Graph showing clear correlation between income inequality and social problems

We are told we are “all in this together” …let’s check out some facts.

Divide and Rule
There’s a strong, ongoing push to blame social problems on people who are less well off. Hate crimes against disabled people have been on the increase. In times of economic depression, it is common for racism and anti-Semitism to get stronger. The times we are in are economically worse than those that allowed Hitler to come to power.

Benefit fraud is estimated to cost £1.5billion annually in the UK. Compare this to tax avoidance, evasion and deferred payment coming in at around £120bn.

When the top 20% earns far higher than the bottom 20% in a society (income inequality) social problems get far worse (see the graph above). These are not just problems for the poor-  problems across the whole of society increase. There is less trust and more violence, less interest in the environment, more teenage pregnancy and more obesity. These problems all cost money to tackle. We have to address the root cause and distribute resources more fairly. (The Spirit Level book is a great read for all the details).

Growing Wealth Divide affects the economy and is a political choice
(Much taken from an
article by Prem Sikka)

The UK economy is flatlining, unemployment is rising and around 13.2 million people live below the poverty line. The purchasing power of ordinary people has been severely eroded and people cannot buy goods and services produced by businesses (discussed in Basics as an inherent contradiction of capitalism).

In 1976, the amount of wages and salaries paid to UK employees, expressed as a percentage of GDP (a measure of economic output), stood at 65.1%. By the end of 2011, it was around 54%. This rate of decline is unmatched in any other developed economy. In contrast, the top earners increased their share of earnings by 20%.

In principle, the state can redistribute wealth through taxes, but that possibility is constrained by the erosion of tax revenues. In 1981-82, tax revenues expressed as a percentage of GDP stood at 45.5%, but by 2011-12 they had declined to 37.8%.

So where has the national wealth gone? Well, it has been transferred from employees and the state to corporations and their controllers. In the mid-70s the average rate of profitability before interest and tax stood at 3.9%. Now, despite one of the deepest recessions, it is still averaging around 11-12%.

The seeds of this disastrous position were primarily sown by the policies pursued in the 1980s and 90s. Mass unemployment and government-led attacks on trade unions severely eroded the ability of employees to maintain their share of national wealth. The current UK trade union density of 26.6% of employees is considerably less than for Finland (69.2%), Sweden (68.4%), Denmark (66.6% ) and Norway (54.4%).

The comparative demise of manufacturing has resulted in the disappearance of reasonably well-paid skilled and semi-skilled jobs. These have been replaced by less well-paid service-sector jobs. Privatisation and outsourcing of work has contributed to low wages.

Successive governments have appeased corporations and wealthy elites through tax cuts. The rate of corporation tax has declined from 52% of taxable profits in 1982 and will reach the lowest ever rate of 22% in April 2014. The top marginal rate of income tax has declined from 83%, plus a surcharge of 15% on investment income, in 1978-79, to 45%.

Rather than effectively tackling organised tax avoidance, successive governments have shifted taxes to labour, consumption and savings, as evidenced by higher national insurance contributions, higher VAT (neo-liberals favour value added taxes- added to goods and services) and the failure of tax-free personal allowances and income tax bands to keep pace with inflation.

Taxation can and should be progressive (i.e. the richer you are the more you pay) but most tax regimes (especially with tax havens being allowed to continue) are currently regressive: poor people pay more as a proportion of their income. Households in the bottom 20% of income bracket, who only earn an average of £11,000pa pay 35.5% of their gross income in direct and indirect taxes, compared to the top 20% of households, who earn an average of £80,000 and pay only 33.7% in taxes. How can it be OK for a person earning almost 8 times the income of another to be paying proportionately less tax?

The massive transfer of wealth is camouflaged by government rhetoric on the need to rebuild the economy and control inflation. Sir Alan Budd, a key economic adviser to the Thatcher administration: “My worry is … that there may have been people making the actual policy decisions … who never believed for a moment that this was the correct way to bring down inflation. They did, however, see that it would be a very, very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes – if you like, that what was engineered there in Marxist terms was a crisis of capitalism which recreated a reserve army of labour and has allowed the capitalists to make high profits ever since.”

The purpose of Tax

Tax is almost universally disliked, but it’s worth thinking of how useful it is:

  • Revenue: getting money to pay for things we all need (health services, schools, roads, other useful stuff)
  • Redistribution: taking from the rich and giving to the poor to keep inequality in check.
  • Repricing: countering negative effects and activities of markets, such as pollution through green taxes or speculation through “Robin Hood” taxes (Spahn / Tobin Tax / FTT)
  • Reorganising: the economy is affected by how Governments spend tax receipts: spending more into the economy when it is stagnating and less when it is over inflating.
  • Representation: democracy can be greatly strengthened by people having a genuine say in how taxes are spent.

Land Value Tax is a charge on the value of land, offered as an alternative to many other forms of taxation, which would have the effect of making land (including property) affordable for the majority and preventing people holding vast amounts of land (the basis of any real economy).

Debunking the cult of “wealth creators”

Inequality and unfair taxation systems, which favour the rich, are defended by saying we need to “support wealth creators” for the benefit of all. Only 3.4% of the very rich are actually classified as entrepreneurs. The current system favours multinational companies and billionaires, because it is corrupt and the employment opportunities offered by this tier of society is actually relatively small. A fair system would favour small companies and sole traders, employment and redistribution of land.

The current set up is the worst form of capitalism. It is undermining innovation and favouring monopolies; it is deeply unequal and damaging the planet, it is creating serious problems we all have to pay for. Wealth is never created in a vacuum: enterprise needs healthy people, with money to spend, educated employees, roads and the internet to distribute through, land to work from. These are things that we the people own; their wealth is to a large extent ours. It is also fair that people should be rewarded for innovating, taking reasonable risks and working hard.

Where does this all lead to?

In Greece people haven’t been able to get essential medicines; people have had their cancer treatment interrupted. There has been a huge rise in squatting by ordinary people unable to make ends meet and without sufficient social housing supplied by Government.

Free market neo-liberal capitalism, taken to its conclusion result in hideously unstable, dangerous situations, where the only safety is to be in the richest part of society and thus able to afford gated communities or private security and private health (which are way more expensive than publicly run services):

  • Mexico’s on-going drug war as a conclusion of free market capitalism  
  • Israel / Palestine and the profit to be made in homeland security
  • A recent answer from a City commentator on Newsnight to a question about what financiers are doing in response to the mounting problems: “they are buying islands and hiring private armies”.

Well, if you’ve read so far, I think you’ll be ready to read about solutions (Future); the good news is there are loads of them…

More details:

The Missing Billions: A Short Film by UK Uncut covering some of the effects of cuts on real people.

The Spirit Level book is a great read for all the details.

A video about “welfare dependency”  propaganda and the real welfare Queens being the wealthy (The #GlobalPOV Project: “Who is Dependent on Welfare” With Ananya Roy).

A Lecture on economics for the 99% looks at distribution as a key issue (Juliet Schor).

The Courageous State – a book by Richard Murphy, the UK’s leading expert on Tax Justice and Economics.

Molly Scott-Cato – Green Economics, covers Green taxation. A film from the Coalition for Economic Justice on Land Value Tax as  a key solution.

A couple of videos on the extent of inequality: globally and in the USA

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