Category: Economy
Jarvis DeBerry: The tax breaks for jobs scheme isn’t working out for Louisiana
worker | June 29, 2021 | 7:54 pm | Economy, Local/State | No comments

https://www.nola.com/opinions/article_fc87f8fa-d45c-11eb-8666-130fce735f95.html

Jarvis DeBerry: The tax breaks for jobs scheme isn’t working out for Louisiana

marathon oil refinery 2019_001.jpg
The Marathon Petroleum refinery in Garyville, La. Thursday, Dec. 12, 2019.

You, I and every other American taxpayer helped out Marathon Petroleum during the worst of the pandemic. Then, the same year it secured its $2.1 billion in federal tax benefits — the most of any U.S. oil company — Marathon let go almost 1,920 employees.

The “reductions,” to use Marathon’s word, included 45 workers at Marathon’s refinery in St. John the Baptist Parish who probably don’t say “reduced” when describing what the company did to them.

Marathon grabbed up our money but let go our neighbors. “Understanding the benefits that Marathon received to presumably stimulate them into maintaining full employment,” one of the laid-off workers told reporter Chris Staudinger, “it’s frustrating to have still been chopped.”

But in Louisiana, it’s not uncommon for industry to get government help — most often tax exemptions from the state — only to cut workers. The mere promise of jobs is enough to make state officials genuflect before the companies offering them.

Even when a company says up front it’s going to double the amount of pollution — consider Formosa’s plan to emit 800 tons of toxic air pollution each year in St. James Parish — we are told to pipe down lest we chase away potential jobs.

Robert Taylor, the 80-year-old leader of Concerned Citizens of St. John, made it clear in a phone interview that no number of jobs justifies people breathing air that’s killing them. When Taylor’s wife was diagnosed with cancer, he moved her out of state. His daughter also left because, according to Taylor, she and three other Black women in St. John developed an autoimmune disease that only one in 5 million people get.

Taylor lives closer to the Denka plant (formerly Dupont) than to Marathon and mostly blames that plant for his family’s poor health, but he says none of the companies in St. John that boast about job creation provide evidence.

“All these companies, they guard their personnel records with their lives,” Taylor said. “There’s no access to anything about the demographics of employees. We’ve been fighting with (Marathon) as well as with DuPont/Denka to give us the statistics to let us know — since they brag about all the jobs. We’re always trying to find out what percentage of the population that has been impacted by them the most are they employing.”

But again, who cares?

“I would not trade off the health of the people here for any job at all,” Taylor said. “What good is a job going to do you if you’re dying? I know a guy who has retired (from Marathon); he got his son on. Both he and his son contracted the same form of cancer, but they are better able to deal with it and get the right medical care. They both survived the cancer, but the average person that lives here, which is 99% of us, we don’t have the kind of medical insurance and care that Marathon can give to the few token Blacks that they do hire.”

On the last day of the legislative session, state Rep. Royce Duplessis (D-New Orleans) asked the Louisiana House to extend the current 5% federal earned income tax credit by five years, calling it “good policy that … serves working people at the bottom of the totem pole.” state Rep. Blake Miguez (R-Erath), the leader of the Republican Caucus, objected to the projected cost of $20.5 million a year.

“This institution,” state Rep. Barry Ivey (R-Central) said in defense of Duplessis’ bill, “gives everything away for corporate, for business. We give it away. We don’t even think about it…. But when it comes to the people of our state, we’re going to have these unbelievable philosophical questions and concerns about whether it’s the right thing to do.”

In May, Ivey expressed dismay at his House colleagues who approved a bill that would have let companies getting tax breaks to create jobs keep private the salaries they pay their hires. That bill died in the Senate, but the message was still sent that, just like the feds, Louisiana doesn’t care much what corporations do after taking our money.

That’s one of many reasons we know the U.S. Supreme Court was wrong when it ruled in 2010 that corporations are people. People are capable of shame.

Real estate speculators gambling on US inequality getting worse, Professor Wolff tells RT’s Boom Bust
worker | June 21, 2021 | 7:51 pm | Economy | Comments closed

https://www.rt.com/business/526806-us-housing-market-speculation/

Real estate speculators gambling on US inequality getting worse, Professor Wolff tells RT’s Boom Bust

Real estate speculators gambling on US inequality getting worse, Professor Wolff tells RT’s Boom Bust
Could the US housing bubble pop like it did in 2008? Professor Richard Wolff shares his analysis of the ongoing housing boom, and what the effects of the hot market could be.

He tells Boom Bust that when it comes to the issue of housing, inflation is “very extreme” in a number of countries, with price movements similar to those seen before the real estate market collapsed back in 2008.

“The problem now is the big speculators – Wall Street banks, venture capital outfits, equity investors – all in there, buying record numbers of housing wherever they think they are going to make a killing,” the host of Economic Update explains. “They are gambling, correctly, I believe, that American inequality is getting worse, that therefore the number of Americans that can afford housing, even before you take into account the rising prices, is a falling number. And that therefore people will not be buying the way they once did, they will be renting because they have to.”

For more stories on economy & finance visit RT’s business section

Wall Street banks ditch $19 billion of stocks in ‘unprecedented’ block trade selloff – media
worker | March 28, 2021 | 8:09 pm | Economy, Political Pandemonium | Comments closed

https://www.rt.com/business/519419-wall-street-banks-block-trades/

Wall Street banks ditch $19 billion of stocks in ‘unprecedented’ block trade selloff – media

Wall Street banks ditch $19 billion of stocks in ‘unprecedented’ block trade selloff – media
Goldman Sachs and Morgan Stanley have reportedly sold $19 billion worth of shares in Chinese tech and US media companies. Traders are now wondering what caused the unusually massive move and whether it will continue next week.

Goldman Sachs alone liquidated $10.5 billion worth of stocks in block trades on Friday, Bloomberg reported citing the investment bank’s email to clients. The first batch, that included $6.6 billion worth of shares of Baidu, Tencent Music Entertainment Group and Vipshop Holdings, was sold before the market opened on Friday. Later that day, the bank reportedly managed the sale of $3.9 billion worth of shares in American media conglomerates ViacomCBS and Discovery, as well some other companies, such as Farfetch, iQiyi and GSX Techedu.

ALSO ON RT.COMPandemic profiteer: Morgan Stanley makes a killing during coronavirus crisisAnother US investment bank involved in the block trades, which are believed to have wiped $35 billion off affected firms’ valuations in just one day, was Morgan Stanley. The investment bank offered two batches of shares worth $4 billion each on Friday, according to the Financial Times.

While block trades, when sellers are looking for buyers for large volumes of securities at a price sometimes negotiated privately between the two parties, are a common thing, the scale of Friday’s moves raised eyebrows.

“I’ve never seen something of this magnitude in my 25-year career,” portfolio manager at Swiss-based Bellevue Asset Management AG, Michel Keusch, told Bloomberg.

Senior vice president at Wealthspire Advisors, Oliver Pursche, called the move “highly unusual,” adding that the market participants are now wondering if another wave of block trades could hit the market on Monday and Tuesday, causing wild price swings in the affected stocks.

Another issue is the unclear nature of those trades. Goldman Sachs explained the sales with “forced deleveraging,” the Financial Times wrote citing people with knowledge of the matter. The outlet also said that the move could indicate that a big hedge fund or family office faced some serious problems.

Meanwhile, CNBC reported the selling pressure in some US media and Chinese stocks was linked to the forced liquidation of positions held by family investment office Archegos Capital Management. The lack of details about the move makes the situation worrisome, Pursche said, as investors don’t know “whether this was the liquidation of just one fund or more than a fund, or whether it was a fund liquidation to begin with and the reason behind it.”

For more stories on economy & finance visit RT’s business section

Capitalism Run Amok Is Just Plain Capitalism
worker | April 22, 2018 | 8:25 pm | Analysis, Armenia, Economy | Comments closed

http://hetq.am/eng/news/58171/capitalism-run-amok-is-just-plain-capitalism.html/

Capitalism Run Amok Is Just Plain Capitalism

 

16:37, January 17, 2015
By Markar Melkonian

The source of Armenia’s misery and humiliation, we often hear, is not capitalism per se, but rather “gangster capitalism,” “a broken system,” “capitalism run amok.”

The goal for the future, then, is to “fix the system,” to reform capitalism, to make it more like regular, pure, genuine Free Enterprise, the kind of capitalism that works.  But what if Armenia’s actually existing capitalism already is genuine capitalism?

An economist once observed that the only existential meaning of “enterprise” in the term free enterprise is “whatever capitalists happen to be doing at the time”–and “free” is the accompanying demand that they be allowed to do it.

In Armenia, successive presidents, legislators, ministers, and mayorshave certainly allowed them to “do it.”Post-Soviet cliques have privatized public land, seized factories, and plundered resources.  They have shredded the social safety net,unleashed the “job creators” on child labor; eliminated overtime pay; dispensed with job safety standards, trashed even the most minimal environmentalregulations, and generally done everything they can toenrich themselves and their cronies, seemingly without a thought to the welfare of the vastmajority.  Over the years, Hetq.am has done a truly admirable job of reporting the daily pillage.

Armenia’s plutocrats justify their actions in the name of free enterprise, and their point is well taken.  After all, a law prohibitingthe exploitation of child labor or the poisoning of drinking water is nothing if it is not state regulation of the market.  Building public schools and enacting laws that protect forestsmake markets less free.So if Free Enterprise really were as important as the IMF and the advisors from Chicago say it is, then Armenia’s oligarchs really are the national heroes they think they are.

One of the Ronald Reagan admirers who led Armenia’s charge down the road to ruinexemplified the wisdom of Yerevan’s Free Marketeers: “free market reform,” he wrote, is the path “which has been traveled by many other nations and which leads to happiness.”(Vazgen Manukian, quoted in Jirair Libaridian (ed.), Armenia at the Crossroads, 1991, p. 52.)  In the years since he made this announcement, we have beheld the happiness that free market reform has wrought in many other nations, from Mexico to Greece, and from Iceland to India, where in recent yearsa quarter of a million farmers have committed suicide.

The oligarchs and their IMF advisors, of course,are willing to pay this price for the sake of their Free Market utopia.  Or rather, they are willing to make the poor pay this price.  For decades, sensitive commentatorsin the West excoriated Joseph Stalin for his “blood-curdling” suggestion that the end justifies the means.  These days, those same commentatorsdo not give a passing thought to the hundreds of millions of lives consigned to displacement,drudgery, fear,and early death in the name of free market reform.

A quarter century ago, the Ter Petrosyan administration set Armenia off on the path to happiness by doling out state property to cronies and racketeers,guttingthe industrial infrastructure, and shredding the social safety net.  Hundreds of thousands of workers lost their jobs, anduntold thousands of Armenians, especially the elderly and the very young, have died of exposure, food poisoning, preventable accidents, and lack of access to basic healthcare.

Since then, aparade of alternating opposition figures and national saviors have come into office, enriched themselves and their cronies, and then left the scene with the loot, one after another.  Despite the personnel changes, though, economic policy has continued to benefit the rich few, at the expense of the poor majority.

Armenia has undergone twenty-five years of foreign-directed reform:  privatization, shock therapy, conditionalities, and so on.  Every time we turn around, it seems that more “reform” is needed.  And the reform always seems to require further wage cuts, further cuts to social programs, further deregulation, and ever more sacrifice from the have-nots.  Consider the much-ballyhooed Structural Adjustment Policies (SAPs) of earlier years:  for Armenia, as for other poor debtor countries, SAPs required:

  •  selling off state enterprises to the private sector;
  • eliminating price controls and producer and consumer subsidies for agricultural goods;
  • devaluing the local currency;
  • cutting consumer subsidies and charging user fees for social services such as health care and education;
  • dropping protectionist measures and reducing regulation of the private sector;
  • providing guarantees, state-funded infrastructure, tax breaks, and wage restraints as incentives for investment;
  • dismantling foreign exchange restrictions (which has allowed wealthy locals to export funds overseas, as capital flight, worsening balance-of-payment deficits).

As a result of these policies, Armenia today can boast of Enterprise that is as Free as anywhere on Earth.  Readers of Hetq.am are aware of the consequences:  sky-high unemployment; proliferating poverty; the depopulation of the countryside; deforestation; plummeting birth rates; falling life expectancies, and, of course, the catastrophic outmigration of one third of Armenia’s population.  Successive plutocrats have lengthened the work week, lowered the legal work age, evicted families from their homes in order to build “elite homes for elite guys,” demanded ever-higher bus fares for a privatized transport system; raised university fees far beyond the means of most families, attempted to privatize social security, and so on and so forth, ad nauseam.

It is a sad commentary on the state of intellectuals in Armenia today that few of them are even aware of the work of the great social geographer David Harvey, who has so accurately described the process of “capital accumulation by dispossession” that characterizes scores of countries like Armenia.  When is someone going to translate Harvey’s book, The New Imperialism, into Armenian?

In Armenia, as we know, “free market reform” has taken place against the background of official impunity, the jailing of dissidents, electoral manipulation, and fraud so pervasive that it would have astonished even the most cynical Armenians of the Soviet period.

Let us remind ourselves that these measures were undertaken under the tutelage of the IMF and the World Bank, in strict adherence to Free Market doctrines.  All the while, Western agencies and bureaucracies have heartily congratulated their Armenian followersfor rapidly privatizing state property, “making hard choices,” and faithfully carrying out Washington’s directives.

David Brooks, one of the more thoughtful American Free Market columnists, recently acknowledged that, curiously, post-Soviet success stories are rare.  (“The Legacy of Fear,” New York Times, November 10, 2014.)  Despite the generalized “wreckage,” however, he was able to identify several success stories, including none other than Azerbaijan and Armenia! That’s right:  according to Brooks, Armenia today counts as one of “only five countries that have emerged as successful capitalist economies” from the former Soviet bloc.

This should surprise the Free Market faithful in Yerevan, who were hoping that ultimate success lay in the bright future, not in the dark present. If this is what a successful capitalist economy looks like, then the question naturally arises:  What was the point of letting capitalists take over the country in the first place?

The Free Market coercion and rhetoric has come full circle:  right-wing politicians in the USA, exemplified by Scott Walker, the governor of the state of Wisconsin, have tried to enact many of the same policies in the USA that the IMF, the CIA, and the economists from Chicago have foisted on vulnerable countries like Pinochet’s Chile and today’s Armenia.  In their arguments for, say, privatization of social security, the Scott Walkers have pointed to policies in Latin America, Eastern Europe, and the former Soviet republics as examples of an irresistible global trend that America must follow.

When the Scott Walkers have failed to achieve their maximal demands, it is because traditional constituencies in the United States with independent organizational presence—notably labor unions—have fought against free market “solutions.”  Here, ironically, America does provide a valuable lesson to Armenia:  resistance to Free Market reform must be organized, sustained, and based in the working class.

The tide of misery rises ever higher, and there is no good reason to hope that further reforms along the same lines will change the trajectory. And yet capitalism still escapes blame for the disasters it has created.  Instead, we are told that “capitalism run amok” is to blame, and that the only antidote is—more capitalism!  This has happened over and over again.

At what point will skepticism kick in?

Free Marketeers love to sermonize about accountability and the responsiveness of the market.  But the Free Marketeers escape all responsibility for their policies and get to prescribe more of the same poison to the patient.

As long as we are unable to describe the problem accurately, we will not even begin to address it in an effective manner. The first step is to start calling the thing by its name:  the main source of Armenia’s devastation in the past twenty-five years is not “capitalism gone amok”; rather, it is capitalist rule.

(MarkarMelkonian is a nonfiction writer and a philosophy instructor.  His books include Richard Rorty’s Politics:  Liberalism at the End of the American Century (Humanities Press, 1999), Marxism: A Post-Cold War Primer (Westview Press, 1996), and My Brother’s Road (I.B. Tauris, 2005, 2007), a memoir/biography about Monte Melkonian, co-written with Seta Melkonian)

Photo by Sara Anjargolian

Africa/Global: Charting Where They Hide the Money, 1
worker | March 12, 2018 | 7:31 pm | Africa, Economy | Comments closed

Africa/Global: Charting Where They Hide the Money, 1

AfricaFocus Bulletin March 12, 2018 (180312) (Reposted from sources cited below)

Editor’s Note

“Switzerland, the United States and the Cayman Islands are the world’s biggest contributors to financial secrecy, according to the latest edition of the Tax Justice Network’s Financial Secrecy Index (FSI). … Kenya, which this year set up its own tax haven in the form of the Nairobi International Financial Centre, is an example of how interests of western financial service lobbyists have successfully lured governments into a race to the bottom. Kenya, which has been assessed for the first time in the 2018 FSI, has an extremely high secrecy score of 80/100.” – Tax Justice Network

The FSI for 2018, released by the Tax Justice Network on January 31, is far more than a simple index. It is an in-depth survey as well as ranking of the countries most deeply involved in concealing wealth through offshore financial services. Based on a quantitative measure of the share of such cross-border financial services based in each country, and an in-depth qualitative evaluation of national laws and regulations affecting transparency and secrecy, the FSI provides the indispensable context for investigative journalism exposes of specific cases and advocacy by civil society groups at both national and international levels.

In striking contrast to Transparency International “Corruption Perceptions Index (CPI) (https://www.transparency.org/), which rates countries on the basis of observers’ perceptions of the extent of corruption, the FSI focuses on the mechanisms which permit the fruits of corruption and other hidden assets to be concealed. Ironically, Switzerland, Luxembourg, and the Netherlands are ranked as among the least corrupt on the CPI, but they also lead on the FSI as the best places to hide the fruits of corruption, tax evasion, and other crimes.

The system that allows this to happen is in fact global, and its distribution by country, by intention, is hard to track. This two-part AfricaFocus contains substantive excerpts from the Financial Secrecy Index reports. This first part (sent out by email and available on-line at http://www.africafocus.org/docs18/fsi1803a.php) excerpts overview analyses from the authors covering the global picture and the African continent. The second part, not sent out by email but available at http://www.africafocus.org/docs18/fsi1803b.php) , provides excerpts from country reports on the United Kingdom, the United States, Kenya, Liberia, South Africa, and Mauritius.

Much more extensive data in narrative, database, and graphic formats, is available at http://www.financialsecrecyindex.com

For previous AfricaFocus Bulletins on illicit financial flows, tax evasion, and related topics, visit http://www.africafocus.org/intro-iff.php

++++++++++++++++++++++end editor’s note+++++++++++++++++

Financial Secrecy Index 2018

Introduction

https://www.financialsecrecyindex.com/

The Financial Secrecy Index ranks jurisdictions according to their secrecy and the scale of their offshore financial activities. A politically neutral ranking, it is a tool for understanding global financial secrecy, tax havens or secrecy jurisdictions, and illicit financial flows or capital flight.

An estimated $21 to $32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world. Secrecy jurisdictions – a term we often use as an alternative to the more widely used term tax havens – use secrecy to attract illicit and illegitimate or abusive financial flows.

Illicit cross-border financial flows have been estimated at $1-1.6 trillion per year: dwarfing the US$135 billion or so in global foreign aid. Since the 1970s African countries alone have lost over $1 trillion in capital flight, while combined external debts are less than $200 billion. So Africa is a major net creditor to the world Рbut its assets are in the hands of a wealthy ̩lite, protected by offshore secrecy; while the debts are shouldered by broad African populations.

Yet all rich countries suffer too. For example, European countries like Greece, Italy and Portugal have been brought to their knees partly by decades of tax evasion and state looting via offshore secrecy.

A global industry has developed involving the world’s biggest banks, law practices, accounting firms and specialist providers who design and market secretive offshore structures for their tax- and law-dodging clients. ‘Competition’ between jurisdictions to provide secrecy facilities has, particularly since the era of financial globalisation really took off in the 1980s, become a central feature of global financial markets.

The problems go far beyond tax. In providing secrecy, the offshore world corrupts and distorts markets and investments, shaping them in ways that have nothing to do with efficiency. The secrecy world creates a criminogenic hothouse for multiple evils including fraud, tax cheating, escape from financial regulations, embezzlement, insider dealing, bribery, money laundering, and plenty more. It provides multiple ways for insiders to extract wealth at the expense of societies, creating political impunity and undermining the healthy ‘no taxation without representation’ bargain that has underpinned the growth of accountable modern nation states. Many poorer countries, deprived of tax and haemorrhaging capital into secrecy jurisdictions, rely on foreign aid handouts.

This hurts citizens of rich and poor countries alike.

Switzerland, USA and Cayman top the 2018 Financial Secrecy Index

by George Turner

Tax Justice Network, January 30, 2018

https://www.taxjustice.net/2018/01/30/2018fsi/

Switzerland, the United States and the Cayman Islands are the world’s biggest contributors to financial secrecy, according to the latest edition of the Tax Justice Network’s Financial Secrecy Index (FSI).

The full financial secrecy index can be found online at http://www.financialsecrecyindex.com. There you can find interactive tables and maps of the FSI, as well as download reports on specific countries. A direct link to the table of rankings by country is at http://tinyurl.com/yblxx27e.

Financial secrecy is a key facilitator of financial crime, and illicit financial flows including money laundering, corruption and tax evasion. Jurisdictions who fail to contain it deny citizens elsewhere their human rights and exacerbate global inequality.

The table below shows the top-ranked 54 countries on the FSI. The full interactive table is available here.

Switzerland, the global capital of bank secrecy, retains the worst ranking, and the US has moved up to second. With Bahrain and Lebanon dropping out of the top ten, Guernsey and a new entry in Taiwan has replaced them.

The US’ rise in the FSI 2018 rankings is part of a worrying trend. This is the second time in succession that the USA has risen up the Financial Secrecy Index. In 2013 the States was in 6th place, and in 2015 it took 3rd. In 2015 the country was one of the few to increase its secrecy score. This time the increase in ranking is driven by a huge rise in their share of the market in offshore financial services that wasn’t neutralised by a significant reduction in their secrecy. In total, the share of global offshore financial services taken by the United States rose by 14% between the 2015 and 2018 index from 19.6% to 22.3%.

The United States remains a secrecy jurisdiction as it refuses to take part in international initiatives to share tax information with other countries, and has failed to end anonymous companies and trusts aggressively marketed by some US states. There is now real concern about the damage this promotion of illicit financial flows is doing to the global economy.

Slow progress in the global fight against financial secrecy

The 2015 Index noted several improvements towards global financial transparency following the 2008 financial crisis and the huge budget deficits that it created, where governments around the world sought to reign in tax abuse by its citizens, and by multinational corporations.

Some of those efforts are now starting to bear fruit. Most importantly, countries have now started to exchange information on bank accounts held by foreign citizens in their jurisdictions on an automatic basis.

But this Financial Secrecy Index demonstrates how ten years on from the financial crisis all countries still have a long road ahead of them to improve their performance on financial secrecy. The most transparent country – Slovenia – has a secrecy score of 41.8, out of a total possible score of 100. A score of 0 would represent ideal, competition and market friendly transparency. In other words, if the Financial Secrecy Index were a school exam, Slovenia (the best student) would have barely passed, with less than 60% of the correct “transparency” answers. The worst countries only got close to 10% of the “transparency” questions right (a secrecy score close to 90). Following this analogy, practically all countries would have to repeat the school year.

The top two countries in this year’s FSI are the two that have been most resistant to the key policy of automatic information exchange between tax authorities. The US refuses to take part altogether. Instead, it has set up its own parallel system (FATCA) which seeks information on US citizens abroad, but provides little, if any, data to foreign countries.

The global capital of banking secrecy, Switzerland has delayed the implementation of automatic information exchange, and in 2017 lawmakers attempted to stop it altogether with countries they deemed ‘corrupt’. As the FSI demonstrates, countries like Switzerland are fundamental to the flow of illicit financial funds, such as the proceeds of corruption. Switzerland’s attempts to stop transparency for funds they receive from countries with perceived high levels of corruption will simply make tackling corruption in those countries harder.

After the financial crash further scandals have led to a greater push for more transparency, such as the demand for public registers of company owners. Yet this progress has been difficult, as powerful vested interests working with friendly governments seek to frustrate change. The UK government for example continues to insist on the right of its satellite tax havens to maintain the secrecy of company ownership, and the German government, with others, have sought to impede attempts to make progress on the beneficial ownership issue within the European Union.

Financial secrecy’s impact on human rights

Six out of the Top 10 FSI 2018 countries are either members of the OECD or their dependencies. Another three are Asian tax havens, demonstrating how major economies are driving the market for financial secrecy.

Secrecy jurisdictions are found all over the world. On this map the top ten are shown in blue. An interactive version of the map is available here.

Kenya, which this year set up its own tax haven in the form of the Nairobi International Financial Centre, is an example of how interests of western financial service lobbyists have successfully lured governments into a race to the bottom. Kenya, which has been assessed for the first time in the 2018 FSI, has an extremely high secrecy score of 80/100.

By harboring the ill-gotten gains of kleptocrats and tax evaders, secrecy jurisdictions deprive governments of the resources needed to provide basic social protection, and encourage the looting of natural resources.

This impact of financial secrecy on the abuse of human rights is increasingly recognised globally. Switzerland has been sharply criticised by the United Nations for the damage that its financial secrecy causes to human rights around the world, while a recent statement by the UN Special Rapporteur on Extreme Poverty and Human Rights, highlighted the poverty and inequality suffered by citizens of the United States, in part driven by their government’s desire to become a tax haven. This statement comes at a time when our index shows the country undermining rights elsewhere through its promotion of financial secrecy.

How we created the world’s leading study of financial secrecy

The Financial Secrecy Index is the world’s most comprehensive assessment of the secrecy of financial centres and the impact of that secrecy on global financial flows. The European Commission’s Joint Research Centre provided methodological support for the construction of the index. The study is published every two years and is founded on published, independently verifiable data. In contrast to some so called ‘blacklists’ of tax havens, inclusion in the FSI is not based on political decision making.

Countries are assessed against criteria which include whether companies, trusts and foundations are required to reveal their true owners, whether annual accounts are made available online in open data format, or the extent to which jurisdictions’ rules comply with anti-money laundering standards (FATF’s 40 recommendations).

This year several new indicators have been added to the FSI and existing indicators have been substantially revised to drill deeper into questions around ownership registration and disclosure. A total of 20 Key Financial Secrecy Indicators (KFSI) is used for the measurement of the secrecy score.

In order to create the index, a secrecy score is combined with a figure representing the size of the offshore financial services industry in each country. This is expressed as a percentage of global exports of financial services. The bigger player you are, the more responsibility you have to be transparent.

Beyond of what has been achieved so far by academic or regulatory institutions, the new FSI is the most comprehensive and rigorous assessment of financial secrecy worldwide.

New criteria include checking if a jurisdiction provides for

  • A public register of ownership and annual accounts of limited partnerships (KFSI 5);
  • A public register of ownership of real estate and a central register of users of freeports for the storage of high value assets (KFSI 4);
  • Banking secrecy rules protected by criminal law (risk of prison terms for banking whistleblowers; KFSI 1);
  • Public access to tax court verdicts and proceedings, both in criminal and civil tax matters (KFSI 14);
  • Mandatory Legal Entity Identifiers for companies created in its territory (KFSI 10);
  • Harmful tax residency and citizenship rules (KFSI 12);
  • Public access to unilateral tax rulings and robust local filing requirements for Country-By-Country Reports (KFSI 9);
  • Unregistered bearer shares for companies & large banknotes (KFSI 15);
  • Public statistics on its cross-border financial and economic activities (KFSI 16);
  • Mandatory reporting obligations of tax avoidance schemes (KFSI 11).

Africa’s battle against financial secrecy: Financial Secrecy Index

by Rachel Etter-Phoya

Tax Justice Network, February 14, 2018

https://www.taxjustice.net/ – direct URL: http://tinyurl.com/yb7s2txa

How are Switzerland, the United States, and the Caymans working against African efforts to stem the tide of illicit financial flows? They’re among the worst offenders in the Tax Justice Network’s 2018 Financial Secrecy Index.

The index was launched at the end of January 2018 and weights a country’s secrecy score against its global share of financial services. This means that countries that top the rankings have a far higher risk for illicit financial flows running through their systems than countries that may have a higher level of secrecy, but have much smaller-scale financial services. 20 key indicators are used to assess secrecy levels, including banking and tax court secrecy, country-by-country reporting compliance, ownership disclosure rules, and tax administration capacity.

The problem for Africa

Africa remains a net creditor to the world because of illicit financial flows. These flows include money from criminal activity and corruption, tax evasion, avoidance and planning, as well as hidden wealth. So-called foreign aid is dwarfed by the amounts that are leaving the continent. Sub-Saharan African countries lost over USD 1 trillion in capital flight between the 1970s and 2010; external debt was less than one-fifth of this. Financial secrecy is the enabler.

The Paradise Papers was a disturbing reminder of the scale of the problem. 13.4 million documents were leaked from Appleby, a leading British offshore law firm, and Asiaciti, a family-owned trust company, which were investigated by over 90 media partners with the International Consortium of Investigative Journalists.

We learned that Namibians lost potential tax revenues from its fishery resources through a complex corporate arrangement that exploited a double tax treaty signed with Mauritius. Angolans’ sovereign wealth fund was tapped into by a financier who incorporated companies in secrecy jurisdictions for investment projects in which he had a stake. And mining giant Glencore’s nefarious practices in the Democratic Republic of the Congo and in Burkina Faso have also likely reduced the revenue these governments have to spend on vital public services.

South Africa has also had its fair share of challenges with secrecy jurisdictions. The notorious Gupta family along with their politically-exposed associates have been able to hide behind opaque companies to gain questionable access to government contracts. For example, the family is reported to have used shell companies in the United Arab Emirates to move ‘the dubious proceeds of state tenders in South Africa to their collection of shell companies in and around Dubai’. The United Arab Emirates is ranked number nine in the Financial Secrecy Index 2018, with an ‘”ask-noquestions, see-no-evil” approach to commercial transactions, financial regulation and crimes’.

African secrecy jurisdictions on the rise

Financial secrecy has also reared its ugly head on the continent itself. Nine African countries are included in this year’s Financial Secrecy Index:

Kenya found itself in the top 30 countries worldwide with a very high secrecy score (80 out of 100). This may not come as a surprise. The country’s Vision 2030 includes the establishment of the Nairobi International Financial Centre as one of its commitments. Legislation entered into force in September last year to encourage foreign direct investment to be channelled through the East African nation to other countries in the region. Kenya has adopted a model similar to the City of London (the UK having experienced the Finance Curse phenomenon as a result) and continues to increase its network of double tax agreements.

Double tax agreements aim to prevent income being taxed twice. Yet a number of associated risks undermine the collection of tax. The treaties restrict the rights of states to tax foreign investors and owned companies and often do not include adequate automatic exchange of information provisions. Multinationals and sometimes domestic companies may set up an entity in an intermediary country, even when they have no substantive economic activities, to exploit tax treaties in place. This ‘treaty shopping’ enables companies and individuals to pay lower taxes in conduit countries and avoid taxes all together in the countries where activities are taking place.

However, with just 15 tax treaties in force, Kenya has some way to go if it is to compete with one of Africa’s oldest secrecy jurisdictions, Mauritius. In a bid to reduce its reliance on sugar back in the 1970s, this island nation started offering preferential tax terms and exemptions to foreign investors, and similar ones exist today. The country has entered double tax agreements with 43 nations, 16 of which are with African states. Zero-percent capital gains tax has lured many companies to set up shop – with no genuine economic activity – on the island, significantly reducing their tax burden at the expense of other countries, often not paying capital gains tax anywhere. South Africa and India have successfully renegotiated their agreements with Mauritius to be able to collect capital gains and withholding tax. Other African nations, including Lesotho and Zambia, are following suit and renegotiating treaties.

Ghana toyed with setting up an International Financial Services Centre (IFSC) and went as far as granting Barclays Bank Ghana Limited an offshore banking licence in the early 2000s although President John Atta Mills revoked the licence in 2011 to avoid OECD blacklisting. Worringly, it appears the country has plans to revive the IFSC.

Much more can be said about secrecy on the continent. We have prepared narrative reports for eight of the nine African countries included in the Index. Take a look here. Our partner Tax Justice Network Africa also has a blog series on financial secrecy. Part 1 is available here.

Global solutions

Some changes have been made to the global infrastructure to tackle secrecy since TJN launched the first Index in 2009. For example, the OECD is mandated by the G20 to roll out the automatic exchange of information on taxation, but coverage is patchy and some countries, particularly African ones, are missing from the arrangement.

Reform is needed now. Besides individual countries addressing laws and regulations to improve transparency, TJN has identified three major policy responses considering the latest Financial Secrecy Index:

  1. Take counter-measures against tax haven USA: the USA ranks second in the Index this year because it has not improved transparency while other countries have acted. The global scale of its financial services has also increased. The USA needs to make it illegal to establish anonymous companies within its borders and it must comply with the standard for automatic exchange of tax information. We have a policy proposal for how to incentive the USA, here.
  2. Adopt the Tax Justice Network’s ABCs of tax transparency: all countries must be included in the Automatic exchange of information and aggregate statistics published, all entities must disclose their Beneficial owners and data should be online, free and in open data format for companies, trusts and foundations, and all multinational companies must comply with public Country-by-country reporting.
  3. Introduce a UN global convention on tax transparency: ambitious standards should be set, with the ABCs of tax transparency at a minimum, through a global, inclusive process that outlines meaningful sanctions for non-cooperation.

If this issue was forwarded to you by email, and you want to receive AfricaFocus Bulletin regularly, sign up here.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org

This is Capitalism #5 – The world’s richest 1% took home 82% of the wealth produced by workers in 2017
worker | January 22, 2018 | 8:24 pm | Analysis, class struggle, Economy | Comments closed

Monday, January 22, 2018

This is Capitalism #5 – The world’s richest 1% took home 82% of the wealth produced by workers in 2017

http://www.idcommunism.com/2018/01/this-is-capitalism-5-worlds-richest-1.html
Eighty two percent (82%) of the wealth generated last year went to the richest one percent of the global population, while the 3.7 billion people who make up the poorest half of the world saw no increase in their wealth, according to a new Oxfam report released today. The report is being launched as political and business elites gather for the World Economic Forum in Davos, Switzerland.
According to Oxfam,
  • Billionaire wealth has risen by an annual average of 13 percent since 2010 – six times faster than the wages of ordinary workers, which have risen by a yearly average of just 2 percent. The number of billionaires rose at an unprecedented rate of one every two days between March 2016 and March 2017.
  • It takes just four days for a CEO from one of the top five global fashion brands to earn what a Bangladeshi garment worker will earn in her lifetime. In the US, it takes slightly over one working day for a CEO to earn what an ordinary worker makes in a year.
  • It would cost $2.2 billion a year to increase the wages of all 2.5 million Vietnamese garment workers to a living wage. This is about a third of the amount paid out to wealthy shareholders by the top 5 companies in the garment sector in 2016.
South Africa/USA: Inequality Extreme and Rising
worker | January 17, 2018 | 8:38 am | Africa, Economy | Comments closed

South Africa/USA: Inequality is Extreme and Still Rising

AfricaFocus Bulletin January 15, 2018 (180115) (Reposted from sources cited below)

Editor’s Note

“I came here because of my deep interest and affection for a land settled by the Dutch in the mid-seventeenth century, then taken over by the British, and at last independent; a land in which the native inhabitants were at first subdued, but relations with whom remain a problem to this day; a land which defined itself on a hostile frontier; a land which has tamed rich natural resources through the energetic application of modern technology; a land which once imported slaves, and now must struggle to wipe out the last traces of that former bondage. I refer, of course, to the United States of America.” – Robert F. Kennedy, University of Cape Town, June 6, 1966

More than 50 years after Robert Kennedy’s speech in Cape Town, there have been many victories in the fight for political rights and against racial discrimination in both South Africa and the United States. The sacrifices and victories of those decades should not be discounted.

Nevertheless, despite tha advance of many African Americans and Black South Africans into positions of power and wealth, the inequality inherited from that history remains deeply imprinted in the society and the economy. Its effects are felt not only in the explicit racial inequalities that still exist, but also in the ideologies rationalizing inequality more generally and legitimizing structural inequalities as the allegedly deserved outcome of individual achievement.

The World Inequality Report, just released, documents with the best data available on the trends of inequality at global and national levels, a necessary but of course insufficient step in finding remedies to reverse the trend of increasing inequality and to repair the damages still felt from historical inequities.

This AfricaFocus Bulletin contains excerpts from the chapters on South Africa and the United States from the new World Inquality Report. Excerpts from the executive summary of the report appear in another AfricaFocus Bulletin sent out today and available at http://www.africafocus.org/docs18/ineq1801.php.

For previous AfricaFocus Bulletins on South Africa, visit http://www.africafocus.org/country/southafrica.php

++++++++++++++++++++++end editor’s note+++++++++++++++++

World Inequality Report 2018

Trends in global income inequality

For the full report, database, and extensive additional background information, visit http://wir2018.wid.world/

Robert F. Kennedy in Soweto, June 8, 1966. Credit: Photo taken by Alf Kumalo

2.12: Income inequality in South Africa

  • South Africa stands out as one of the most unequal countries in the world. In 2014, the top 10% received 2/3 of national income, while the top 1% received 20% of national income.
  • During the twentieth century, the top 1% income share was halved between 1914 and 1993, falling from 20% to 10%. Even if these numbers must be qualified, as they are surrounded by a number of uncertainties, the trajectory is similar to that of other former dominions of the British Empire, and is partly explained by the country’s economic and political instability during the 1970s and 1980s.
  • During the early 1970s the previously constant racial shares of income started to change in favor of the blacks, at the expense of the whites, in a context of declining per capita incomes. But while interracial inequality fell throughout the eighties and nineties, inequality within race groups increased.
  • Rising black per capita incomes over the past three decades have narrowed the interracial income gap, although increasing inequality within the black and Asian/Indian population seems to have prevented any decline in total inequality.
  • Since the end of Apartheid in 1994, top-income shares have increased considerably. In spite of several reforms targeting the poorest and fighting the segregationist heritage, race is still a key determinant of differences in income levels, educational attainment, job opportunities and wealth.

South Africa’s dual economy is among the most unequal in the world

South Africa is one of the most unequal countries in the world. In 2014, the top 10% of earners captured two thirds of total income. This contrasts with other high-income inequality countries such as Brazil, the United States and India where the top 10% is closer to 50–55% of national income. However, unlike other highly unequal countries, the divide between the top 1% and the following 9% in South Africa is much less pronounced than the gap between the top 10% and the bottom 90%. Otherwise said, in terms of top income shares, South Africa ranks with the most unequal Anglo-Saxon countries, but, at the same time, there is less concentration within the upper income groups, mostly composed by the white population. The average income among the top 1% was about four times greater than that of the following 9% in 2014 (for comparative purposes, the top 1% in the United States earn seven times more than the following 9%), while average income among the top 10% was more than seventeen times greater than the average income of the bottom 90% (it is eight times more in the United States). It is then only logical that the income share of the top 1% is high, capturing 20% of national income, though this is not the largest share in the world.

The South African “dual economy” can be further illustrated by comparing South African income levels to that of European countries. In 2014, the average national income per adult among the richest 10% was €94 600, at purchasing power parity, that is, comparable to the average for the same group in France, Spain or Italy. But average national income of the bottom 90% in South Africa is close to the average national income of the bottom 16% in France. In light of these statistics, the recently debated emergence of a so-called middle class is still very elusive. Rather, two societies seem to coexist in South Africa, one enjoying living standards close to the rich or upper middle class in advanced economies, the other left behind.

Inequality has decreased from the unification of South Africa to the end of apartheid

South Africa is an exception in terms of data availability in comparison with other African countries. The period for which fiscal data are available starts in 1903 for the Cape Colony, seven years before the Union of South Africa was established as a dominion of the British Empire, and ends in 2014, with some years sporadically missing, and noticeably an eight- year interruption following the end of apartheid in 1994. As is often the case with historical tax data series, only a very small share of the total adult population was eligible to pay tax in the first half of the twentieth century. Therefore, the fiscal data from which we can estimate top-income shares allows us to track the top 1% income share since 1913, but only cover the top 10% of the population from 1963 (with a long interruption between 1971 and 2008).

With important short run variations, the evolution of income concentration over the 1913–1993 period seems to follow a very clear long-term trend. The income share of the richest 1% was more than halved between 1913 and 1993, falling from 22% to approximately 10%. Not only did the income share attributable to the top 1% decrease, but inequality within this upper group was also reduced. Indeed, the share of the top 0.5% fell more quickly than the share of the next 0.5% (from percentile 99 to percentile 99.5). Consequently, while the top 0.5% represented about 75% of the top 1% in 1914, by the end of the 1980s, their representative proportion fell to 60%.

Despite the extreme social implications of the first segregationist measures that were implemented in the early 1910s, these policies did not lead to large increases in income concentration among the top 1%. This was also a time in which South Africa progressively developed its industrial and manufacturing sector, enjoying notable accelerations in the 1930s that were to the benefit of the large majority of the population. Aside from a brief fall during the Great Depression, average real income per adult then increased steadily. Following a trend similar to other former Dominions of the British Empire (Australia, Canada and New Zealand) inequality decreased significantly in South Africa from 1914 to the beginning of the the Second World War, despite some short-run variations in the late 1910s: the income share of the top 1% fell from 22% to 16%.

During the Second World War, national average continued to follow its previous trend, but the average real income of the richest 1% took off. As a consequence of the demand shock during the war, the agricultural export prices boomed, the manufacturing sector more than doubled its output between 1939 and 1945, and profits for the foundry and engineering industries increased by more than 400%. However, the wage differential between skilled/white and unskilled/black workers remained extremely large. As C.H. Feinstein described, “black workers [were] denied any share of the growing income in the new economy they were creating.” The fact that the peak in the income share of the top 1%–as high as 23% in 1946–was concomitant with the war effort thus seems essentially due to a brief enrichment of the upper class.

In contrast, income growth in the 1950s was more inclusive, as average real income per adult increased by 29% between 1949 and 1961, while the average real income of the top 1% slightly decreased. By 1961 the income share of the top 1% had fallen to around 14%. In the 1960s, both averages grew approximately at the same rate such that inequality remained relatively constant. Following 60 years of successive increases, national average income was almost four times greater by the early 1970s than in 1913. Inequality resumed its downward sloping trend from 1973, but this also marked a period of overall income growth stagnation in South Africa until 1990 that culminated in a three-year recession.

For the first time in the previous 90 years, gold output started falling. Richer seams were exhausted and extraction costs increased rapidly. The industry that was once the engine of the economy started to weaken. Increases in oil prices and other commodities accelerated inflation dramatically, averaging about 14% per year between 1975 and 1992. In the 1980s, international sanctions and boycotts were placed on South African trade as a response to the apartheid regime, adding further pressure to that created by domestic protests and revolts, and contributed to the destabilization of the regime in place. White dominance was challenged on both economic and political grounds, to which the ruling government progressively made concessions, recognizing trade unions and the right to bargain for wages and conditions; this could partly explain why the average real income per adult of the top 1% decreased faster than the national average.

The progressive policies implemented after apartheid were not sufficient to counter a profoundly unequal socio-economic structure

There are no fiscal data to estimate top-income shares for the eight years that followed 1993. However, joining up the data points to the next available figure in 2002 suggests that income inequality has increased sharply between the end of apartheid and the present, even if the magnitude of the increase must be taken with caution, as the estimates in these two periods may not be totally comparable. The income share of the top 1% increased by 11 percentage points from 1993 to 2014. Part of the increase from 1993 to 2002 should come from changes in the tax code. In particular, before 2002, capital gains were totally excluded, which is very likely to downward bias the share of top-income groups. Also, the tax collection capabilities seem to have increased substantially in the last years. That being said, household survey data for the years 1993, 2000 and 2008 research has demonstrated that inequality increased significantly during the period for which we have no fiscal data.

At first, it might seem puzzling that the abolishment of a segregationist regime was followed by an aggravation of economic inequality. The establishment of a multiracial democracy, with a new constitution and a president of the same ethnic origin as the majority of the population, did not automatically transform the inherited socio-economic structure of a profoundly unequal country. Interracial inequality did fall throughout the eighties and nineties, but inequality within race groups increased: rising black per capita incomes over the past three decades have narrowed the black-white income gap, although increasing inequality within the black and Asian/Indian population seems to have prevented any decline in aggregate inequality. In explaining these changes scholars agree in that the labor market played a dominant role, where a rise in the number of blacks employed in skilled jobs (including civil service and other high-paying government positions) coupled with increasing mean wages for this group of workers.

Since 1994, several redistributive social policies have been implemented and/or extended, among which important unconditional cash transfers targeting the most exposed groups (children, disabled and the elderly). At the same time, top marginal tax rates on personal income were kept relatively high and recently increased to 45%. However, in spite of these redistributive policy efforts, surveys consistently show that top-income groups are still overwhelmingly white. Other studies further demonstrate that such dualism is itself salient along other key dimensions such as unemployment and education. Furthermore wealth, and in particular land, is still very unequally distributed. In 1913, the South African parliament passed the Natives Land Act which restricted land ownership for Africans to specified area, amounting to only 8% of the country’s total land area, and by the early 1990s, less than 70 000 white farmers owned about 85% of agriculture land. Some land reforms have been implemented, but with seemingly poor results, and it is likely that the situation has not improved much since, although precise data about the recent distribution of land still needs to be collected.

Given this socio-economic structure, the interruption of the international boycotts in 1993 might have more directly favored a minority of high skilled and/or richer individuals who were able to benefit from the international markets, which therefore contributed to increase inequality. This hypothesis would also explain the fact that income inequality in South Africa did not increase in the 1980s, while boycotts were put in place, contrary to other former Dominions (New Zealand, Canada and Australia) despite the country having so far followed a similar trend. Furthermore, the implementation of the Growth, Employment and Redistribution (GEAR) program in 1996, which consisted of removing trade barriers, liberalizing capital flows and reducing fiscal deficit might also have contributed, at least in the short run, to enrich the most well off while exposing the most vulnerable, in part by increasing returns to capital over labor and to skilled workers over unskilled workers.

The rapid growth experienced from the early 2000s until the mid-2010s was essentially driven by the rise in commodity prices and was not accompanied with significant job creation as the government hoped it would. The income share of the top 1% grew from just less than 18% in 2002 to over 21% in 2007, then decreased by about 1.5 percentage points and increased again in 2012–2013 as prices reached a second peak. The fact that these variations closely mirror the fluctuation in commodity prices suggest that a minority benefiting from resource rents could have granted themselves a more than proportional share of growth.

Lastly, it should be stressed that the top 1% only represents a small part of the broader top 10% elite which is mostly white. While the share of income held by the top 1% is relatively low as compared to other high inequality regions such as Brazil or the Middle East, the income share of the top 10% group is extreme in South Africa. The historical trajectory of the top 10% group may be different to that of the top 1%–potentially with less ups and downs throughout the 20th century. Unfortunately at this stage, historical data on the top 10% group does not go as far back in time as for the top 1% group.”

2.4 Income inequality in the United States

  • Income inequality in the United States is among the highest of all rich countries. The share of national income earned by the top 1% of adults in 2014 (20.2%) is much larger than the share earned by the bottom 50% of the adult population (12.5%).
  • Average pre-tax real national income per adult has increased 60% since 1980, but it has stagnated for the bottom 50% at around $16 500. While post-tax cash incomes of the bottom 50% have also stagnated, a large part of the modest post-tax income growth of this group has been eaten up by increased health spending.
  • Income has boomed at the top. While the upsurge of top incomes was first a laborincome phenomenon in 1980s and 1990s, it has mostly been a capital- income phenomenon since 2000.
  • The combination of an increasingly less progressive tax regime and a transfer system that favors the middle class implies that, even after taxes and all transfers, bottom 50% income growth has lagged behind average income growth since 1980.
  • Increased female participation in the labor market has been a counterforce to rising inequality, but the glass ceiling remains firmly in place. Men make up 85% of the top 1% of the labor income distribution.

Income inequality in the United States is among the highest of rich countries

In 2014, the distribution of US national income exhibited extremely high inequalities. The average income of an adult in the United States before accounting for taxes and transfers was $66 100, but this figure masks huge differences in the distribution of incomes. The approximately 117 million adults that make up the bottom 50% in the United States earned $16 600 on average per year, representing just onefourth of the average US income. As illustrated by table 2.4.1, their collective incomes amounted to a 13% share of pre-tax national income. The average pre-tax income of the middle 40%–the group of adults with incomes above the median and below the richest 10%, which can be loosely described as the “middle class”–was roughly similar to the national average, at $66 900, so that their income share (41%) broadly reflected their relative size in the population. The remaining income share for the top 10% was therefore 47%, with average pre-tax earnings of $311 000. This average annual income of the top 10% is almost five times the national average, and nineteen times larger than the average for the bottom 50%. …

Income is very concentrated, even among the top 10%. For example, the share of national income going to the top 1%, a group of approximately 2.3 million adults who earn $1.3 million on average per annum, is over 20%–that is, 1.6 times larger than the share of the entire bottom 50%, a group fifty times more populous. The incomes of those in the top 0.1%, top 0.01%, and top 0.001% average $6 million, $29 million, and $125 million per year, respectively, before personal taxes and transfers.

As shown by Table 2.4.1 , the distribution of national income in the United States in 2014 was generally made slightly more equitable by the country’s taxes and transfer system. Taxes and transfers reduce the share of national income for the top 10% from 47% to 39%, which is split between a one percentage point rise in the post-tax income share of the middle 40% (from 40.5% to 41.6%) and a seven percentage point increase in the post-tax income share of the bottom 50% (from 12.5% to 19.4%). …

National income grew by 61% from 1980 to 2014 but the bottom 50% was shut off from it

Income inequality in the United States in 2014 was vastly different from the levels seen at the end of the Second World War. Indeed, changes in inequality since the end of that war can be split into two phases, as illustrated by Table 2.4.2 . From 1946 to 1980, real national income growth per adult was strong–with average income per adult almost doubling– and moreover, was more than equally distributed as the incomes of the bottom 90% grew faster (102%) than those of the top 10% (79%). However, in the following thirty-four-year period, from 1980 to 2014, total growth slowed from 95% to 61% and became much more skewed.

The pre-tax incomes of the bottom 50% stagnated, increasing by only $200 from $16 400 in 1980 to $16 600 in 2014, a minuscule growth of just 1% over a thirty-four-year period. The total growth of post-tax income for the bottom 50% was substantially larger, at 21% over the full period 1980–2014 (averaging 0.6% a year), but this was still only one-third of the national average. Growth for the middle 40% was weak, with a pre-tax increase in income of 42% since 1980 and a post-tax rise of 49% (an average of 1.4% a year). By contrast, the average income of the top 10% doubled over this period, and for the top 1% it tripled, even on a post-tax basis. The rates of growth further increase as one moves up the income ladder, culminating in an increase of 636% for the top 0.001% between 1980 and 2014, ten times the national income growth rate for the full population.

The rise of the top 1% mirrors the fall of the bottom 50%

This stagnation of incomes of the bottom 50%, relative to the upsurge in incomes experienced by the top 1% has been perhaps the most striking development in the United States economy over the last four decades. As shown by Figure 2.4.1a , the groups have seen their shares of total US income reverse between 1980 and 2014. The incomes of the top 1% collectively made up 11% of national income in 1980, but now constitute above 20% of national income, while the 20% of US national income that was attributable to the bottom 50% in 1980 has fallen to just 12% today. Effectively, eight points of national income have been transferred from the bottom 50% to the top 1%. … This has increased the average earnings differential between the top 1% and the bottom 50% from twenty-seven times in 1980 to eighty-one times today.

Excluding health transfers, average post-tax income of the bottom 50% stagnated at $20,500

The stagnation of incomes among the bottom 50% was not the case throughout the postwar period, however. The pre-tax share of income owned by this chapter of the population increased in the 1960s as the wage distribution became more equal, in part as a consequence of the significant rise in the real federal minimum wage in the 1960s, and reached its historical peak in 1969. These improvements were supported by President Johnson’s “war on poverty,” whose social policy provided the Food Stamp Act of 1964 and the creation of the Medicaid healthcare program in 1965.

However, the share of both pre-tax and post-tax US income accruing to the bottom 50% began to fall notably from the beginning of the 1980s, and the gap between pre-tax and post-tax incomes also diverged significantly from this point onwards. Indeed, the data indicate that virtually all of the meager growth in the real post-tax income of the bottom 50% since the 1970s has come from Medicare and Medicaid. Excluding these two health care transfers, the average post-tax income of the bottom 50% would have stagnated since the late 1970s at just below $20 500. The bottom half of the US adult population has therefore been effectively shut off from pre-tax economic growth for over forty years, and the increase in their post-tax income of approximately $5,000 has been almost entirely absorbed by greater health-care spending, in part as a result of increases in the cost of healthcare provision.

Taxes have become less progressive over the last decades

The progressivity of the US tax system has declined significantly over the last few decades, as illustrated in Figure 2.4.6 . The country’s macroeconomic tax rate (that is, the share of total taxes in national income including federal, state, and local taxes) increased from 8% in 1913 to 30% in the late 1960s, and has remained at the latter level since. Effective tax rates have become more compressed, however, across the income distribution. In the 1950s, the top 1% of income earners paid 40%–45% of their pre-tax income in taxes, while the bottom 50% earners paid 15–20%. The gap in 2014 was much smaller. In 2014, top earners paid approximately 30%–35% of their income in taxes, while the bottom 50% of earners paid around 25%.

In contrast to the overall fall in tax rates for top earners since the 1940s, taxes on the bottom 50% have risen from 15% to 25% between 1940 and 2014. This has been largely due to the rise of payroll taxes paid by the bottom 50%, which have risen from below 5% in the 1960s to more than 10% in 2014.

Transfers essentially target the middle class, leaving the bottom 50% with little support in managing the collapse in their pre-tax incomes

While taxes have steadily become less progressive since the 1960s, one major evolution in the US economy over the last fifty years has been the rise of individualized transfers, both monetary and in-kind. Public-goods spending has remained constant, at around 18% of national income, but transfers–other than Social Security, disability, and unemployment insurance, which are already included in calculations of pre-tax income–increased from around 2% of national income in 1960 to 11% in 2014. The two largest transfers were Medicaid and Medicare, representing 4% and 3%, respectively, of national income in 2014. Other important transfers include refundable tax credits (0.8% of national income), veterans’ benefits (0.6%), and food stamps (0.5%).

Perhaps surprisingly, individualized transfers tend to target the middle class. Despite Medicaid and other means-tested programs which go entirely to the bottom 50%, the middle 40% received larger transfers in 2014 (totaling 16% of per-adult national income) than the bottom 50% of Americans (10% of per-adult national income). … These transfers have been key to enabling middle-class incomes to grow, as without them, average income for the middle 40% would not have grown at all between 1999 in 2014. By contrast, transfers have not been sufficient to enable the incomes of the bottom 50% to grow significantly and counterbalance the collapse in their pre-tax income.

The reduction in the gender wage gap has been an important counterforce to rising US inequality

The reduction in the gender gap has been an important force in mitigating the rise in inequality that has largely taken place after 1980. …The overall gender gap has been almost halved over the last half-century, but it has far from disappeared. …

Still, considerable gender inequalities persist, particularly at the top of the labor income distribution, as illustrated by Figure 2.4.9 . In 2014, women accounted for close to 27% of the individuals in the top 10% of the income distribution, up 22 percentage points from 1960. Their representation, however, grows smaller at each higher step along the distribution of income. Women make up only 16% of the top 1% of labor income earners (a 13 percentage point rise from the 1960s), and only 11% of the top 0.1% (an increase of 9 percentage points). There has been only a modest increase in the share of women in top labor income groups since 1999. The glass ceiling is still far from being shattered.

If this issue was forwarded to you by email, and you want to receive AfricaFocus Bulletin regularly, sign up here.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org