of surplus money that the Central banks had printed in 2020 alone had actually gone into the pockets of the rich via the financial markets. While the wealth of the super-rich increased by a whopping $5 trillion to $13 trillion during the pandemic, imagine how gigantic the $25 trillion quantitative easing booster dose must have been for the soaring wealth of the ultra-rich. Nevertheless, if the surplus money was instead routed to provide for the global climate finance requirement of $100 billion a year that the Paris Agreement had promised for, the world would have been a much safer place to live. As the Barbados Prime Minister had worked out, quantitative easing could have been easily utilised to create a $500 billion fund, which would hardly be 2 per cent of the surplus money printed. 

In fact, if I were to add another $100 billion that is required to fight extreme global poverty, a fraction of the surplus money that is printed, could have been more than sufficient to make the world move towards a utopian stage where poverty becomes history, where no one sleeps hungry, and where the world gets over the nightmare of an impending climate catastrophe. The massive amounts of quantitative easing drives growth, economists would say but what is not told is whose growth. Why the same instruments cannot be suitably transformed to ensure that quantitative easing works for the people and the planet? That’s a question that economic thought leaders as well as G-7 leadership has conveniently ducked.   

Not only quantitative easing, the rich are routinely provided with economic stimulus, bailouts and tax cuts besides other incentives. In US, effective corporate income tax has come down from 50 per cent in 1950 to 13 per cent in 2020. In India, corporate tax has been lowered from 30 per cent to 22 per cent, and the demand is to bring it still further down. Not investing the amount saved in creating employment, these tax cuts have often helped companies to buy back shares. In last five years, Indian companies have gone in for stock buyback to the tune of Rs 2-lakh crore. 

The rich don’t become ultra-rich because they did something extraordinary but it is simply because macro-economic policies are so designed to help transfer wealth to them. So much so that in America, top 1 per cent holds 15 times more wealth than the bottom 50 per cent. In India, the top 1 per cent holds four-times more wealth than the bottom 70 per cent. Despite this generosity, the top 1 per cent globally has safely hidden an estimated $7.6 trillion in tax havens. 

At a time when 55 corporations in the US haven’t paid any tax, US President Joe Biden has publicly accepted the implicit bias in the tax regime. In a tweet last week, he wrote: “Those at the top have gotten a free ride – at the expense of the middle class – for far too long. My Build Back Better Framework will make the super-wealthy and big corporations pay their fair share, and then invest that money in the middle class.” The Build Back Better Programme is the $3.5 trillion package that he recently unveiled to reduce poverty, expand healthcare and address the crisis emanating from climate aberrations.  

Considering that at a time when wealth inequality is increasing, and corporate tax is being systematically lowered, what Joe Biden says makes terrific economic sense. It is well known that billionaires wealth increased by a whopping 70 per cent during the pandemic. To give you an idea, the wealth of America’s billionaires increased by $ 2.1 trillion in the first 19 months of the pandemic, of which Tesla CEO Elon Musk’s wealth surpassed $ 209 billion, and former co-founder of Amazon Jeff Bezos is now worth $192 billion. But they didn’t pay their share of taxes. As per ProPublica, an investigative website, Musk didn’t pay any tax in 2018 and Bezos didn’t pay in 2007 and 2011. Reports also show that the top 400 richest in the US paid a lower tax than an average American worker. 

This brings me back to the question that Mia Mottley had raised. After all, adequate public finance and investment is required to secure the future economic and social-well being of people. Decades of corporate tax avoidance, austerity and economic liberalisation have brought the world to a stage where it is awash with money, but the tragedy is that much of it is locked in corporate safe vaults. The bigger challenge therefore is how to reform the tax regime to make the super-rich pay, and redesign economic policies that work for people and the planet. #

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Wednesday, July 15, 2020

A Rethinking in Economics is Urgently Needed.



This biased economic thinking has to change. While farm loan waiver is despised at, corporate bad debt write-off is believed to lead to economic growth ! 

Former US Labour Secretary Robert Reich tweeted the other day: “America’s richest 1 per cent now owns half the value of the US stock market. The richest 10 per cent own 92 percent. So when Trump says the stock market is the economy, know who he’s really talking about.” Well, Trump is not the only head of a State, who believes that a booming stock market is a reflection of the state of the economy, the list of such leaders is pretty long. This shows how effectively credit rating agencies have drilled the idea into our minds.

Even on a day when India’s Finance Minister rises to present the annual budget all eyes are on the stock markets. When in Sept last, Nirmala Sitharaman announced a slew of measures to build up domestic demand at times of a slowdown; she presented a tax concession bonanza of Rs 1.45-lakh crore to the industry, reducing the basic corporate tax rate to 22 per cent, the celebrations next day were observed on the stock markets. Shares jumped by as much as 5 per cent, the highest in 10 years as some media reports indicated. If only the same amount had been allocated for providing more money into the hands of the poor, stock markets would have remained subdued but perhaps more demand could have been generated thereby refuelling the economy.

Even now, when globally the pandemic has left economies bleeding, the stock markets are on a Bull Run prompting Nobel laureate Paul Krugman to say there is something terribly going wrong. This is also evident from the fact that the top 614 of America’s billionaires increased their wealth by over $ 584 billion between Mar 18 and June 17 while more than 45.5 million Americans joined the unemployment queue in the same period. While, much of the wealth increase is related to the Wall Street, economic bailouts and stimulus packages have helped transfer more money into the pockets of the stinking rich. On top of it, is the ‘printing’ of surplus money in the form of Quantitative Easing (QE). According to Fitch Ratings, global QE asset purchases are expected to touch $ 6 trillion in 2020. By bolstering the financial and property markets, this helps the rich become richer. But rarely have I seen the universities deliberating on the need to make QE work for the people. Why does it invariably fail to become part of the economics curricula or be a part of media debates is beyond my understanding?

In India, while the industry is lobbying hard to seek further tax concessions to the tune of Rs 2.50-lakh crore by bringing the corporate tax slab to a low of 15 per cent, an Oxfam study had earlier pointed to a creation of 117 million jobs if the richest 1 per cent globally were to be made to pay an additional tax of just 0.5 per cent over the next ten years. If we look at it economically, this makes terrific sense. To promote inclusive and sustainable growth, UNCSD tells us that creating employment and decent job opportunities will ultimately drive progress. But then why mainline economists have invariably failed to demand imposition of a slightly higher corporate tax if it could lead to such huge employment opportunities, still continues to baffle me.

In the past 30 years, says Bernie Sanders, the wealth of top 1 percent has gone up by $ 22.65 trillion, while the wealth of bottom 50 percent has gone down by $776 billion. “This growing wealth inequality is morally obscene,” he regretted. Inequality is not only related to wealth accumulation, but also stems for an ideological bias. In India, a former Chief Economic Advisor had once said that writing-off corporate bad loans leads to economic growth. The question that wasn’t asked is how come when both the corporate and farmers draw loans from the same banks, writing-off of corporate bad debt leads to economic growth whereas farm loan waiver upsets the national balance sheet? Similarly, why should nations continue to blindly pursue the outdated economic theory that workforce from agriculture needs to be shifted to the urban centres, primarily to ensure that companies don’t have to pay higher wages? Is it not a reflection of an ideological position?

Similarly, why is that any additional investment in agriculture, public health and education is seen as a drag on the economy? For instance, why is it that a sledge hammer blow of a pandemic made the government realise the importance of public health. “The public sector has an inescapable obligation towards health. The private sector alone cannot fulfil it. Of course, there will be public-private partnerships. Over the next five years, the Centre alone should be able to at least spend 2.1 per cent of the GDP on health,” N K Singh, chairman of the 15th Finance Commission recently said. Whatever the reason, even in normal times the emphasis on public health should not have diminished. But if only the reports of the finance commission for instance were deliberated and hotly debated in the class rooms will the future economists not get a peep into how our financial policies lays the framework for declining public sector investments in social sectors, and also lead to the kind of stark socio-economic inequalities.

Still, the bigger lesson is that if Britain can spend 9.6 per cent of its GDP on public health, why should India not try to catch up with at least 6 per cent to begin with? Why should public sector investment in agriculture continue to hover around 0.4 per cent of the GDP (between 2011-12 and 2017-18) when the sector employs roughly 50 per cent population? Why should the poor continue to live on the margins while the rich are routinely provided with massive bank write-offs, tax cuts and subsidies packed in the name of incentives for growth? Why should we have socialism for the rich, and leave poor to the market forces? Why should growth economics come in conflict with nature?     

These are not difficult questions, but need a rethinking in economics. #

Incentives for the rich, raw deal for the poor. The Tribune. July 13, 2020


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