Taxes and tea parties

The revolutions fought over taxation often escape our attention.

Britain’s street riots against Margaret Thatcher’s poll tax in 1990 mirrored to a lesser extent Wat Tyler’s bloodier peasant’s revolt against the poll tax in 1381. Equity dictates that some taxes shouldn’t even be contemplated.

The Boston Tea Party, after which the new “Tea Party” movement in the US has been named, was the initial impetus for the US War of Independence (1775-83) when, as a reaction to tea having been taxed by Britain under the Tea Act, colonists threw three shiploads into Boston Harbour on December 16, 1773.

The French Revolution (1789 to 1799) might have been averted had King Louis XVI heeded the advice of his physiocratic economic advisers who had recommended the institution of “l’impot unique”, the single tax on land. Having witnessed the failure of mercantilism and smelled revolution in the air, the Physiocrats’ leaders, Turgot and Quesnay, earnestly advised the king that the land tax would encourage greater production and a better distribution of wealth, instead of what mercantilism saw to be of paramount importance: balanced trade and greater accumulation of silver and gold. The King may even have retained his head had he not rejected the suggestion in favour of his natural inclinations.

Adam Smith and Benjamin Franklin paid separate visits to France to meet with the Physiocrats in 1764 and 1767 respectively, and, as their writings show, were deeply impressed with the new economics.

The modern Tea Party movement in the US initially came out of the right, but it would be a mistake to see it exclusively as such now, or to underestimate the growing concern over the extent of government involvement in the US economy. Workers, too, have rapidly become unimpressed with bank bailouts and the rising levels of unemployment.

Additionally, Democrats have started to question Barack Obama’s pushing through health insurance reform just now, regardless of its merits, especially in the light of the recent loss of Teddy Kennedy’s once safe Massachusetts Senate seat, so they are also beginning to acknowledge that the revolutionary foment born of the GFC may no longer be entirely along party lines.

Ironically, the conservative Heritage Foundation has acclaimed the Tea Party to be akin to California’s “Proposition 13” movement which put a ceiling on the property tax in 1978. The Foundation would do well to look at the economic basket case into which California has refashioned itself, as an effect of the damaging taxes and charges that have replaced the diminished property base.

New Hampshire, the highest property-taxing state of all in the US, also has the best economy. If the Heritage Foundation were to list all the other states in order of the level of their property taxes, it will see further evidence of the correlation between higher property taxes and superior economic performance. No doubt, carrying a brief for privileged conservative interests, the Foundation will claim these results to be coincidental.

It’s worth remembering that the GFC first exploded onto the US scene as a result of its exposure to subprime loans; the first evidence of the residential property bubble having burst. Although Australia’s property bubble remains intact, the real estate bubbles in a number of other countries have also burst, and their tax systems appear similarly to have been heavily involved in rewarding property speculation at a great cost to productive activity.

Ken Henry’s review of the Australian taxation system remains under wraps while the Labor government wrestles with some of its recommendations. It’s an election year, and, as some of the Henry review panel’s more thoroughgoing suggestions will undoubtedly provide additional traction for the opposition unless watered down into mediocrity, the Rudd Government is reported to have sent some of the recommendations for review to, guess who? Ken Henry.

Should Henry’s “Australia’s Future Tax System” be compromised to the extent that earlier leaked reports of recommendations for reformed land taxes and a resource rent tax go missing altogether, Australia will be greatly discouraged from working its way out of the GFC, literally, because the privileges granted to rent-seekers will remain largely intact. In this scenario, the tax system will continue to look like a derivative of that other well known tea party - the Mad Hatter’s.

If, for party-political reasons, we don’t introduce genuine reform into our taxation morass, the question arises whether Australians will also take to the streets in the event of our property bubble bursting. Of course, we can always shut our eyes and pray that the GFC doesn’t take hold in Australia.