Sunday, March 12, 2006

taxes, labor, property rights: notes on the anti-globalization backlash

The leader of Italy's left-leaning opposition, Romano Prodi, has proposed a tax increase on financial income as part of the run-up to the country's April 9 elections. According to Prodi's proposal, all financial income, including interest, dividend, and apparently capital gain would be taxed at a flat 20 percent rate, the additional revenues being used to address deficits in the country's existing welfare and retirement systems. Financial income is generally taxed at a 12.5 percent rate in Italy, although a 27.5 rate applies in some cases and much income is reported to escape tax altogether, either by transfer of assets to nearby Switzerland or by other methods. (The personal income tax is progressive, with a maximum 43 percent rate, in theory reverting to 39 percent after a "temporary" surcharge on high incomes has expired.)

Proposals of this sort are not unusual in Italian elections, but they come at a time of increasing agitation against tax reductions, free market labor reforms, and other supposedly "inevitable" consequences of globalization in various countries. An especially dramatic clash took place recently in France, where police were called in to evict students at the University of Paris who were protesting proposed changes to the contract of first employment (CPE), which would, among other things, have allowed employees below the age of 26 to be dismissed without cause. This would seem unobjectionable in an American context, except perhaps for extremely young tenured professors, but in France it provided violence--less, one suspects, for the issue itself than for its significance in the general trend toward reduced protectionism and American-style labor markets, in France and other countries.

An even more interesting, if less noticed, event took place in China last week. As reported in The New York Times, proposed legislation, which would have established a new regime of protection for property rights, was shelved indefinitely under pressure from what The Times described as "old-style leftist thinkers" concerned about the rising economic inequality that has accompanied China's rapid growth. An especially important role appears to have been played by a Beijing law professor, who circulated a critique of the proposal accusing it of a slavish copoying of western civil law and said that it offered equal protection to "a rich man's car and a begging man's stick." Particularly objectionable was the proposal's omission of the historic formula that socialist property is inviolable, which was seen as a particularly stark rejection of traditional marxist ideals.

Of the events above, only one (Italy) involves taxes, and it is not clear that the Italian proposal will be enacted or that the resistance to proposed changes in France and China will succeed in the long term . (Both France and China have rather steeply progressive income taxes, although at least in France there has been serious talk of reform.) But the combination of events suggest that there is still an awful lot of resistance to the kind of capitalist, free market-oriented reforms once thought to be an unavoidable part of globalization and international markets. The involvement of students and academics in two of the three countries--Prodi himself is a university professor but his proposal seems political rather than academic in origin--is particularly interesting here, as is the renewed concerned for vertical equity in each case. For better or worse, convergence remains a long and bumpy road, and history is far from ending.


At 3:24 AM, Anonymous GRS said...

Progression of French income tax depends on type of income. If carefully selecting their income, residents can get away with a flat 27% (16% income tax and 11% of csg/crds which is an income tax as well)Non residents would not owe the latter. Of course, proper tax planning can get it much lower.
You thought that the difference of taxes and fees was an esoteric one. Well, that may be technical and esoteric but understanding it - and especially understanding that wording can be misleading, would further understanding beyond on the face of it ideas such as the progressivity of French income tax.
Moreover, the basic French policy problem is the cost of public debt. Which means, that tax levels are bound to be high.

At 2:22 PM, Blogger ChinaLawBlog said...

It is not clear that the property rights laws in China were shelved due to leftists as many non leftists are opposed to it as well. The reason is that right now about the only safety net China's rural population has is the right to work "their" land in the village. Migrant workers go to the cities and then return if things do not work out. The fear is that if land is privatized, these migrants (and others) will sell their land to the wealthy, spend all the money from the sale and end up with nothing. You would be surprised how many capitalists agree with China shelving property reform for now.


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