Thread: The Inconvenient History Of Capitalism

"Upwards of a million of human beings are literally starving and the number is constantly on the increase.....It is a new era in the history of commerce that an active and increasing trade should be the index, not to the improvement of the condition of the working classes, but to their poverty and degradation."

P. Gaskel
Artisans And Machinery, 1836


“Of course, this pervasive social and political unrest reflected not merely material poverty but social pauperization: the destruction of old ways of life without the substitution of anything the labouring poor could regard as a satisfactory equivalent. But whatever the motives, waves of desperation broke time and again over the country: in 1811-13, in 1815-17, in 1819, in 1826, in 1829-35, in 1838-42, in 1843-4, in 1846-8. In the agricultural areas they were blind, spontaneous, and in so far as their objectives were at all defined, almost entirely economic.

As a rioter from the Fens put it in 1816; “Here I am between Earth and Sky, so help me God. I would sooner lose my life than go home as I am. Bread I want and bread I will have.”

In 1816, all over the eastern counties, in 1822 in East Anglia, in 1830 everywhere between Kent and Dorset, Somerset and Lincoln, in 1843-4 once again in the east Midlands and the eastern counties, the threshing machines were broken, the ricks burned at night, as men demanded a minimum of life. In the industrial and urban areas after 1815 economic and social unrest was generally combined with a specific political ideology and programme – radical-democratic, or even 'cooperative' (or as we would now say, socialist), though in the first great movement of unrest from 1811-13 the Luddites of the East Midlands and Yorkshire smashed their machines without any specific programme of political reform and revolution.....

But essentially, what held all of these movements together, or revived them after their periodic defeat and disintegration, was the universal discontent of men who felt themselves hungry in a society reeking with wealth, enslaved in a country which prided itself on its freedom, seeking bread and hope, and receiving in return stones and despair.....

“Wretched, defrauded, oppressed, crushed human nature lying in bleeding fragments all over the face of society”, wrote the American, Colman, of it in 1845. “Every day that I live I thank Heaven that I am not a poor man with a family in England.”

Can we be surprised that the first generation of the labouring poor in industrial Britain looked at the results of capitalism and found them wanting?”

Eric J. Hobsbawm
The Pelican Economic History of Britain
Volume 3, From 1750 to the Present Day
Industry and Empire, 1969
p. 94-95

A popular contention of today is to claim that even the condition of the working class under this new capitalism was an improvement over the condition of the poor farmers:

............................................Death Rate per 100,000 men 1863
................................Age 25-35..........Age 35-45..........Age 45-55
Agriculture in
England & Wales..............743...................805...... ..............1,145

London Tailors.................958...................1,26 2.................2,093

London Printers...............894..................1,747. ...............2,367

Karl Marx
Capital, 1906 (1st American Edition)
p. 509

For a more detailed examination of working conditions and the health/educational conditions of the laboring poor in England during this time, Marx's Capital is a well documented source.

“The overpowering competition crushes the weakest of the manual labourers. The fearful increase in death from starvation during the last 10 years in London runs parallel with the extension of machine sewing.[1]

[1]An instance. The weekly report of deaths by the Registrar General dated 26th Feb. 1864, contains 5 cases of death from starvation. On the same day the “Times” reports another case. Six victims of starvation in one week.

Karl Marx
Capital, First American Edition, 1906
pp. 514-515

That the living standards of the laboring poor in England did not significantly increase for the rest of the century is a rather new revelation to me:

"Clearly the last quarter century of the nineteenth century was a time when life became much easier and more varied for the working class, though the Edwardian age brought a setback. Nevertheless, trends are not achievements, and the picture of social conditions which the surveys of the time revealed - often to the shocked surprise of the inquirers - was horrifying. It was of a working class stunted and debilitated by a century of industrialization.

In the 1870s eleven- to twelve-year old boys from the upper-class public schools were on average five inches taller than boys from industrial schools, and at all teen-ages three inches taller than the sons of artisans. When the British people was for the first time medically examined en masse for military service in 1917, it included 10 per cent of young men totally unfit for service, 41.5 per cent (in London 48 - 49 per cent) with 'marked disabilities', 22 per cent with 'partial disabilities' and only a little more than a third in satisfactory shape.

Ours was a country filled with a stoic mass of those destined to live all their lives on a bare and uncertain subsistence until old age threw them on to the srapheap of the Poor Law, underfed, badly housed, badly clothed. By the standards of 1965, or even of 1939, the rise of the working-class standard to a modest human level had barely begun.

Eric J. Hobsbawm
The Pelican Economic History of Britain
Volume 3, From 1750 to the Present Day
Industry and Empire, 1969
p. 164-165


These conditions set the stage for reform:

"Fortunately the unemployment, the uncertainty, and perhaps above all the declining faith in the automatic advance of British capitalism made the people less inclined to accept their fate passively, and gave them more effective means of improving it. Socialism reappeared in the 1880s, and recruited an elite of active and able workers who in turn created or transformed the broader-based mass labour movements: the trade unions and the novel independent working-class parties, which converged to form the Labour Party in the early 1900s. The harder times of Edwardian England prepared the way for a more massive political transformation which the war accelerated. The trade-union movement leaped to something like one and a half million members in the great 'explosion' of 1880 - 1890, grew more slowly to about two million, doubled again to about four million in the great 'labour unrest' of 1911 - 1913, and doubled yet again to reach a temporary peak of eight million at the end of the First World War. Much of this was due to the growth of unions in hitherto unorganized industries, such as transport by water, rail and road, or unorganized sections of older industries, such as the unskilled and semi-skilled in the metal trades. Much of it was also due to the expansion of the older unions."

Eric J. Hobsbawm
The Pelican Economic History of Britain
Volume 3, From 1750 to the Present Day
Industry and Empire, 1969
p. 164-165

I also must note that in response to Mahasattva and his criticism of Professor Richard A. Lester and his extremely brief history of the guild system, that it was never intended by Professor Lester that his text be a comprehensive history of the guild system. His text book was over 900 pages and barely a page was dedicated to that subject. From the preface of his text he states:

"This book, as its title indicates, deals primarily with the economic aspects of labor problems. Designed as a textbook for college courses in labor, it is analytic rather than encyclopedic. The emphasis throughout the book is upon economic principles rather than upon particular events or ephemeral facts."

The vast majority of the text deals with labor problems of the 20th century up to its publication date in 1941.

I might add that Professor Lester did not address the "primitive accumulation" of Marx, a topic that a far more liberal professor would find appealing in comparing the triumph of capitalism over the guild system.

A full and comprehensive discussion of the guild system and the primitive accumulation of Marx should be a separate one. I feel it has less importance than capitalism since the guild system is gone and will never return and we have to live in the modified capitalist system that exists today.


Steve

I can understand how you came to this conclusion. However, the problem with government intervention in the short run are unknown consequences in the long run. Coming more from the Austrian school, I tend to favor Hagel's interpretation of market dynamic. As he is often quoted:

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design".

Originally Posted by machinehead61

Extreme conservatives such as Mahasattva in this forum rarely discuss the early history of capitalism.

For example:



Here, Mahasattva makes no mention of early English capitalism and instead only refers to Clement Attlee and his democratic socialism beginning in 1945. I will present some of the history of Britain before 1945 that produced the demand for government intervention in the free market.

I don't promote communism - as I have been accused of - I believe that economies must be balanced between the extremes of laissez faire capitalism and total government control.

"That free markets alone will not bring about the economic millennium is evident from the experience of England and France during the first half of the nineteenth century, when the doctrine of laissez faire was tried and found wanting. The period from 1810 to 1840 stands out in European history as the epoch during which there was the least amount of government intervention in economic affairs. The leading men of the time argued that the market forces of demand and supply should have free reign to work their magic. They thoroughly believed that complete freedom for individual initiative and self-interest would result in the greatest social good, and they were convinced that any government interference or labor legislation would be both vicious and futile, because it would run counter to "natural law". So firmly were the people of England convinced of these economic superstitions that they repealed all laws safeguarding the workers, restricting the spread of factories, and limiting the rise of capitalism.
From bitter experience, however, the English soon learned the limitations of markets as final arbitrators of economic matters. Before long Parliament was forced to pass a new set of labor laws called Factory Acts in order eliminate the most glaring evils and abuses that developed under this "natural order" of laissez faire.
An understanding of this epoch in economic history is so important for a student of labor, as well as for advocates of the individualistic ideal who oppose labor organization and legislation, that this chapter is devoted to a discussion of labor in England during the early nineteenth century and the failure of laissez faire as an economic policy....

This theory of laissez faire – let the market, not the government, control – along with the doctrine of economic harmonies, was adopted by Adam Smith directly from the Physiocrats, some of whom he had known personally. Smith believed that when “all systems of preference or of restraint” are completely abolished, “the obvious and simple system of natural liberty establishes itself of its own accord,” and he thought that each man pursuing his own self-interest is “led by an invisible hand to promote an end which was no part of his intention” - the general welfare of the nation. It is easy to understand why parts of the Wealth of Nations soon became the businessman's bible, though not the part in which Smith pointed out that high wages increased the efficiency of labor so that “where wages are high, we shall always find the workmen more active, diligent, and expeditious than where they are low.”.....

Under the early factory system in England, the employment of women and children was the foundation of certain branches of industry. Three independent estimates for the years 1833, 1835, and 1839 indicate that almost half of the factory workers in England were children under the age of 18 years of age – one quarter of the workers in the cotton mills were under 14 years of age. About 55 percent of all factory employees in the 1830's were women, and nearly one half of the female employees were under 18 years of age. In woolen, silk, and flax mills, 70 percent of all “operatives” in 1839 were women. A census of 1841 showed that 27 percent of the workers in British mines (coal, iron, tin, etc.) were under 20 years of age, although only 3 or 4 percent were females......

The normal working day for women and children as well as men was from 12 to 14 hours for six days a week, and at rush seasons factories sometimes ran day and night on one shift. Children, who in rush seasons worked 18 hours a day with only four hours for sleeping, often fell asleep at meals “with the victuals in their mouths.”.....

Working weeks from 72 to 108 hours for children tended to deform their bodies and legs and made workers old at 40. To force child laborers to perform their stint, foremen sometimes strapped them. Children of six, seven, and eight years of age worked in coal mines where, for 12 or 14 hours a day, girls in their teens, crawling on all fours, would drag a car or tub of 300 or 400 pounds of coal by chain attached to a leather band around their waists.....

The well-known French economist, J. B. Say, from his travels in England in 1815, declared that a worker with a family, despite efforts often of a heroic character, could earn no more than three quarters, and sometimes only one half, the sum needed to support his family. According to a writer in 1820, real wages (wages reckoned in commodities) had fallen 33 percent from 1760 to 1820....

It was from 1795 to 1835 that the problem of pauperism reached its most extreme and acute form, and that the term “labouring poor” became such a common expression.”.....

England had become, to quote Disraeli,”Two nations: between whom there is no intercourse and no sympathy; who are as ignorant of each other's habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets;....THE RICH AND THE POOR.”.....

In 1814 a crises, accompanied by an avalanche of commercial failures, shook the English market. Thereafter there were depressions in 1819-1820, 1825-1826, 1836-1837, and the early 1840's, and in 1847-1848 there was a great crash. That period became known as the “hungry forties.”.....

Laissez faire proved to be no cure for business cycles and depressions."

Richard A. Lester, Duke University
Economics Of Labor, 1941
p. 50-66

End of part 1

Steve

You are really comparing apples and oranges here. Modern day capitalism is completely different and much more evolved than it was hundreds of years ago. I mean it really can't even be compared.

Originally Posted by AsIfYouKnew

I can understand how you came to this conclusion. However, the problem with government intervention in the short run are unknown consequences in the long run. Coming more from the Austrian school, I tend to favor Hagel's interpretation of market dynamic. As he is often quoted:

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design".

I can appreciate your concern and also your cordial reply. I certainly have not discovered the "encyclopedic history" of this era in British economic history.

I have every intention of learning as I go in this thread.

For example, I just found this today:

http://en.wikipedia.org/wiki/Beveridge_Report

The Report of the Inter-Departmental Committee on Social Insurance and Allied Services, known commonly as the Beveridge Report was an influential document in the founding of the Welfare State in the United Kingdom.[1] It was chaired by William Beveridge, an economist, who identified five "Giant Evils" in society: squalor, ignorance, want, idleness and disease, and went on to propose widespread reform to the system of social welfare to address these.

I briefly looked at the pdf version of the report which in paragraph 11 refers to surveys:

"During those years impartial scientific authorities made social
surveys of the conditions of life in a number of principal towns in Britain,
including London, Liverpool, Sheffield, Plymouth, Southampton, York and
Bristol. They determined the proportions of the people in each town whose
means were below the standard assumed to be necessary for subsistence, and
they analysed the extent and causes of that deficiency. From each of these
social surveys the same broad result emerges. Of all the want shown by the
surveys, from three-quarters to five-sixths, according to the precise standard
chosen for want, was due to interruption or loss of earning power."

If anyone knows where these surveys can be found I'd be in debt to you.

Steve

Originally Posted by Invisible-Bob

You are really comparing apples and oranges here. Modern day capitalism is completely different and much more evolved than it was hundreds of years ago. I mean it really can't even be compared.

Very true, but my fear is that the extreme conservative fringe would like nothing better than to remove the social safeguards that the past 2 centuries have shown to vastly improve the welfare of the lower economic classes. Modern societies may have gone too far in the pursuit of social security as to undermine the original intent. But to swing the pundulum so far back to the right has its own dangers. We should proceed with caution - not reckless abandon.

Steve

Originally Posted by machinehead61

Very true, but my fear is that the extreme conservative fringe would like nothing better than to remove the social safeguards that the past 2 centuries have shown to vastly improve the welfare of the lower economic classes. Modern societies may have gone too far in the pursuit of social security as to undermine the original intent. But to swing the pundulum so far back to the right has its own dangers. We should proceed with caution - not reckless abandon.

Steve

I understand your point, to a degree. However, I see the problems in Europe right now due in part to the over-reach of the nanny state. We are heading down the direction of the Roman Mob, and we need to cut back on the safety net programs run by the government. I don't see that we have a choice in the matter, as we cannot keep borrowing money to maintain the status quo.

Originally Posted by machinehead61

Modern societies may have gone too far in the pursuit of social security as to undermine the original intent. But to swing the pundulum so far back to the right has its own dangers. We should proceed with caution - not reckless abandon.

Steve

I agree with that.

I think that ALL people should have access to safe working conditions, reasonable hours, clean food, basic nutritious foods.

Those were the original intents of the social welfare movement.

But it was taken way to far in the other direction.

There's a lot to be said for legislation that ensures that appartment buildings aren't fire traps. But once that morphs into legislation that fosuses on every American owning their own McMansion it is clearly unsustainable.

Originally Posted by soot

But once that morphs into legislation that fosuses on every American owning their own McMansion it is clearly unsustainable.

If we ever get to that unsustainable level you'll have a point. But clearly we have not.

Originally Posted by AsIfYouKnew

I understand your point, to a degree. However, I see the problems in Europe right now due in part to the over-reach of the nanny state. We are heading down the direction of the Roman Mob, and we need to cut back on the safety net programs run by the government. I don't see that we have a choice in the matter, as we cannot keep borrowing money to maintain the status quo.

I have a theory about the European debt crisis which I don't have the time to research but it goes like this:

The global trend has been to eliminate tariffs and to increase exports through the Value Added Tax rebate, which is legal under WTO law. The VAT using nations (137 nations) intentionally increase tax reliance on the VAT, displacing corporate tax revenues in the strategy of being able to lower the export costs greater than if they only had a corporate tax, since under WTO law, a direct tax like the corporate tax can't be rebated without it being declared an illegal export subsidy.

But the rebate of VAT taxes negates the VAT revenue that would have come from exports. The result has been a global increase of exports relative to gross national product (GNP) but a decrease in both tariff and VAT revenues as a percentage of GNP.

With this constantly decreasing national revenue as a percent of GNP driven by the goal of increasing exports, the governments are now faced with limited options.

1. The governments must borrow more and increase deficit spending. The interest payments on their debts will consume a greater part of existing revenues.
2. The governments must increase property/income taxes to replace the falling VAT/corporate tax revenues. But this will erode the purchasing power of its consumers/citizens and their standard of living.
3. The governments must decrease spending. Typically governments who attempt to cut spending on social programs and employment that impact the poorest of its population can expect severe social reactions. (Greece for example)

What has been happening I suspect has been a combination of all three, and I view these trends as unsustainable. Eventually these governments must default. I don't know the individual finances of all 137 VAT nations, but the United States instead of rebating a VAT tax which it does not have, has been reducing corporate tax revenues since WW II in the effort to remain competitive in the global market.

Since 1945, the share of total Federal taxes paid by corporations dropped from 35 percent to 6.6% percent in 2009, an 81 percent decline.

Tariff revenues have decreased from 41% of all Federal revenues in 1900 to around 1% in 2000.

U.S. TARIFF HISTORY 1821-2000

YEARS……………..AVERAGE EFFECTIVE TARIFF (% tax on all imports)
1821-1830………….46.6%
1831-1840………….24.9%
1841-1850………….24.0%
1851-186……………20.8%
1861-1870………….36.2%
1871-1880………….31.3%
1881-1890………….30.1%
1891-1900………….23.7%

1821-1900………….29.7%

1901-1910………….25.0%
1911-1920………….11.8%
1921-1930………….13.8%
1931-1940………….16.8%
1941-1950………….9.0%

1901-1950………….15.3%

1951-1960………….5.9%
1961-1970………….7.3%
1971-1980………….4.0%
1981-1990………….3.5%
1991-2000………….2.5%

YEAR----------TARIFF % (TARIFF REVENUE/TOTAL FEDERAL REVENUE x 100%)
1789------------99.5%
1800------------83.7%
1825------------92.0%
1850------------90.9%
1875------------54.6%
1900------------41.1%
1925------------15.0%
1950------------1.0%
1975------------1.3%
2000------------N/A*

*1997 was the last year that the U.S. Statistical Abstract published duty revenues. It has been conveniently censored from 1998 on to the present.

The income tax was created in 1913, just in time to be around to fund WW I :

YEAR.....INOME TAX REVENUE.....TARIFF REVENUE
1916............$173,387,000.........$213,185,000
1917............$675,250,000.........$225,962,000


Up until 1916, the tariff was the largest single Federal revenue source.

1917 was the first time in U.S. history that the income tax surpassed the tariff and we've never looked back since then.

2007 IMPORTS AND TARIFF REVENUES

IMPORTS = $2,345.983 billion
(source: http://www.census.gov/compendia/stat...es/09s1260.pdf )

TARIFFS = $26.010 billion of which $1.339 billion came from trust fund revenues.
(source: http://www.gpoaccess.gov/usbudget/fy09/pdf/hist.pdf Table 2.5 p.50 of 342)

$26.010 - $1.339 = $24.671 billion

$24.671 / $2,345.983 x 100% = 1.0% EFFECTIVE TAX RATE

U.S GDP = $13,841 billion
(source: http://www.census.gov/compendia/stat...es/09s0645.pdf )

Imports as a percent of U.S. GDP are now a staggering 16.9% of GDP yet only pay 1.0% effective tax rate.

Percent of Federal revenues paid by tariffs in 1905 was 47.4%

In 2002, 49% of all Federal revenue came from the personal income tax.

The entire U.S. economy now suffers under a 30% effective tax rate.


http://pascrell.house.gov/views/tradelabor.shtml

“Domestic U.S. producers face a massive and unfair trade obstacle. Altogether, imports into the U.S. face average tariffs of 1.3% and no VAT penalty, whereas U.S. exports face average tariffs worldwide of about 40% plus VAT border adjustment penalties of 15.7%. In addition, foreign companies get a VAT rebate when they export to the U.S. averaging 15.7%. Thus, most imports to the U.S. are subsidized by foreign VAT rebates and all U.S. exports are not. The “Border Tax Equity Act” eliminates these inequities and levels the playing field for American manufacturers.”

Bill Pascrell
U.S. Congressman, (D) New Jersey

Steve

Originally Posted by machinehead61

Very true, but my fear is that the extreme conservative fringe would like nothing better than to remove the social safeguards that the past 2 centuries have shown to vastly improve the welfare of the lower economic classes. Modern societies may have gone too far in the pursuit of social security as to undermine the original intent. But to swing the pundulum so far back to the right has its own dangers. We should proceed with caution - not reckless abandon.

Steve

One thing you are not considering is when the government steps in it really isn't in a manner that benefits the lower economic spectrum. When saying this, think about the bailouts that put money right into the pockets of large banks to no gain. Was this safeguard looking out for the lower to middle class? I could come up with example after example where regulation kills the little guy and helps the big guy. Are all regulations doing this? No, but I think the net is not in favor of the little guys.

Originally Posted by fishjoel

One thing you are not considering is when the government steps in it really isn't in a manner that benefits the lower economic spectrum. When saying this, think about the bailouts that put money right into the pockets of large banks to no gain. Was this safeguard looking out for the lower to middle class? I could come up with example after example where regulation kills the little guy and helps the big guy. Are all regulations doing this? No, but I think the net is not in favor of the little guys.

It depends on HOW the government steps in:

"The economic historians Claudia Goldin and Robert Margo call the narrowing of income gaps that took place in the United States between the twenties and the fifties - the sharp reduction in the gap between the rich and the working class, and the reduction in wage differentials among workers - "The Great Compression.".....The achievement of a middle class-society, which once seemed an impossible dream, came to be taken for granted......

By the mid-fifties the real after-tax incomes of the richest 1 percent of Americans were probably 20 or 30 percent lower than they had been a generation earlier. And the real incomes of the really rich - say, those in the top tenth of one percent - were less than half what they had been in the twenties. (The real pretax income of the top 1 percent was about the same in the mid-fifties as it was in 1929, while the pretax income of the top 0.1 percent had fallen about 40 percent. At the same time, income tax rates on the rich had risen sharply.)

Meanwhile the real income of the median family had more or less doubled since 1929. And most families didn't just have higher income, they had more security too. Employers offered new benefits, like insurance and retirement plans: Before the war only a small minority of Americans had health insurance, but by 1955 more than 60 percent had at least the most basic form of health insurance, coverage for the expenses of hospitalization. And the federal government backed up the new security of private employment with crucial benefits such as unemployment insurance for laid-off workers and Social Security for retirees.....

This sudden decline in the fortunes of the wealthy can be explained in large part with just one word: taxes.....

So you might think that the sharp fall in the share of the wealthy in American national income must have reflected a big shift in the distribution of income away from capital and toward labor. But it turns out that this didn't happen. In 1955 labor received 69 percent of the pretax income earned in the corporate sector, versus 31 percent for capital; this was barely different from the 67-33 split in 1929.

But while the division of pretax income between capital and labor barely changed between the twenties and the fifties, the division of after-tax income between those who derived their income mainly from capital and those who mainly relied on wages changed radically.

In the twenties, taxes had been a minor factor for the rich. The top income tax rate was only 24 percent, and because the inheritance tax on even the largest estates was only 20 percent, wealthy dynasties had little difficulty maintaining themselves. But with the coming of the New Deal, the rich started to face taxes that were not only vastly higher than those of the twenties, but high by today's standards. The top income tax rate (currently only 35 percent) rose to 63 percent during the first Roosevelt administration, and 79 percent in the second. By the mid-fifties, as the United States faced the expenses of the Cold War, it had risen to 91 percent.

Moreover, these higher personal taxes came on capital income that had been significantly reduced not by a fall in the profits corporations earned but in the profits they were allowed to keep: The average federal tax on corporate profits rose from less than 14 percent in 1929 to more than 45 percent in 1955.

And one more thing: Not only did those who depended on income from capital find much of that income taxed away, they found it increasingly difficult to pass their wealth on to their children. The top estate tax rate rose from 20 percent to 45 percent, then 60, then 70, and finally 77 percent. Partly as a result the ownership of wealth became significantly less concentrated: The richest 0.1 percent of Americans owned more than 20 percent of the nation's wealth in 1929, but around 10 percent in the mid-1950s.

So what happened to the rich? Basically the New Deal taxed away much, perhaps most, of their income. No wonder FDR was viewed as a traitor to his class."

Paul Krugman
The Conscience Of A Liberal, 2009
p.38-48

Originally Posted by machinehead61

I have a theory about the European debt crisis which I don't have the time to research but it goes like this:

The global trend has been to eliminate tariffs and to increase exports through the Value Added Tax rebate, which is legal under WTO law. The VAT using nations (137 nations) intentionally increase tax reliance on the VAT, displacing corporate tax revenues in the strategy of being able to lower the export costs greater than if they only had a corporate tax, since under WTO law, a direct tax like the corporate tax can't be rebated without it being declared an illegal export subsidy.

But the rebate of VAT taxes negates the VAT revenue that would have come from exports. The result has been a global increase of exports relative to gross national product (GNP) but a decrease in both tariff and VAT revenues as a percentage of GNP.

With this constantly decreasing national revenue as a percent of GNP driven by the goal of increasing exports, the governments are now faced with limited options.

1. The governments must borrow more and increase deficit spending. The interest payments on their debts will consume a greater part of existing revenues.
2. The governments must increase property/income taxes to replace the falling VAT/corporate tax revenues. But this will erode the purchasing power of its consumers/citizens and their standard of living.
3. The governments must decrease spending. Typically governments who attempt to cut spending on social programs and employment that impact the poorest of its population can expect severe social reactions. (Greece for example)

What has been happening I suspect has been a combination of all three, and I view these trends as unsustainable. Eventually these governments must default. I don't know the individual finances of all 137 VAT nations, but the United States instead of rebating a VAT tax which it does not have, has been reducing corporate tax revenues since WW II in the effort to remain competitive in the global market.

Since 1945, the share of total Federal taxes paid by corporations dropped from 35 percent to 6.6% percent in 2009, an 81 percent decline.

Tariff revenues have decreased from 41% of all Federal revenues in 1900 to around 1% in 2000.

U.S. TARIFF HISTORY 1821-2000

YEARS……………..AVERAGE EFFECTIVE TARIFF (% tax on all imports)
1821-1830………….46.6%
1831-1840………….24.9%
1841-1850………….24.0%
1851-186……………20.8%
1861-1870………….36.2%
1871-1880………….31.3%
1881-1890………….30.1%
1891-1900………….23.7%

1821-1900………….29.7%

1901-1910………….25.0%
1911-1920………….11.8%
1921-1930………….13.8%
1931-1940………….16.8%
1941-1950………….9.0%

1901-1950………….15.3%

1951-1960………….5.9%
1961-1970………….7.3%
1971-1980………….4.0%
1981-1990………….3.5%
1991-2000………….2.5%

YEAR----------TARIFF % (TARIFF REVENUE/TOTAL FEDERAL REVENUE x 100%)
1789------------99.5%
1800------------83.7%
1825------------92.0%
1850------------90.9%
1875------------54.6%
1900------------41.1%
1925------------15.0%
1950------------1.0%
1975------------1.3%
2000------------N/A*

*1997 was the last year that the U.S. Statistical Abstract published duty revenues. It has been conveniently censored from 1998 on to the present.

The income tax was created in 1913, just in time to be around to fund WW I :

YEAR.....INOME TAX REVENUE.....TARIFF REVENUE
1916............$173,387,000.........$213,185,000
1917............$675,250,000.........$225,962,000


Up until 1916, the tariff was the largest single Federal revenue source.

1917 was the first time in U.S. history that the income tax surpassed the tariff and we've never looked back since then.

2007 IMPORTS AND TARIFF REVENUES

IMPORTS = $2,345.983 billion
(source: http://www.census.gov/compendia/stat...es/09s1260.pdf )

TARIFFS = $26.010 billion of which $1.339 billion came from trust fund revenues.
(source: http://www.gpoaccess.gov/usbudget/fy09/pdf/hist.pdf Table 2.5 p.50 of 342)

$26.010 - $1.339 = $24.671 billion

$24.671 / $2,345.983 x 100% = 1.0% EFFECTIVE TAX RATE

U.S GDP = $13,841 billion
(source: http://www.census.gov/compendia/stat...es/09s0645.pdf )

Imports as a percent of U.S. GDP are now a staggering 16.9% of GDP yet only pay 1.0% effective tax rate.

Percent of Federal revenues paid by tariffs in 1905 was 47.4%

In 2002, 49% of all Federal revenue came from the personal income tax.

The entire U.S. economy now suffers under a 30% effective tax rate.


http://pascrell.house.gov/views/tradelabor.shtml

“Domestic U.S. producers face a massive and unfair trade obstacle. Altogether, imports into the U.S. face average tariffs of 1.3% and no VAT penalty, whereas U.S. exports face average tariffs worldwide of about 40% plus VAT border adjustment penalties of 15.7%. In addition, foreign companies get a VAT rebate when they export to the U.S. averaging 15.7%. Thus, most imports to the U.S. are subsidized by foreign VAT rebates and all U.S. exports are not. The “Border Tax Equity Act” eliminates these inequities and levels the playing field for American manufacturers.”

Bill Pascrell
U.S. Congressman, (D) New Jersey

Steve

So the VAT rebate allows the manufacturer to regain a portion of already paid taxes because it is being exported? This is 15.7% average of taxes already paid? Or is it typically different from country to country?

Originally Posted by michael h

So the VAT rebate allows the manufacturer to regain a portion of already paid taxes because it is being exported? This is 15.7% average of taxes already paid? Or is it typically different from country to country?

Typically different from country to country:

According to the WTO website:

WTO | legal texts - Marrakesh agreement

Part I: General Provisions
Article 1: Definition of a Subsidy

1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:


(ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits)(1);


Notes:

1. In accordance with the provisions of Article XVI of GATT 1994 (Note to Article XVI) and the provisions of Annexes I through III of this Agreement, the exemption of an exported product from duties or taxes borne by the like product when destined for domestic consumption, or the remission of such duties or taxes in amounts not in excess of those which have accrued, shall not be deemed to be a subsidy.


Value added tax - Wikipedia, the free encyclopedia

It (VAT tax) differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. With the VAT, collections, remittances to the government, and credits for taxes already paid occur each time a business in the supply chain purchases products.

SEC. 2. FINDINGS AND DECLARATIONS OF POLICY.

(a) Findings- Congress makes the following findings:

(1) The United States largely relies on a direct tax system, whereas 137 countries currently employ one particular form of indirect tax known as value-added taxes (VAT) as well as direct taxes. The worldwide VAT tax average in 2005 was 15.7 percent, and in countries of the European Union it ranges between 15 and 25 percent.

(2) Under the rules of the World Trade Organization (WTO), direct taxes, such as corporate income taxes, if rebated or refunded upon the export of goods are viewed as export subsidies and prohibited on most goods and are at least potentially actionable on all goods. However, indirect taxes, such as sales taxes and VAT, may be rebated or refunded upon the export of goods and such rebate or refund is not defined as constituting a subsidy and hence is not actionable under WTO rules.

(3) At present, there are no WTO rules on subsidies as applied to trade in services. However, a number of countries currently impose taxes on the import of services and exempt or rebate or refund taxes upon the export of services, to the disadvantage of United States services providers.

(4) The disparate treatment of border taxes detrimentally affects United States agricultural producers, manufacturers, and service providers in that--

(A) refunds of indirect taxes effectively act as export subsidies to foreign exporters; and

(B) United States exporters are subject to double taxation, by paying direct taxes on domestic production in the United States and having their exported product or service face a border tax in the importing country consisting of indirect taxes.

(5) The disparate treatment of border taxes results in a large monetary disadvantage to United States exporters, estimated to equal $93 billion on goods and $47 billion on services. Moreover, since remission of VAT by foreign countries equates to approximately $201 billion in export subsidies on goods exported to the United States and another $38 billion on services exported to the United States, United States producers, in total, suffer an artificial disadvantage of up to $294,000,000,000 on trade in goods and $85,000,000,000 on trade in services.

(6) For more than 40 years, United States businesses have complained of border tax inequity and, since 1968, prior United States Administrations and Congresses have sought to resolve it.

(7) Congress has repeatedly recognized the prejudicial effect of the disparate treatment of border taxes with respect to goods and has directed the United States to seek a negotiated solution:

(A) In passing the Trade Act of 1974 (19 U.S.C. 2101 et seq.), Congress sought `revision of GATT articles with respect to the treatment of border adjustments for international taxes to redress the disadvantage to countries relying primarily on direct rather than indirect taxes for revenue needs.'.

(B) In section 1101(b)(16) of the Omnibus Trade and Competitiveness Act of 1988 (19 U.S.C. 2901(b)(16) and section 2102(b)(15) of Bipartisan Trade Promotion Authority Act of 2002 (19 U.S.C. 3802(b)(15)), Congress declared that a principal trade negotiating objective of the United States is to obtain a revision of WTO rules with respect to the treatment of border taxes in order to redress the disadvantage to countries relying primarily on direct taxes for revenue rather than indirect taxes.

(8) The disparate treatment of border taxes is arbitrary, inequitable, causes economic distortions based only on the type of tax system used by a country, and is a primary obstacle to more balanced trade relations between the United States and its major trading partners.

(b) Declarations of Policy- Congress declares the following:

(1) It is critically necessary that the issue of border taxes be addressed and resolved in WTO negotiations, whether in the ongoing Doha Development Round of WTO negotiations or subsequent WTO negotiations.

(2) If such WTO negotiations fail to achieve the United States trade negotiating objective of revising WTO rules with respect to the treatment of border taxes in order to redress the disadvantage to countries relying primarily on direct taxes for revenue rather than indirect taxes, then effective action through legislation is warranted given the massive and inequitable distortions to trade that United States agricultural producers, manufacturers, and service providers face as a result of border taxes.[/b]

Steve