There are over 25 million businesses in the US but companies which make up the Standard & Poor 500 contribute over 26% of the US government’s annual $2.4 trillion tax take. These 500 businesses are 6.5% of the total number of listed businesses .
Across the Atlantic, in the UK, the FTSE 100 index of companies contributes 3.3% of Her Majesty’s tax take. Even if you add in the salaries and other taxes that these companies manage on behalf of Treasury, it is no more than 7%.
The US taxation system is what is known as progressive; it falls more heavily on the wealthy than on the poor. The intention is that it is to be fairer. And so, in the US, the top 10% of taxpayers contribute 70% of taxes, and the top 1% contribute 40% of taxes. Conversely, the bottom 40% of registered taxpayers actually received more money back through tax grants than they contributed through their incomes.
Depending on how you feel about rich people, you could be cheered or charged about such information. However, you shouldn’t be surprised at the consequences.
Since 2000, the number of lobbyists in Washington has doubled to 34,750.
Because, you see, when a small number of businesses are responsible for such a large proportion of the tax-take, they have a special interest in ensuring that the money is spent on their interests, and a lot of influence in making sure it happens.
Oil companies, which pay taxes of around $ 60 billion, received $ 12 billion back in special tax concessions. Hardly a surprise when they’re actually paying 1.4 times more tax than they earn in profits.
That old joke, “When you owe the bank $100, they own you. When you owe the bank $1billion, you own them,” is still true. When a government depends on a very small base for its tax revenue then it is also in the pocket of their special interests.
Just as true is that, when a government pushes all its money into a few specialist vehicles designed to deliver on its promises (such as Fannie Mae, Freddie Mac, Medicare and Medicaid) it also stimulates them to spend vast amounts of money ensuring the largess continues.
The point here is that this is hardly wise investment. If you put all your money in one investment, then that is a very concentrated risk. Most investors regard diversification as critical.
A call to a senior executive at Sony this week about how they were dealing with the credit crisis resulted in the response, “ Same as always, some parts of the business are up, and some parts of the business are down.” Sony is highly diversified, so they can ride this out.
But a government that depends on such a focused number of businesses for its tax take is going to have to ride up and down with those businesses. And when those self-same businesses demand a $700 billion bailout because they fucked up, then the government belongs to them and has to play ball.
As the US election runs to its final conclusion, it is very tempting to demand of politicians that they take more tax from the few than spreading the load around.
The consequence will be a government even more in hock to special interests.