[Marxism] Patrick Bond on world financial volatility

Jurriaan Bendien andromeda246 at hetnet.nl
Mon Dec 27 15:14:55 MST 2004


Thanks for your message. I tend to see debt-driven accumulation
as a permanent structural feature of modern capitalism, a corollary
of the great concentration of wealth in the hands of a financial
oligarchy. As a proportion of total global debt, the third world
debt isn't actually very large, even although it has very large
social consequences (i.e. it affects the lives of far more people).

As the US CBO notes, most capital gains as well as most tax on
capital gains is conceptually excluded from GDP (basically,
because it is not considered income generated from current production).
This fact is ignored by most economists, who focus narrowly on
GDP growth in explaining economic activity.

"Gains therefore become part of a wedge between overall income as
measured in GDP and taxable income, with the result that growth in GDP or in
the tax-base components of GDP does not yield the same growth in income tax
receipts. Consequently, when the stock market rises rapidly or the real
estate market collapses, for example, or when there are big changes in
capital gains tax rates, total receipts may grow faster or more slowly than
the overall economy because of what happens to capital gains realizations."
http://www.cbo.gov/showdoc.cfm?index=3856&sequence=0

Realised capital gains will obviously boost GDP insofar as they increase
consumer demand. But the quantitative effects are very difficult to
estimate reliably, both because tax assessment does not include all
capital gains, and because some capital gains are not declared, or
tax assessment is avoided through various schemes.

Capital gains were taxable in the United States since 1913.  But only
capital gains and losses realized through the actual sale of an asset, not
unrealized "paper" gains and losses in asset value, are recognized for
individual income tax purposes, nor is a taxable capital gain or loss
adjusted for inflation in tax assessment.

Capital losses are deductible in full against capital gains, but if the
investor has no capital gains, the deduction for capital losses were
traditionally limited to three thousand dollars per year. Capital gains held
until death are traditionally not taxed at all (although the asset is
subject to estate duty taxes, and these taxes were recently lowered).

Net capital gains for tax purposes are calculated by the US Internal Revenue
Service of the federal government. Included are:

(1) capital gains realised from the actual sale of assets held by
individuals for personal use or for investment
(2) net gains realised from the actual sale of certain business property by
individuals treated as net capital gains
(3) "involuntary conversions" of property by individuals, such as due to
calamity or theft
(4) some capital gains received by individuals from partnerships and S
corporations, personal royalties etc.
(5) certain capital gain-type and liquidating-type dividend receipts by
individuals.

Here's the grand totals for US tax-assessed net capital gains of all
individual income tax payers in the US (current dollar values,
not adjusted for the CPI; some of the totals for recent years
are still being revised slightly).

1980 $32.7 billion
1985 $72.1  billion
1990 $123.8  billion
1995 $180.1 billion
1997 $355 billion
1998 $ 432 billion
1999 $552.6 billion
2000 $644.3 billion
2001 $348.1  billion
2002 $246.8 billion

These totals will obviously understate the real total of capital gains
insofar as business structures and transfers of wealth are arranged
deliberately to avoid tax. Note also that they refer only to capital gains
which are part of individual income, not enterprise business income.
Undeclared capital gains of business are a notorious problem in tax
collection. See for example, for Japan,
http://www.nta.go.jp/category/english/press/08.htm .

In the late 1990s, sales of stocks accounted for more than half of all US
capital gains. However, as Edward Wolff mentions, the richest 10 percent of
families own about 85 percent of the value of all stocks. They own about 85
percent of the value of all financial securities, and 90 percent of the
value of all business assets. By 2001, the share of householders owning
stocks was about 51 percent. But on closer inspection, a lot of these
families have very small stakes in the stock market. In 2001, only 32
percent of stock-owning households owned more than $10,000 of
stock, and only 25 percent of them owned more than $25,000 worth
of stock. The reduction of realised capital gains in recent years is
mainly due to the bust in the stockmarkets. Insofar as ordinary
working people realise capital gains in the US, it's mainly through
buying and selling houses.

Jurriaan









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