Planck Foundation

Labour Taxation

In the Global West the tax system is mainly based on three sources: income, profit and capital. From an objective helicopter view taxation of labour is strange. The thing we just want in an economy is getting burdened by tax. This is similar to driving a car with the hand brake on. More jobs is the only thing the whole political spectrum unanimous agree on: The left wing politicians want jobs as they deliver wealth distribution by the market, the right wing politicians wants jobs as they reduce the government spending on social benefits.

Taxation on profit and capital have melt away since the 80ties. Taxation on labour has increased since the 80ties. Labour taxation and consumption taxation are the two only not yet damaged voluminous governmental revenue sources/streams. As the governments become more bought and paid for by corporations (and also due to globalization and ‘global tax planning’) the taxation of profit and capital are reduced to lower than ever levels. But labour taxation hasn’t decreased, but has risen to cope for the lost of the profit and capital taxation.

The current labour taxation system is historical grown to it's current nature. First: All tax systems functioning only in accounting environments. No accounting tradition, no tax possibilities. Governments like to outsource their taxation administration/collection for free towards the companies very much. Labour accounting has been operational since the industrial revolution. So it was a good soil to build a tax system on. Second: The benefit of labour based tax is also the facet that their are two involved parties. This gives makes tax fraud much more difficult. Labour has a build-in natural two party structure and has proven therefore a good anti tax fraud preventing environment.

The current mainly labour focused tax system will bring developed countries within 10 years in big problems. Labour is already too expensive in these countries by it’s relative higher general prosperity levels. The extra (unnecessary) burden of labour tax will erode the position of the developed countries in the world enormously. For example India: more than people, with already more than 200.000.000 well/high educated people, who work for a wages of only 33% of the developed countries average. These educated people will conqueror the world wide knowledge industry. The wages in the Global East and Global South will go up, starting in the coastal regions. The economic development will due raising costs of everything in the coastal regions move gradually towards inland locations. Intracontinental rail connections (both new tracks and fast schedules on existing tracks) will be a huge i.e. the driving factor in the rise of inland / non-costal economic development. The geography of rail will deliver a similar huge advantage as the geography of harbour cities at the ocean shores.

The nations of the Global West are still drunk of their own neo colonial thinking. The Global East and Global South are not that dumb as the Global West would to see them. The Global West still see India and China are potential markets instead of seeing them as much better competitors with the same quality for a fraction of the price. The internet has given the world a global information structure, like sea containers has given the world a global logistical structure. The effect of the internet will be the same as the effect of the sea container. In the next 10 years intellectual high tech/service production will also be relocated to countries with substantial lower production costs.

The internet will be the end of the head start of the Global West. Currently it seems that the Global West has benefited the most of the internet, but this will soon change. India (> people), China (> people), South and Middle America (> people) and even the Middle East and Africa (> people) will rise and conqueror the global economy. This new booming economical forces will gain huge parts of the market shares the Global West currently has.

Besides that less labour taxation will help the Global West to restore somewhat of their competition level to the emerging global competition of the Global East and Global South it will also be a huge facet in restoring their own internal economical civil service sectors to better functioning levels. The high taxation burden on labour based services like healthcare, rule of law and all other public and personal services undermines the western prosperity from within: wealth is more than owning stuff: wealth is also about availability/access to services. The services level in most rich countries becomes paradoxical more and more lowered by (relative) to high labour costs. Both civilians and companies in the Global West finds further lowering of service levels not that acceptable i.e. favourable.

The only thing the old developed countries can do to take care of the future of their next generation (their current children) -but also their own generation- is lowering the cost of labour. Not by lowing earnings, but by reforming their tax system. This for two reasons: First for a comparative market position on the rapidly changing world market and this ways ensuring their prosperity. Second to maintain (or restore) an service level in society that equal the level of prosperity. Tax systems that are based on income makes normal daily life services (security, health care, education) unplayable for both civilians and companies in prosperous countries.

The only way to fix these two developing problems is by a tax reform: Moving the tax burden from labour to consumption. If this will no be done quick, the countries of the Global West will be get soon into serious general poverty.

The home markets for hard products is in theory relative easy to defend by raising import barriers, but this will in practice not that easy due to signed trade agreements. The home markets for soft internet carried information products isn't to defend by import barriers. The main part of the software, knowledge and support industries will move by company policies (but much more by just rising of new companies) to cheaper countries. As soon Voice over IP becomes mainstream and qualitative, the roll/weight of the new countries will explode on the global markets. Patent legislation is in theory another way to prevent the rise of the Global East and Global South: but the Global East and Global South aren’t that enthusiastic on these ‘taxation’ on their production by the old Global West. The system of patent legislation (the core of all ‘free’ trade agreements) could collapse overnight if the Global East and Global West start to see it as an imperial tax of the Global West. The digital censorship ‘walls’ some emerging nations will harm their economic progress significant. The balance of power is shifting from the Global West towards the Global East and Global South: this will undermine the imperial patent model severely.

Diverting taxation away from labour towards consumption (VAT / sales tax) is needed in an open globalized world, without this tax focus areas diversion the Global West will fall into poverty at fast pace in/by a global market place. At least the labour tax for < $/E 18.000 should be set on 0%, otherwise the industrial and service capacity/potential of the Global West will decline even more. And yes, the governments of the Global West should spend less on wars and less on corporate welfare/subsidies, to reduce also the overall taxation demand/need. And yes, the governments in the Global East and Global South will be confronted with more social demands due to public opinion: but they realize that funding these social benefits by taxing labour is not a wise direction to take.

Transforming the tax system from labour based to consumption based tax will be the only solution for preventing sharp rising poverty levels in the Global West. That poverty is rising in the Global West is for sure: in the USA for example already 47 million of the 317 million Americans receives SNAP (a governmental food subsidy program). An other benefit is that consumption based taxes contributes enormously to a more durable orientated economy: less stuff, more services. This will effect the future of both the declining Global West and the emerging Global East and Global South.

If this is not done the developed nations are bound to decline beyond pretty levels i.e. face collapse: They are losing their position on the global markets rapidly as the emerging nations can produce a lot more cheaper and deliver increasingly the same quality as the West and even are building highly appreciated/wanted/sold global brands: when products are supplied cheaper and as good and have attractive branding it’s a no-brainer what the most will be sold/bought.

The current system of taxation of labour in the developed nations makes their production too expensive for competition on the world markets. If the western/developed nations don’t do this, they face severe slow down. As their financial and governmental model is designed on growth, slow down will equal collapse. And yes the developed/western nations should re-direct their focus aka re-design their design from prosperity growth towards prosperity defence: keeping the prosperity levels achieved will the highest possible outcome.

Economic growth is history for the Global West. Denial of this leads to collapse: current model of finance and government is based on growth: if that disappears: things are no longer pushed upwards but starts to collapse due the design outcome, as the design was not designed to maintain but to grow. The growth of debt (both private, corporate and governmental) is the best illustration of the growth focused design: if growth disappears severe debt problems (both interest and amortization) immediately appears and burden a growth absent status quo. Denial of this all only leads to deepening/widening of those problems.

Denial has three causes: a) lack of (insight) knowledge, b) lack of (recognizing) courage and c) lack of (knowledge based) alternative models. Moving taxation away from labour towards consumption is a very easy to realize solution. It will break denial (as it both proclaims the new normal and delivers a solution).

Another thing governments could do regarding increasing labour volume is making labour more ‘liquid’. The old employees focused labour legislation gets outdated when economic growth is no longer the case. In economic stand still or decline governments should stop ‘outsource’ social issues/responsibility mandatory towards companies: in economic decline companies can’t burry this burden anymore. Governments therefore should not only make social legislation but also service the outcome of it at large.

One of the main features is the dynamic/free hire/fire system: companies in distress should not carry this expensive burden of overcapacity: governments should deliver people a near wages unemployment benefit system: so that companies can lay of people if needed and (also very important) can hire the best people. So the developed/western nations needs less taxation on labour and more flexible labour legislation (that should be compensated by government driven unemployment programs). Companies can’t do government’s job, nor can governments do company’s job. Mixing those leads to severe problems in both those realms.

Diverting taxation away from labour is the first thing governments should do to curb the general prosperity destructing financial capitalism and stimulate the general prosperity creating productive capitalism. The seeds of financial capitalism are sown in 1971 when Nixon as President of the USA unilateral ended the Bretton Woods framework. Since that day financial capitalism has surged till its the foundations of the economies of the Global West destroying level of today.

It’s time to honour the producers and the labour force, and no longer let the bank(st)ers i.e. the financial industry eat out a parasitic 10% of the GDP of the real economy year after year. Consumptive credit is fake growth: it’s just mortgaging the future: stealing today the oxygen of further economic growth while sleepwalking bashing the productive capacity i.e. real growth potential of a nation.

The political right will like the facet that labour will become cheaper. The political left will like that there will be more jobs. The thing both the right and the left have in common is that they both need a revival of productive capitalism (with it’s nice non-governmental and therefore funding sustainable wealth distribution by the market) to get saved from the financial capitalism (with it’s not so nice and totally unsustainable wealth concentration by the market) that has grown as cancer in the Global West and has ruined the foundation of the general prosperity of the Global West: no market driven general prosperity: no jobs: social tensions and economic decline.

See also International Currency Stability
See also Europe: Diagnosis and Prescription
See also Governmental Funding Turbulence
See also Labour Taxation
See also Money Creation
See also Energy Open Finance Platform
See also Global PV Solar Energy Finance Model
See also EQE/EBS Model Summary Diagram
See also BQE: Bilateral Currency Swaps
See also Gold Backing vs EQE/EBS Backing
See also Secular Stagnation as Denial Term
See also Financial QE vs Productive QE
See also Productive Capitalism Perspectives
See also Emerging Nations - Electricity PPP
See also Emerging Nations - Solar PPP
See also Easy Instant Solarizing Nations
See also Making The Euro More Offensive
See also Structural EU/EC Boat Refugees Solution

See also Global Solar Rollout - Description - Diagram
See also Regional Solar Rollout - Description - Diagram
See also Obama Administration Energy Strategy
See also China As Global Leading Solar Energy Nation
See also Open Finance Platform for Energy Investments
See also Iceland 3.0: Geothermal and Energy as Currency
See also Addressing Economic Decline of the Global West
See also IntraContinental: Continental Rail Schedules
See also Global West Enters Economic Adulthood
See also Global East Driven Globalization 2.0
See also Financial Capitalism vs Productive Capitalism
See also CIRI (China India Russia Iran) Avoids Dollar
See also Global West Gets A Common Currency
See also What Ended Global West Dominance
See also National Economic Development Organizations
See also Desert Investment Economics
See also Ending Global Poverty (By Sea Water Irrigation)

See also Global Deserts Exploration Model
See also WaterTech and MicroCredit Merge
See also Lupin As Soy Replacer
See also Global Seed Cartels Aren't Right
See also Global Food Model: Local to Global
See also Sun / Earth Interactions
See also Telco 3.0 : Telco out of the Cloud
See also National Business Clusters Abroad
See also Scientific Education/Research Funding
See also Iran: National Economic Plan
See also Immigrants and Trade
See also Emerging Nations - Minerals PPP
See also Emerging Nations - Deserts PPP
See also Emerging Nations - Energy PPP
See also National Solar Fund Model
See also Secular Islamic Finance
See also Open Energy Finance Platform


Gijs Graafland / Planck Foundation / Amsterdam

(texts can be republished freely when the source location is mentioned or the source link is provided)

Back to Main Site

Planck Foundation