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Tax Evasion and the Social State
The good social state invests in the social, in the education of children of the new lower classes...
Taxes is the price we pay for a civilized society (Oliver Wendell Holmes). A state that acts to protect its citizens needs revenue to do this. The state share must increase in a developed society since ever greater demands are made on the state. While a basic principle of a fair tax system is that income should be taxed equally, labor suffers a clear disadvantage.
TAX EVASION – A HOLE IN CIVILIZATION
Taxes as the Price of a Civilized Society
by Brigitte Unger
[This article published in February 2013 on the “Gegenblende” website of the German DGB union is translated from the German on the Internet, http://www.gegenblende.de.]
Paying taxes is one of the duties of citizens as the right to vote is one of their rights. Taxes is the price we pay for a civilized society, Oliver Wendell Holmes, chief justice of the US Supreme Court, said in 1870. A state that acts to protect its citizens needs revenue to do this. At the same time as Holmes, the German economist Adolph Wagner showed the state share must increase in a developed society since ever greater demands are made on the state. A modern state needs disproportionally increasing state revenues to do justice to these rising demands. The share of taxes in the gross domestic product must continuously increase.
TAXES BETWEEN CAPITAL AND LABOR
Tax obligations are distributed very differently in the development of taxes since the liberalization of the financial markets in the 1980s. The tax burden of labor and capital has clearly shifted to the disadvantage of labor. Thus the corporation tax, the tax on the income of legal persons, de facto on the profits of corporations, was drastically lowered in all OECD countries... In Germany, this tax share amounts to 15.825% of taxable income. This is markedly less than in the neighboring countries Austria and the Netherlands where it is 25%.
While a basic principle of a fair tax system is that income should be taxed equally – regardless of its source -, labor suffers a clear disadvantage in our present tax system.
DECLINE OF TAX REVENUE IN THE EU THROUGH THE FINANCIAL CRISIS BUT NOT IN GERMANY
On the unequal distribution of tax burdens, a general decline of tax revenues in the percentage of the GDP has occurred in the EU since the financial crisis which makes us apprehensive whether we4 aren't further distancing ourselves from the civilization postulated by Holmes. The financing deficit on account of falling tax revenues has become greater because of falling state revenues and drastic austerity packages in many EU countries. This is not so true in Germany where the gap between spending and revenue decreased considerably. The rise of tax revenues was extolled.
Given these promising possibilities, one could ask why tax evasion is not an election theme... Why hasn't politics tackled tax evasion? One explanation is that politics cannot control economic events. Politics has either become part of an elite that doesn't want to be fully involved in the public cause or is so restrained by this elite it is kept under a tight rein and lacks freedom of action for political creativity. Every political statement about financial market regulation or closing tax havens can be annulled by conjuring collapses of the DAX (German stock exchange) or speculation against the debt obligations of the state.
TAX EVASION IS A SIGN OF INCREASING DE-SOLIDARITY
Increasing tax evasion is a sign of an unequal income distribution. The group that can evade earns more to evade more and more. Different groups are treated unequally. Top-earners can evade more simply. Foundation structures in Liechtenstein and trust structures in the Netherlands and Luxemburg are ways blocked to low-earners.
Tax evasion is a reward of an income group that already earns vast sums. The financial crisis has intensified the crisis since it leads to increased income inequality and new tax evasion. The top 1% earners in Germany had the greatest increases in income as Claus Schaefer showed in the last 2012 WSI distribution report. This little group profits from the tax evasion possibilities.
The four freedoms proclaims by the EU seem reduced to the “freedom of paying no taxes.” An elite doesn't pay its taxes any more and increasingly finds oases to park funds from the tax evasion. Protected by banking secrecy in Andorra, Monaco and Switzerland, more and more EU citizens elude tax obligations by shifting to tax havens. For Germany, another 300 billion are parked abroad annually beside the 40-158 billion.
The increasing tax evasion is a sign of an increasing de-solidarity of a society through excessive income differences. The high income group has exalted itself so it seeks nothing any more for the public interest. When one is a billionaire, one doesn't need a public health system and public education. Public streets may be unnecessary when one hurries in private helicopter to the next event. The more unequal the distribution, the more unequal the needs for the public sector and the less readiness of the rich for the poor.
What should politics do against tax evasion? Obviously the taxes should be collected more vigorously. Buying CDs with 2006 lists of tax evaders in Liechtenstein set a political sign to the elite that the state, the German tax authorities, will act in the next years in Switzerland. But mildness in dealing with the tax evaders is striking when we see how the state deals with its tax-evading elite compared to a shoplifter. This is manifest in the planned agreement between Germany and Switzerland that the Bundesrat happily rejected... Assets invested in Switzerland in the past were washed clean when a tax between 17.5% and 34% was paid... Tax evaders were not prosecuted since the tax ob ligation was “settled” with the payment.
A shoplifter doesn't come off so lightly. His fine is fixed in relation to the stolen good and a jail sentence up to five years is imposed in case of repetition. In the future, Germany will have balance data about a limited number of Germans suspected of tax flight in Switzerland. According to the Le Monde newspaper from 8/18/2011, there were only 500 persons per year...
INCOME- AND ASSETS REDISTRIBUTION
Although investigating tax evaders internationally would be simple, this investigation failed within Europe and between Germany and Switzerland. Bringing the elite to pay taxes and make their contribution to a civilized society seems arduous. Is there a more direct way to civilization? The cause for increasing tax evasion is increased income inequality. Taxes and above all unpaid taxes are only the reflection of an enormous difference in values. We have today an unparalleled inequality of income distribution and an even greater inequality of assets. A hedge-fund manager earns a million times more than a worker. The enormous differences between poor and rich, the “takeoff” of the elite into income stratospheres far removed from any economic reality, have led to the destruction of the idea that work is rewarding today.
People orient themselves in the income of their peer group or reference group and no longer in a social value system. When manager A receives a million euro for a lecture, manager B must also receive that, regardless of how surrealist are the sums. What money is worth in real units of goods and services, how many jobs, how much food and how many hours of work are no longer subjects of negotiation. No one would think of converting the income of a person of 1.2 million euro which is quite normal in this elitist world. A mini-jobber would have to work 250 years to earn that amount when inflation and compound interest are deducted.
In the 1960s the assumption was relatively widespread in Germany that everyone should share in prosperity and everyone contribute in the form of taxes. This attitude was morally convincing, protected from system-threatening inequalities and guaranteed social peace.
Income differences must be limited if we want to live crisis-free in a stable system. Redistribution and a clear limitation of income is necessary for systemic stability. Unions and co-workers of WSI successfully attacked regulations for mini-jobs and subcontracted work in wage contracts in their demands for minimum wages. Aristotle should be remembered if we want to prevent enormous differences of incomes, as established in the 2012 WSWI distribution report. Aristotle urged income differences not more than 1:10 (not like today 1:1,000,000). A limit on top income is also necessary. Taxes are an elegant possibility of skimming off – but only when immediately collected and tax-evaders prosecuted as thieves of public funds.
SOCIAL STATE – THE FOUNDATION OF DEMOCRACY
by Hans-Joachim Schabedoth
[This article published January 14, 2013 on the German DGB union website Gegenblende is translated from the German on the Internet, http://www.gegenblende.de]
As a rule, documents from conferences hardly arouse great reading delight among non-participants. The volume from the October 2011 conference of the German postal workers union foundation is a happy exception to this rule. Fruits of reading can be enjoyed... Many are still puzzled at the frog metaphor of the FDP's Philipp Rosler: “If you throw a frog into hot water, it immediately hops out. If you put a frog in cold water and slowly raise the temperature, it first notices nothing and does nothing. When it notices something, it is too late for the frog. (pause).” So much for the nice Mr. Rosler. At a later talk show appearance, the German chancellor was presumably meant in the judgment “too late for the frog.” However in the meantime people know better. Whoever attacks the social state with sheer brute force provokes greater defensive reactions than insidious dismantling operations.
THE INSIDUOUS REDUCTION
The speeches and discussions from the conference reveal this insidious process from very different perspectives. The market radical wreaking ball did its work after the financial market crisis. In our days, the social state is endangered through overlooking social plights and the chronic drying up of its financing base. Verdi-economist Norbert Reuter analyzes the “disaster of financial- and fiscal policy” that led to the poor state. The enlightened journalist Albrecht Mueller recalls how the social state was talked about through manipulation of public opinion. The Schroeder government in office at that time was a victim of the barrage against so-called non-wage labor costs and for deregulated market forces. Some time or other, Gerhard Schroeder and Joschka Fischer then lost their delight in patient opposition and resistance. They forced their parties to adapt. “If you can't beat them, join them.” Obviously they didn't do this as rigidly as the former crusaders against the social state urged on all talk shows. The insight that alternatives, not variants, to market radicalism are vital has grown through the financial market crisis. Only the Black-Yellow want to keep riding the dead nag “all-power-to-the-markets.” Angela Merkel even speaks of “market-conforming democracy.”
The steep learning curve in social democracy is clear in its acting chairperson Hubertus Heil. In his article, he emphasizes investing in preventive social policy so growing social neediness does not become explosive dynamite to social cohesion. Whether better insights and learning from political mistakes bear fruits will be revealed in the makeup of the 2013 Bundestag. Several points will be set. Can the division of society be stopped? Hans-Jochen Vogel, one of the great social democrats of our time, analyzes the obligatory basic law. The German basic law, state constitutions and key documents of the European Union are not consistent with Angela Merkel's ideas about “market-conforming democracy.”
THE GOOD SOCIAL STATE
The state has social guaranteeing functions that are not exhausted in warding off enormous distress and misery. In his article, Nikolaus Schneider, the council chairperson of the EKD, explains why participation- and empowerment-justice are necessary to ensure the inner unity of society. The journalistHeribert Pranti says: “The good social state is not a business that only waits for sickness, unemployment or a blow of fate and then intervenes in a healing way. Its high achievement does not only appear at the level of supply when the need arises and calamities are compensated. It also appears in the creativity with which it enables its citizens to live self-determined lives. The good social state invests in the social, for example in the education of children of the new lower classes. The social state transforms the weakness of the migration generation into strength; it promotes the linguistic abilities and intercultural wealth of this generation. Social policy must grow beyond its industrial-social origin.”
The objection can already be anticipated: this sounds good but who should pay for all this? Frank Bsirske's article is very useful for this question. “Justice is different.” That is his judgment on the inheritance from neoliberal times which is discredited buit not ended. Whoever needs a fast argument – for the coming election conflicts – will find it here on ten pages.
Sven Giegold's “Perspectives for a Welfare State Europe” are still worth reading more than a year after the documented conference. How can a majority of voters still believe the stability of the Euro, the security of German state finances and new orientations on the fate of the European Union are in good hands with the incumbent government? All the articles of the book show “that there are plausible, humane and just alternatives to this course,” as Franz Treml, chairperson of the DGB foundation, says in the foreword.
Are Deutsche Telekom and Deutsche Post DHL very conventional corporations like all the others? Union representatives see this differently than members of boards of directors. One of them, Rene Obermann, does not see economic efficiency and social justice in an indissoluble contradiction. May he be heard by many people! Outside appearance and inner life can differ enormously. This is clear in the documented debate with Lothar Schroeder and other Verdi-insiders on Corporate Social Responsibility.
In his article, Ulrich Schneider, managing director of the German Welfare Alliance, ends his 173-page book as follows: “At the moment we have a policy that produces poverty. That is the shame or disgrace that we have to face. We must do something together to slowly end this degradation.” Opportunities exist. Whoever notices nothing and does nothing could be cooked by the nice Mr. Rosler and his “mommy” until it is too late.