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It’s business as usual for the financial sector

Clearly we’ve learned nothing from the recent recession. Created by financial-sector greed, unfettered corporate greed and compliant governments that championed deregulation, the economic meltdown has been catastrophic to middle- and working-class people across the globe. Even though we’re technically out of a recession, the only people who have bounced back are the ones who were responsible for the mess.

Far from being penalized, they were in essence rewarded for what happened, and appear quite content to keep on doing what they’ve done before. Perhaps they’re convinced they’ll continue to reap the profits while the rest of us will pick up the tab.

We only need look at the U.S. – the epicenter of much that went wrong and continues to be
wrong – to see there’ve been no lessons learned.

A report this week shows the median pay for top executives at 200 big companies last year was $10.8 million, a 23-per-cent increase over 2009. And that’s just pay, not the generous stock options typical of those positions. By contrast, last year the average American worker made $752 a week, just half a per cent more – meaning they made less than in 2009 when inflation is taken into account.

Things were far worse for an increasing number of unemployed Americans. The official unemployment rate was nine per cent, but that number doubled when the underemployed were factored in.

The U.S. situation is obviously much worse than here, though marginally better than Greece, the poster child for financial difficulties. The measures undertaken in Greece, of course, are also a good example of the kind of policies that has the U.S. mired in economic malaise: massive debt, low tax streams, austerity programs and assaults on government institution.

In short: private profits, socialized losses.

It’s as if we’re unable to learn from the past.

In a New York Times column this week, economist Paul Krugman makes just that point in discussing the renewed vigour of trickle-down economics – aka Reagonomics and voodoo economics – in relation to a proposed tax holiday for U.S. multinationals corporations. The idea is to let the companies repatriate their overseas profits without paying the normal taxes that would follow.

“And now trickle-down economics — specifically, the idea that anything that increases corporate profits is good for the economy — is making a comeback,” he writes.

“On the face of it, this seems bizarre. Over the last two years profits have soared while unemployment has remained disastrously high. Why should anyone believe that handing even more money to corporations, no strings attached, would lead to faster job creation?”
The problem, Krugman notes, is that these measures don’t work.

“As opponents of this plan point out, we’ve already seen this movie: A similar tax holiday was offered in 2004, with a similar sales pitch. And it was a total failure. Companies did indeed take advantage of the amnesty to move a lot of money back to the United States. But they used that money to pay dividends, pay down debt, buy up other companies, buy back their own stock — pretty much everything except increasing investment and creating jobs.

Indeed, there’s no evidence that the 2004 tax holiday did anything at all to stimulate the economy.”

The well-documented failures of neo-conservative economics are an issue in Canada, as well, given the current federal government.

In successive budgets, the Harper government has pushed for lower corporate taxes and transfer of the tax burden to the middle-class. Spending increases have been largely partisan, and there’s been an emphasis on a decidedly American agenda of funneling money into defence and security contractors. Past calls and later attempts at deregulation have been largely thwarted, but there will be return trips to the well.

Of course, that’s not enough. Lobbyists and special interest groups continue to push for lower corporate tax rates. Competitiveness is the mantra: we’re told taxes must be lower or businesses will flee the province or country, and that new ventures will go elsewhere. The argument has been successful, as rates fall year after year, though the promised investment and other dividends rarely appear.

In years past, groups such as the chamber of commerce and right-wing think tanks such as the Fraser Institute stressed that our corporate taxes must be competitive with the United States. We’ve now got rates lower than the U.S., our major trading partner. Not surprisingly, the comparisons began with other countries, initially with the 29 other members of the Organisation for Economic Co-operation and Development (OECD). As Canada’s rates fell below the average of those industrialized nations, the net was cast wider still.

In that vein, the C.D. Howe Institute – another pro-market organization funded by businesses – releases a tax competitiveness report now encompasses 80 countries, including developing nations with programs and infrastructure requirements completely different from Canada’s.

Even then, when weighted averages are used to compare the disparate economies, the 2009 marginal effective tax rate in Canada was 28 per cent, slightly lower than then 28.7 per cent average.

Krugman argues corporations and their army of lobbyists – a major influence in America’s dysfunctional political system – are pushing an agenda harmful to the country and some 98 per cent of its citizens. The same players and same agenda are at work here.

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