Coppola Comment

The world is saving like crazy. Corporations are building up cash mountains that they can’t or won’t invest in expanding their businesses. Individuals are building up pensions and precautionary savings. Governments, especially in developing countries, are building up FX reserves. The “ savings glut ,” as former Fed chairman Ben Bernanke dubbed it, shows no signs of dissipating. It is sloshing around the world looking for a productive home. But there isn’t one - or at least, not one that offers the safety that fearful investors desperately crave. That, fundamentally, is what is driving down the returns on assets. It is also the primary cause of the wide US trade deficit. The President likes to think that the reason for the US’s persistent trade deficits is unfair trade practices and currency manipulation. And for some countries, these are undoubtedly contributing factors. But the biggest reason by far is the global dominance of the dollar, and above all, the pre-eminence of dollar

At Prime Minister's Questions the other day, Jeremy Corbyn produced a case study of a working single mother who would suffer a substantial real fall in income due to tax credit cuts despite the NLW and tax threshold rise. In response, David Cameron claimed the new National Living Wage and tax threshold rises would mean that working people on low incomes would be better off by 2020. Who is right? The National Living Wage will improve earned income for a high proportion of families. The Resolution Foundation estimated that : 4.5 million employees will see their hourly wage rise as a result of introduction of the NLW in 2016. Of those, 1.9 million earning less than the NLW are set to be brought up to at least that level, with a further 2.6 million gaining from spillovers.  By 2020, a total of 6 million employees – 23 per cent of all employees in Britain – are likely to have received some increase in their pay as a result, with 3.2 million being brought up to at least the NLW

My latest post at Forbes looks at the criminal penalty handed down to Credit Suisse for its part in helping high net worth US citizens evade tax. In no way does it fit the crime - and why have no top executives been prosecuted? Even more importantly, why have the names of the tax evaders themselves not been revealed? This is no way to convince the world that the US is serious about cleaning up banking. Read the whole post here .

My latest post at Pieria looks at the Chancellor's budget and finds it long on tax-cutting promises, short on realistic revenue estimates. What does this mean for his hopes of achieving deficit-reduction happiness? And will something turn up?

Comments on my post " Laffer and the Yeti " forced me to look again at the way in which the Laffer curve is used to argue both for and against raising taxes for the rich. It seems it is widely - and perhaps deliberately - misused. The Laffer curve illustrates the relationship between elasticity of taxable income and tax revenues. The peak of the Laffer curve is the rate of tax at which tax revenue from all sectors is maximised, because the cost of avoiding tax outweighs the cost of paying it. But it is an AGGREGATE measure. It says absolutely nothing about the distribution of tax rates or tax income elasticities across the population. Yet it is widely used to talk about tax rates for the rich, as if the tax rate of the rich is the same as the tax rate for the entire population. It is not. The average tax rate is much lower. Therefore it is possible for the Laffer curve to be well below its peak even when there are high tax rates for the very rich. Laffer curves can, of co

My post " Oh no, not again " about Ed Balls' 50p tax rate policy sparked something of a debate.  This post at Pieria disagrees with my view that the 50p rate is pointless and argues that it is justified as a response to growing inequality. I have now posted a response, also at Pieria, which focuses on the morality of taxation - and debunks both the Laffer curve and "trickle down economics". Here's a taster: "In  this recent post , I argued that Ed Balls’ policy of reversing the Conservatives’ 5p cut in the top rate of tax was pointless. My argument was principally an economic one.  Balls had stated that the tax increase would be used to reduce the deficit, but research from both HMRC and the IFS suggests that such a small increase would make little or no difference to tax revenues. Deficit reduction cannot possibly come from minor adjustments to tax codes. What is needed is growth.  "But this is not to say that higher taxes on the rich are nec

At the Fabian conference yesterday, Ed Balls announced the Labour Party's intention, if elected in 2015, of restoring the 50p tax rate that was abolished by the present Coalition government. It is the central plank of his deficit reduction plan. But it is by no means clear that it is capable of bearing the weight he would like to place upon it. The 50p rate had a short and inglorious life. It was announced by the previous Labour government in the 2009 Budget and took effect in April 2010, only a month before Labour's defeat in the May 2010 election. The Conservatives announced the reduction of the rate to 45p in the 2012 Budget, to take effect in April 2013. Both the OBR and HMRC have shown that there was a substantial behavioural response ("forestalling") to the announcement of the 50p rate, with HMRC estimating that £16-£18bn of income was brought forward into the 2009/10 tax year to avoid the 50p rate. The announcement of the 45p rate elicited a similar beha

I've mentioned in a previous post the idea of using fiscal tools to support monetary policy. In this post I want to explain what I mean. The prevailing view of fiscal policy is that it concerns the financing of government and the behaviour of the population. It has nothing to do with monetary policy and indeed can be antagonistic to it. In this era of monetary dominance, emphasis has been on the effect of fiscal policy over the long run, and in particular the use of "automatic stabilisers" to dampen the effects of the business cycle. We can say that from the monetary dominance perspective, the best fiscal policy is one that is set up to act as a counter-cyclical buffer and then left alone. And yet.....I have been discussing in recent posts the use of government debt as a money substitute in financial markets. That implies that fiscal policy must have a monetary effect, since government debt issuance is a key part of fiscal policy. The other key part of fiscal poli

The Tax Justice Network's October podcast gleefully announced that Helsinki had "declared itself a tax haven-free zone". According to its presenter Naomi Fowler, "companies who use or have links to tax havens will no longer be able to bid for contracts providing goods or services to the public. This month, city councillors voted to sever ties with such companies". I was slightly puzzled by what they meant by this, not least because according to some Finland is itself a tax haven, so it is difficult to see how it can become a tax haven-free zone. And Richard Murphy's explanation didn't shed any light. So I went hunting for an explanation of exactly what Helsinki had agreed to do, and in particular, what they meant by a tax haven. The first thing I found was a press release , which among other things purports to include a link to the actual resolution. But as far as I can see it doesn't: the link is indeed to a list of Helsinki city council resol