The cost of tax cuts

In the shadow of the elections victories of the Tea Party in the US election and the recent announcement of our own Campbell government here in BC to both cut income taxes while implementing a user fee for hospital stays, I thought it would be educational to take a sceptical look at taxes and in particular tax breaks.

Taxes have been a widely used tool by governments to punish ‘sin’ (in the form of alcohol and tobacco taxes) and to promote investment (in the form of tax holidays or credits like the capital gains tax). I am not going to get too partisan here. There are valid arguments on all sides about what are appropriate taxes and at what level those taxes should be – that is a discussion for a different day and perhaps a different show. What I would like to investigate here are two things: first that cutting taxes increases tax revenue (this was called Voodoo economics by G. Bush Sr., trickle-down economics by others but economist refer to this broadly as supply-side economics) and second that tax cuts are always good.

I shall address the former first. For those of us who had access to an US media source (or those who can remember any recent political campaign) every politician was promising to cut taxes; when asked how they would pay for these tax cuts, they would either respond by saying tax cuts cost nothing or they said they will reduce spending…when asked what spending, they would say something like “that fat in the system” or “improved efficiencies” – IE they would not cut anything. For example they often say they will cut “ear-marks’, but this only accounts for $3 billion out of a budget of $3.6+ trillion (with a deficit of $1.7 trillion)…or 0.08% of budget (0.17%  of deficit).

It seems popular among voters across the political spectrum. However, the recent dual announcements of our local government show the reality of the situation. Campbell announces a popular across the board tax cut of 15%. This applies to rich and poor alike (although not equally, but again that’s a different show*). This equates to a loss of over half a billion dollars a year. That is money the government will not have to provide services…like hospital beds. The government also recently announced a user fee on hospital rooms amounting to over $200 a week. Who is going to make up for the loss in tax revenues? The sick.

Environics Poll 2007

Now don’t get me wrong, maybe we are all happy with that, but most people when asked the question do they want to cut public spending (especially healthcare), they say no…in fact it is one of the few areas people show an innate socialist tendency.

Just to put the two into perspective, the median family will save about $350 a year in taxes.  The average hospital stay for an individual is 3-10 days (depending largely on age)…that’s a fee cost of $87 to $290 (and for those of you who say “well most people will not be in hospital that long” just remember that makes the fee even more onerous because it WILL effect most those who are suffering most and likely least like to afford it).

Okay, my math may be a little dodgy (mainly due to the lack of accurate numbers for ‘average hospital’ stay or the myriad of different income/fee/taxes an individual will pay) but the point should still be obvious. The hospital fee was not to pay for the tax cut but add in the added cost of medical insurance premiums[1], camping fees[2], transit fees[3], licence fees[4], tuition[5] and so on you will get there. (for those of us old enough, we remember when ‘user fee’ was a dirty word and the fees that did exist were token…not any more).

Cost of Bush's tax cuts

The point I am getting at, is if we want social services we have to pay for them as a society. That means when someone yells “tax cuts” remember they are also saying “cut services”. Maybe something you are comfortable with…maybe not but that is the reality of it. I was going to go on to talk about the wisdom of providing robust social services but that would be straying perhaps outside the bound of a sceptic podcast so we shall stop here and address the second point.

Many have claimed, largely Republicans and Monetarists, that cutting taxes increases tax revenue. On the surface this sounds paradoxical; however there is a shred of logic to be found. The idea, goes that if you cut taxes, those who have more money will invest in the economy, the economy grows, from this larger tax base you collect more absolute dollars even though the rate is lower. The idea works in reverse as well; increasing the tax rate will cause a contraction of the economy and a reduction in absolute dollars.

Often the example of the Reagan Revolution is used to prove this point…i.e. that it works in practice. However this is a flawed claim. As many modern economists have shown[6], including noble prize winner Paul Klugmen, the Reagan tax cuts did not improve the US economy and actually made government finances worse.

It is true the US economy grew fast from 1983-89 however this is in contrast to the miasma of the severe recession of 81-2. Capitalist markets are cyclical, and this was not an unusual recovery. Private savings, something supply-side economics assumes from the masses to provide the capital for investment, continues to decline throughout the decade (7.8->4.8%). Meaning, the money for the recovery, as it was, came from spending savings and increasing personal debt. Finally, this trend is echoed in the US budget; when Reagan came to office the US debt as a % of GDP was 32.5%, when Bush Sr. left it was 66.1%. Clinton, who raised taxes, brought the rate down to 56.4%. The same happened in Canada, when we increased taxes in the 90’s and went from the ‘basket-case’ nation to arguably the country with the most stable finances.

Lastly, the multiplier effect. Not all tax cuts are equal. Tax cuts cost money; those who claim that it is not should ‘not’ collect their next pay-check and see if it costs them money. So, the current desire of governments everywhere is stimulus. When the government (or anyone really) spends money it has what is called, a multiplier effect on the economy; that is for every “Y” dollars spent it generates Y*x (or Y’) in the economy. So, if I give you a dollar and you burn it, which generates no activity in the economy, in fact it removes the dollar from circulation so has a negative multiplier effect. Now most people will spend it or ‘invest’ it (be it real investments or just in your bank account) and they have a positive effect; that is they generate more than a dollars worth of economic activity. The best way to think about this is if you spend the dollar, the merchant sells more, can now hire a new employee, and we will in turn make more dollars and spend them; the new employee generates the new value. An economist could spin a better story, but I think you get the gist of it – the one dollar generates more than a dollar of economic activity.

Relative stimulus effect

Having given the background, how do tax cuts fair as stimulus[7]? In general, every dollar of tax cuts generates $1.30 of economic activity compared to a dollar spent on increasing UI benefits would generate $1.62 or increasing food stamps generates $1.74. There is also the issue of WHO to give the cut to. Lower income people spend (out of necessity) every penny they make so a cut in their taxes (thanks to HST we ALL pay taxes even the poorest) will generate the most activity but they latterly also have the least money (the bottom 50% of household control about 3% of Canadian wealth). As you move to the other extreme, the very wealthy often ‘invest’ most of their tax cuts (earning more than they need), so less activity generated but because they make more money a big bang (the top 10% own around 58.2% of the nation’s wealth[8] in the USA its 1% owning 35%). However, in a global world, it is most likely their investments will be ‘trans-national’ or outside ‘our’ economy and thus lost completely to the system – complete fizzle.

Society, of course, is not only extremes but a lopsided slope of ‘everything-in-between’ (note percentages of wealth ownership mentioned earlier) otherwise it would be easy to define tax policy; the trick is to determine both purpose (stimulate consumption, promote manufacturing, decrease inflation) and effectiveness. History has given us lessons to learn from and one a sceptical economist should be able to apply.

 

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[1] http://www.tbs-sct.gc.ca/hr-rh/in-ai/2009/1124-eng.asp

[2] http://www.ctvbc.ctv.ca/servlet/an/local/CTVNews/20100331/bc_april_fee_increases_100331?hub=BritishColumbia

[3] http://edmonton.ctv.ca/servlet/an/local/CTVNews/20100331/bc_april_fee_increases_100331?hub=EdmontonHome

[4] http://www.hsd.gov.bc.ca/lclb/docs-forms/2010_fee_increase.pdf

[5] http://www.aved.gov.bc.ca/tuition/welcome.htm

[6] http://www.youtube.com/watch?v=-dQUIzzIOPo

[7] Recovery Act

[8] http://www.wsws.org/articles/2007/jun2007/cana-j20.shtml

* By this i mean 15% of $100k = $18k while 15% of roughly the median income, $50k = $7.5k. So, the tax applies the same but the benefit is very unequal.

An Attack on Libby

Recently a local MP, Libby Davis, was attacked by Stephen Harper and Bob Rea for comment she made at a rally held in Vancouver on June 5^th in support of the Gaza Flotilla. Where she express condemnation of both the Blockage itself and the Israel Defence Force’s handling of the incident that resulted in nine dead and .

I first heard about this in an article on the CBC website. It sounded bad for Libby. I did some research, as any good skeptic should, and found on YouTube both a 5 min clip of the interview with Libby and a 50 second edited clip.

Out of context comments:

http://www.youtube.com/watch?v=MWChzB0wSp0&feature=related

Comments in context:

http://www.youtube.com/watch?v=utXDAha_vGg&feature=related

From what was written in the CBC article and the comments of both Harper and Rea, it seemed Libby was an ‘anti- Semite’ who wished to wipe Israel from the face of the earth. I then watched the 50 second edited clip (which only had about 20 seconds of Libby speaking) and the ‘commentary’ provided by the obviously pro-Israeli blogger and Libby looked even more horrible.  Then I listened to the full 5 minute interview and suddenly what was said did not sound so ‘anti-Semitic’ or as outlandish.

So let’s take another look at political scepticism.

The heart of the controversy lies in a statement Libby makes about the “Israeli occupation” starting in 1948. As portrayed in the bias edited Clip and implied by the CBC write up, she seems to be denying the right the existence of the state of Israel.  Israel was created in 1948 by a UN Resolution, a resolution that also was supposed to create the state of Palestine. Sadly for Israel, it was attacked by its neighbours in 1948. In the 1948 War, Israel occupied large section of the land that was supposed to be Palestine. It is also interesting to note, that the remaining land that was to become Palestine was occupied by Jordan and Egypt, thus aborting the actual creation of the state of Palestine in 1948.

In this context, it is valid to hold the idea that Israel has been occupying Palestinian land since 1948 and not deny the state of Israel’s existence. FURTHER to say land is occupied does not mean those occupying must ‘pack up and leave’ but it is a useful distinction so as to ensure that compensation is made to those who ‘lost their land’. Estimates vary widely but anywhere from 500, 000 to a million Palestinian were dislocated from their UN mandates land in 1948. I would make a parallel with Canada. Our native population see Canada as ‘occupied’ territory but only the most radical would want to ‘ship us all back to where we came from’.  The more practical use the term to ensure proper restitution is made for the damages suffered by the dispossession of land.  This is a valid position to hold with regards to Israel and land it seized in the 1948 war and that thus Israeli occupation could be said to have begun in 1948. We may disagree on interpretation but we should acknowledge the facts.

There is another aspect of this I find funny. In the long interview she is asked about Boycott Divestment and Sanctions or better known as BDS. This is an attempt by those who believe the Israel is akin to an apartheid state and wish to use the same tactics used to abolish apartheid in South Africa on Israel. For our sake it is simply a boycott on Israeli companies and companies the deal with Israel to apply pressure on Israel to ‘correct its ways’.

She says that on Parliament Hill people are “afraid to speak out on this issue”. She then goes on to say that more information and debate is need. There is the implication that there is an overly strong Israeli lobby that has managed to squash any criticism of Israel on Parliament Hill and equate criticism of Israel as anti-Semitism or worse.  Then to prove her point, there is this massive over reaction to her comments. Libby’s official response, and let us remember she is a politician, was to state she was talking outside he knowledge comfort level and got the dates wrong – which is also very possible for in the interview you here her repeatedly saying that she does not know the historical details and that it is up to the Israelis and Palestinians to achieve their own solutions to the problems in the region. She only wanted to Palestinians to know they had support and that Canadians needed to be better informed of both sides of the issue. Something she sees lacking.

Lastly, I would like to pull the ‘free speech card’. What she said in the interview, was not hate speech. She repeatedly stated a peaceful solution was needed; solution ‘born in Israel/Palestine’ solution. The fact that days after her appearance at the rally and this interview she is being asked to resign from parliament by the Prime Minister of Canada should send a chill down anyone’s back who believes in free speech. In my lecture on Free Speech, I pointed out that speech is not only limited or even mostly limited by law; social pressure does more to both stifle free speech and fair debate in our society than anything else.

I do not ask you to support Libby’s views or statements but I do hope you will acknowledge they are valid even if you don’t agree and let’s try and stop the witch hunts that some extremist types start when someone tries to peel away propaganda from facts and commentary from reality.

Gaza Flotilla incident – Defence or piracy?

Recently a group of activists attempted to break the blockade of Gaza by sending a flotilla of 5 ships filled with humanitarian aid to the port of Gaza. On route the Israeli defence force (IDF) intercepted the flotilla and after a violent confrontation the flotilla was redirected. We have all seen the videos, the condemnation, the recriminations and the general excess of propaganda of both sides to see their viewpoint. Now this is intended to be another example of how skepticism can help clarify (if not answer) conflicts that arise of such heated issues.

The first question we must ask ourselves, does Israel have justification for imposing a blockade on the Gaza Strip? The Israeli government states that it is only trying to stop the flow of arms into the occupied territory because anti-Israeli ‘forces’ (be it an organized group or independents) fire mortars and rockets into Israel from the territory. Now according to my research, until 2006 probably less than 500 rockets and mortars were fired into Israel from Gaza, from 2007-2008 that number rose to less than 5000 with a lull in 2009 of less than 200 (not including the ones fired during the Israeli invasion of the strip). Of these less than half were the ‘long’ range rockets mostly home-made with the rare exception. However, out of a reported 8600 attacks, they have only managed to kill 28 but injured hundreds. As in-effective as a ‘weapon of death’, the psychological effect on those in range of an attack (roughly the entire southern half of Israel) is profound. So, I think we can say that Israel has a justification for the blockade. We are not going to talk about the justification for the rocket attacks or the legality of the occupation; we are simply saying that Israel, under the current situation, has justification for blockading the Gaza Strip.

That said, we now must ask, what is justified to blockade? The reason stated for the flotilla was to supply materials that were being unjustly included in the blockade. We can agree that Israel is justified to blockade military supplies such as arms and munitions. What material was on the flotilla? According to Israel’s friendly neighbour (well pre-flotilla attack) Turkey, the ships were inspected to ensure no ‘contraband’ was onboard. On board were food, medical supplies and building materials. Of these, Israel claims the building material unacceptable because it could be used to create re-enforce bunkers…something only a problem IF Israel planned to re-occupy Gaze. Considering that the occupied territory has been ravaged by Israeli attacks (most notably the ‘incursion’ early in 2009), there is a great need to rebuild. Palestinians say that the denial of these good is not to protect Israel from attacks but to collectively punish the Palestinians for democratically electing Hamas as its major party/government.

Is Israel using the blockade as a form of collective punishment or for justifiable self-defence reasons? It has been noted by Amnesty International and other humanitarian groups that things such as paper, crayons, tomato paste, lentils, canned juice, etc[1]… were blocked because they were deemed ‘luxury goods’[2]. This also explains why Israel’s apparent conciliatory move to ‘distribute’ the aid itself was more PR than genuine. In previous attempts to deliver aide, Israel (offering to distribute the aide itself) delayed or failed to do so. Some stocks spending years in storage before being released by which time the items in question were spoiled. Under these conditions, it appears that there was justification on the activists’ part to try and, at least partially, break the blockade of the Gaza Strip.

So, we have a situation where both sides are justified; Israel in enforcing a blockade and the flotilla in delivering humanitarian aid. Israel has the right (according to “San Remo Manual on International Law Applicable to Armed Conflicts at Sea”) to detain any ship in its territorial waters (and for the sake of our analysis, Gaza will be considered Israeli territory), an area defined by the “United Nations Convention on the Law of the Sea” as (roughly) 23 km. Attempts to board, detain and confiscate ‘contraband’ in international waters could be interpreted as an act of piracy or illegal hostile actions.

Now the next question arises; where did the action take place. According to the IDF (Israeli Defence Force), the ‘incident’ with the flotilla lead ship, the Mavi Marmara, occurred at 68km west of Israel – clearly international waters. A previous attempt to break the blockade, by the ship “Spirit of Humanity”, was intercepted 29 km off the coast. It seems fair to state that the captain and passengers of the Mavi Marmara, believed that they had the right to deny access to the ship while in international waters and that any attempt to board was a hostile act which they were legally entitled to resist.

So far, we have acknowledged Israel might have the right to blockade but such right is limited to territorial waters, that the flotilla has the right to challenge a blockade that could be interpreted as collective punishment and that the boarding of the lead ship occurred in international waters.

Now from video evidence from onboard the flotilla ships, the IDF threw stun grenades on board the ship, it also fired live ammunitions (although this may have been intended as warning shots) that apparently hit two people killing one of them. Under these circumstances, the passengers had a right to defend themselves. When the ship failed to stop, the IDF landed heavily armed troops on the Mavi Marmara from helicopter. These troops were attacked. The flotilla passengers claim, with justification, that they were defending themselves from an attack that had already been fatal. The IDF, from their point of view, were justified in attempting to defend themselves from what it saw a legal enforcement of a blockade; a view supported by the edited out-of-context video produced by the IDF. We have discovered from our sceptical analysis, this view is hard to support when put into context however convinced of it the IDF or its ideologue supporters may be.

Now, questions of disproportionate force are beyond this discussion. The points we are after are “was the attack on the Mavi Marmara legal or not” and “was the response of the passenger and crew to the attack justified”? To me, this all boils down to the location, it appears that having occurred in international waters, the attack ‘stretched’ international law and secondly that the people onboard the Mavi Marmara believed they had a right to defend themselves. Irrespective of the (un)justification of the blockade itself, it seems that this incident in question shows the IDF share the greater share of responsibility. Again, political skeptism slices past the rhetoric and propaganda spewed out by both sides and show that most issues are not black and white and patients and research will at least put us on common ground to discuss the truly ‘debateable’ issues at stake.

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[1] http://news.bbc.co.uk/2/hi/8654337.stm

[2] http://www.timesonline.co.uk/tol/news/world/middle_east/article7141868.ece

Can you call Israel an apartheid state?

As some of our of you may know; recently the Toronto Pride Committee (TPC) denied the group QAIA (Queers Against Israeli Apartheid) to participate in the Pride Day parade. TPC was forced to do this because of intensive pressure and legal intimidation from hawkish Israeli lobbyists and a threat to cut funding from a similarly intimidated Toronto city council.

Those who are against the Israeli treatment of non-Jews in Israel or the Palestinians in the occupied territories, claim Israel is an apartheid state. Those who support the official Israeli lines, condemn those who use this term, apartheid, as being anti-Semitic and are misusing the term to denigrate and vilify “the Jew!”

The conflict in Palestine/Israel has been a long and bloody one. It seems uncontroversial that Israel has used disproportionate force but it is also true that most Israelis genuinely live in a constant state of fear from deadly violence. Both sides have an agenda and have shown in the past little reluctance to use whatever event to gain propaganda points. Skepticism can help here, by separating the rhetoric from the ‘facts’…creating at least the environment for honest debate on the issues.

So back to the TPC, QAIA and skepticism; I wanted to check out the claim that Israel was participating in apartheid. So I thought I could make it a case study in political skepticism.

The first thing we need to do is define what apartheid is. Fortunately for us (and not so much Africa) South Africa, in its horrible racial discrimination, forced the UN to codify (in the resolution “International Convention on the Suppression and Punishment of the Crime of Apartheid”) what exactly defines apartheid. It is divided into five parts: (paraphrased)

1) Denial to a racial group of life or liberty by the use of harm (physical or psychological), arbitrary arrest or the denial of freedoms or dignity

2) Deliberate Impositions on a racial group living conditions designed to physically destroy that group in whole OR in part

3) Legislative measures intended to deny a racial group political, economic or social participation in the country and deliberately preventing that group’s full development.

a. Denial of the right to leave or return

b. Denial of the right of freedom of movement

c. Among others (these seem most salient to our analysis)

4) Any legislative measures intended to divide the population alone racial lines

a. Isolating racial groups into separate geographic enclaves or reserves

b. Prohibitions of legal marriage between racial groups

c. The expropriation of land belonging to one racial groups for the use of another

5) Persecutions of groups or organizations, by the denial of rights, because of their opposition to apartheid.

From this we see on important theme, that of ‘racial group’. We also see a reference (both explicit and implicit) to country or nation. In that, apartheid is inflicted on the citizens of its own nation. This leads us to our first fact/propaganda distinctions. The West Bank and Gaza are technically occupied territory and not part of Israel proper. If those who desire a ‘greater Israel’ (which would see the annexation of the occupied territory) get their way, then the territory recognised now as Palestine, would count in our discussion; however for the moment it does not. This does not mean one cannot condemn Israel’s actions in the occupied territories but one cannot use those actions to support a claim of apartheid…yet.  We shall still continue our analysis but our now limited to Israel proper.

So, if we are going to apply the term “apartheid” (leaving the other aspects for now) to Israel, we must answer the question – is it a racial state? We must ask, does the government see Israel as a ‘Jewish’ state in the sense of the religion or as a race? Does it provide preferential treatment of one racial group (let’s assume those of Jewish decent) and disadvantageous treatment of those of another racial group (those of Arab/Palestinian decent).

First, we shall look at Israeli marriage laws. These laws forbid the marriage of people outside their religious group. So a Jew may only marry a Jew, a Muslim to a Muslim…etc. “Mixed” marriages performed outside Israel are recognised in Israel. Now for Jews, this law is interpreted harshly for only orthodox (or religious) Jews may be married; secular or ‘converted’ Jews are seen as ‘not Jewish enough’ to be married. This seems to make it look more religious than racial.

Second, there is the “Law of Return”, which makes it a right of any one of “Jewish ancestry” to emigrate to Israel. The term ‘ancestry’ is a racial term. This seems to provide preferential treatment to ‘racial’ Jews to both immigrate to Israel and, at least in the past, to become automatic citizens. This is in stark contrast to the policy towards Palestinians or Arabs. In the “Prevention of Infiltration Law”, it strictly prohibits Palestinians (and Arabs) from ‘re-entering’ Israel.

The “Citizenship and Entry into Israel Law” (although not using racial terms) denies the spouse of an Israeli citizen, citizenship themselves IF they are from the West Bank or Gaza. Because the bill affects almost exclusively Israeli Arabs (those being the ones to marry Palestinians) it may be seen as adding some support to the racialization of Israel.

The Jewish National Fund (JNF), a non-profit organization that is closely entwined with the Israeli governments is responsible for the purchase and development of ‘Jewish’ settlements. When the Supreme Court of Israel ruled that the JNF’s refusal to sell land to Israeli Arabs to be discrimination, the Israeli government circumvented the court by guaranteeing the JNF that any land it sold to Arabs would be compensated by a gift of land from the Israeli Land Authority (ILA) so as to ensure that ‘Jewish’ ownership of land is not diminished.  The JNF selects 10 out of 22 directors of the ILA, giving it huge influence over this government agency. The ILA controls 93% of the lands of Israel (either directly, through long term leases or via the JNF which controls 12% of Israeli national lands). Because the Supreme Court thought this land use discriminatory and the government’s actions to perpetuate this discrimination, based on ethnicity/race, this also adds to the evidence Israel is a racial state.

Lastly, working on the other side, the “Palestinian land laws”, perpetuate what some call the ghetto of Palestine by forbidding Palestinians to sell their land to non-Palestinians; in effect tying them to the land like serfs. Now this law is also intended to prevent the continual erosion of West Bank land to Jewish settlers but considering that the settlements are allowed to grow via other legal means, it seems the effect of this law is to ensure racial isolation.

Now, it may not be a clear cut case, but it does seem plausible (although not necessary) to claim that Israel is a racial state; that this claim is valid from a politically sceptical point of view. Those who claim that to even make such claims is innately anti-Semetic, untenable and simply propaganda are wrong.  Now, some will argue that what is in Israel now is nothing like what happened in South Africa during its apartheid period…that is true and irrelevant. The fact that one person steals $100 and another $10,000, does not mean the first is not guilty of theft; this is (thanks to the UN) not a crime of degree but of kind. So, having determined that one could claim Israel is a racial state, is it guilty of breaking any of the criteria we set out in the beginning?

Points 1(Denial of life and liberty)and 2(Physical destruction) seems very evident in the West Bank and Gaza (although Israeli officials may justify their actions, the results are the same) but as we stated earlier, until Israel annexes these territories they cannot be a part of our analysis. Point 5 (Legal suppression of apartheid groups) may be true but I have not found any evidence in Israel itself, although non-legal pressure has been evident, this also seems to not support the case.

Points 3 (right of return and movements) and 4(racial segregation), however do seem to provide some evidence of apartheid. As mentioned before, the marriage laws seem more religious based than racial but coupled with the implicit limitation of spousal immigration and land sales, it is plausible to use this as evidence. The most damning evidence of apartheid is the unequal treatment, based on race, to rights of return, immigration, internal movement, government support for housing and etc.

In conclusion, I am not saying that Israel is or is not an apartheid state but using the skills of political skepticism we have determined that it is a viable point of view. That, returning to the point of origin of this article, Toronto’s Pride Committee decision to deny Queers Against Israel Apartheid participation in the Pride Parade was unjust and censorship. Although, one may not agree with QAIA’s views, their views are possible and not hate speech or anti-Semitism. However, it is an untenable position to hold that criticism of Israel is anti-Semitism; it is possible to be both pro-Zionist and anti-Israel or to be pro-Israel and anti-Israeli policy with regards to Palestinians. Ultimately remember, keep your eyes open and minds on!