Obama, Tax, the ‘Buffet Rule’ and fairness

It is said that if a Brit is feeling doubtful about being a part of the European family then a 6-month stint in the US will cure him of those doubts.  That seems like overkill when in fact all it takes to be a confirmed European is an awareness of the political debate in America.  And that is despite the seemingly insane situation across the channel where France is on a trajectory to elect a 1970’s style unreformed socialist and Angela Merkel – if she’s not bluffing – is apparently going to let the whole eurozone blow up for the sake of maintaining Germanic principles of fiscal discipline.

France has apparently found a time machine in the guise of Francois Hollande who will transport a country that was timidly, gingerly experimenting under Sarkozy with the idea - if not the implementation - of being something other than an anti-Anglo Saxon outrider, back to the Mitterrand era.  Mitterrand 1.0 that is - pre-1983.

The second largest economy in the Eurozone - already knocked off the AAA sovereign peak - is apparently turning left onto the path of extreme fiscal irresponsibility at the very same moment that Germany is massaging the throats of Greece, Spain & Italy to continue swallowing the pills of ever more austerity whilst blocking off the obvious solutions to the two larger of these troubled countries’ solvency issues.   

But if this seems bonkers, just take a peek across the Atlantic.  The Republican Primaries have boiled down to a slug-fest between Mitt Romney – a Mormon worth circa a quarter of a bill’ and Newt Gingrich who refers to one of the world’s most oppressed peoples as the “so-called Palestinians”.  The former – and favourite for the Republican nomination – paid an effective tax-rate of under 14% on $40m of income over the last two years.  Whilst high marginal rates of tax are counterproductive  & the UK’s current – and apparently ‘temporary’ – top rate of 50% is wrong both in principle and practice, it cannot be right that someone who is unambiguously rich pays a lower marginal rate than their cleaner.

President Obama, that extreme pinko who apparently wants to remake America according to the principles of Marx and Engels – if you believe pretty much what any Republican has to say – is simply suggesting that the rich shouldn’t pay less than 30% of their income in tax.  If that is to be imposed as a floor for the effective top rate of income tax - on income and dividends combined - it compares extremely favourably to the top rates levied in just about any European Union jurisdiction.

Definitions of ‘fairness’ are very subjective but can anyone really argue with the so-called ‘Buffet Rule’ that the rich shouldn’t pay a lower marginal rate of tax than those less well off?  This is as manifestly unfair as overtaxing is counterproductive.  Overtaxed - in the form of a 50% rate that represents a political gesture rather than a genuine mechanism for generating revenue - the UK is, and now carries the stigma of being a high tax country.  The 50% rate might raise an additional couple of billion per annum for a year or two before revenues fall as a result of behavioural changes.  But those behavioural changes will happen.  People will leave and those who considered coming here will demur.  And it seems that many policy makers have forgotten their Economics 101 class and the ‘Laffer Curve’ – a bell shaped graph that seeks to represent the highest marginal rate than an economy will withstand before the disincentives of ever-higher rates kick in and revenue is reduced.  In a European context this is widely considered to be circa 40% on income.  In the US, given a valid cultural allergy toward tax, it is probably lower.  There are compelling arguments as to why the rate of capital gains tax should be competitive - lower - to encourage entrepreneurship but a marginal rate of 15% on both capital gain and dividend income when most Americans are paying between 25% and 35% on wage income is indefensible.  And who do American voters have to thank for the current mismatch?  George W Bush of course.

Did Putin write Hungary's new constitution?

Being half-Magyar is a badge I’ve generally worn with pride.  Hungarians bravely tried to rise up against the totalitarian regime in ’56 only to be brutally suppressed.  Whilst the Solidarity movement in Poland did most of the heavy lifting that led, after a decade long struggle, to the fall of the Berlin Wall it was Hungary that played the final trump card by opening its border with Austria in May '89.  The Soviet Union’s satellite states had been provided with a corridor to the West, the Iron Curtain had been irrevocably pierced and within months the Wall came down and the Eastern Bloc ceased to be.

There are narcissistic affiliations too.  The expression that a ‘Hungarian who enters a revolving door behind you always exits first’ is a flattering one!

In the mid 90’s Hungary seemed so grown up politically, swapping governments between Neo Liberals and former Communists with ease and with all embarking on a similar reformist trajectory.   It was a source of pride that a country so nascent in its democratic transition could enact the necessary market reforms, regardless of the label or past of whichever party was in power at the time.

All this has changed with the ascent of Viktor Orban and his Fidesz party.  The comparisons between Orban and Russia’s Putin abound in the press.  The genesis of each, at least in terms of foreign perception, is uncannily similar.  This is not to suggest that Orban had a secret services background; quite the opposite - he was a visceral anti-communist but the warning bells have been ringing for many years now.  There has been a long forewarning of Orban’s nationalist and authoritarian tendencies, along with rebuttals that he’s just a decent guy trying to get the country on track, all so similar to how earlier fears about Putin were so plausibly, and disingenuously, explained away.

Putin’s first assault was on NTV; a staunchly independent television station though editorially ‘manicured’ according to the personal imperatives of its then Oligarch owner - Vladimir Guisinsky.  The state takeover, or expropriation, appeared an acceptable price to pay for what then seemed like the first stable government the new Russia had seen.   The naivety of those of us who accepted this position was laid bare on July 3^rd 2003 when Platon Lebedev was arrested and the Yukos affair began.

Concerns about Orban’s likely inclination toward a takeover of all state institutions were diluted by the previous Socialist government’s incompetence and barefaced lying as to the parlous state of Hungary's finances.  A free market nationalist with a strong hand might just be what the doctor ordered to get the country back on track, some thought.  It is even true the Fidesz party fairly won the parliamentary super majority they have since used to pass into law the new constitution.  

However, whilst the evils of the Putin clan in Russia - including sham democracy, subjugation of the rule of law at every level to political whim, vast personal enrichment to the tune of $billions (and serious allegations of extra judicial killing) – are of a magnitude that dwarf Orban’s sins; it is a fact that Orban & his Fidesz party have, in passing a grubby new constitution, consigned Hungary’s well earned democratic credentials to the dustbin. 

The Central Bank is now under the political control of one hegemonic party.  Constituencies have been gerrymandered to ensure that Fidesz should always maintain its 2/3^rd’s majority - a play straight out of Putin’s handbook! 

To quote the Financial Times: ‘The authority of the courts has been limited and the judiciary subjected to closer political supervision. The constitution asserts state control over personal conscience and faith. Abortion and same-sex marriages are outlawed and recognised religions limited.’

The problem for Orban is that Hungary is a small country of 10 million people without natural resources or any particular geopolitical importance.  Whereas Putin enjoyed 8 years of extraordinary economic boom as commodity prices soared, while the political vice tightened & the world kept schtum; Hungary is already experiencing the damage the markets can inflict upon states that engage in such malfeasance.  Hungary’s sovereign debt has been downgraded to Junk status and the Forint is at an all time low against the Euro.  Yet another EU country is on the brink of default.  The question is; does a country with such a constitution deserve to be in the EU at all?

Stephen Lawrence

Having grown up in a country where, as a child, various forms of racial abuse were everyday chat - from someone who was apparently not so bright being labelled 'a bit Irish', to a completely unprovoked comment in the town of Warminster that "Blacky needs a wash" - we were then clearly much less sophisticated people than the polity we apparently - or hopefully - comprise all these liberal years later.  Post Thatcher; Major; Blair; Brown and in the first flush of Cameron; there is a lot to be praised.

Perhaps it is counterintuitive to praise a system that was originally responsible for the wrongful acquital of at least 2 of those guilty of Stephen Lawrence's murder.  It probably seems odd to use the word praise within the context of Mrs Lawrence battling for 18 years from the first bungled and failed prosecution against a gang of overtly racist thugs, to a private prosecution, which also failed, to finally a guilty verdict (18 years later) against two of the neanderthals who were amongst the number of those responsible for Stephen's death that evening in Eltham in 1993.

It is appalling that the police originally seemed determined that the crime must be a result of 'black on black' violence despite overwhelming evidence to the contrary.  It is, or at least was, a massive endictement against our society that those accused gave the impression of such impunity as they were entering the court all those years ago.  Their pugnacious demonstration that day - itself almost tantamount to a boast of responsibility; the footage of which is seared into our national consciousness - took nearly two decades of Mrs Lawrence's tireless work to be righted.

All this is a terrible indictment of how things were.  Are things perfect now?  Far from it.  Is the Metropolitan Police Force no longer 'institutionally racist'?  I don't know; but we do know that laws were changed post enquiry and for a large section of society beliefs were modified as a result of the suffering of the Lawrence family.  One of the most significant public enquiries of the last two decades found incontrovertible evidence of terrible institutional prejudice amongst the very body charged with the protection of us all.  However, those findings led to massive - unprecedented in fact - change within the Metropolitan Police Force.  The fact that such change was required is an indictment within itself but, sadly, every society has its racist thugs, their victims and examples of police incompetence or even complicity.  Stephen Lawrence was not the only person to have been killed because of his colour; but his is the only murder in living memory to have had such a seismic effect on the institutions that govern us all.  That the body politic and society in general could, albeit at such a cost, respond in this way deserves some praise.  Cold comfort but hopefully some comfort at least?

The awful Republicans

I have no idea as to Blog etiequette but i guess plagiarism is frowned upon.  Anyway, here's an excerpt form The Economist:  Nowadays, a candidate must believe not just some but all of the following things: that abortion should be illegal in all cases; that gay marriage must be banned even in states that want it; that the 12m illegal immigrants, even those who have lived in America for decades, must all be sent home; that the 46m people who lack health insurance have only themselves to blame; that global warming is a conspiracy; that any form of gun control is unconstitutional; that any form of tax increase must be vetoed, even if the increase is only the cancelling of an expensive and market-distorting perk; that Israel can do no wrong and the “so-called Palestinians”, to use Mr Gingrich’s term, can do no right; that the Environmental Protection Agency, the Department of Education and others whose names you do not have to remember should be abolished.