Tax the rich to grow the middle class, but find a middle ground

Business

Tax the rich to grow the middle class, but find a middle ground

How do you tax the rich without blunting the spearhead they create to drive economic growth?

Mark Barnes


The fluorescent yellow vests drivers have to keep in their vehicles became a symbol of unity and protest against the recent fuel taxes planned to be introduced in France.
The protests got violent. The government backed down. It had no choice as the negative sentiment continued to grow against a president whose popularity was already at a record low of 26%. The gilets jaunes have won the day for now, and the proposed taxes have been suspended for six months.
At issue is far more than just fuel taxes. Together with other proposed benefit and tax changes, including the abolition of the wealth tax, the fuel tax has brought into question the fairness of it all, as poor households and those in rural areas are worst hit while the rich benefit more.
Inequality has entered the fray, and that’s something worth having a fight about. It’s beyond economics now; it’s political, and that’s complicated.
Nobody likes paying tax. It’s common practice to criticise the government’s priorities and wisdom in the spending of tax revenue. No matter what the state chooses to do, it’ll leave some interest group out to include another.
There will always be the question of hindsight-informed wasted expenditure, and even the best thought-through and well-meant tax reforms take time to work through the system and prove their foresight, if indeed they get to survive the next change in government or any other manifestation of the will of the masses.
We have to pay tax, and the more of us who do, the better. The services and infrastructure we expect from the state have to be funded. The difficult part is, firstly, to decide who should pay what and then to enforce collection through a set of rules that is as easy to apply as it is difficult to avoid.
How do you tax the rich without blunting the spearhead they create to drive economic growth? How do you solve poverty beyond direct personal subsidy and minimum wages? A system that builds and sustains a broad-based middle class is ultimately required.
We must tax the rich without annoying them, stunting their enthusiasm, or chasing them away to more favourable tax regimes in different jurisdictions. Leading technology companies are already storing their intellectual property in offshore jurisdictions or simply not repatriating profits.
An essential design element is to address the fundamental question of the creation and concentration of value, and its consequences. As defensible and logical as capitalism is, it has created the highest level of inequality, even in OECD countries, in more than 50 years.
Enormous amounts of practically unspendable capital have emerged over the past few years into the hands of individual owners and CEOs of companies that haven’t made much, if anything, in the way of taxable earnings yet. The Amazons and Facebooks and even Apples of this world, worshippers of the client acquisition strategy, haven’t paid even close to the sort of taxes you may argue the creation of such wealth would have required along the way.
What’s more, the uber-rich (maybe even unintentionally) mess with the economic balances in the destinations where they spend their money. Property prices soar, small businesses get ousted, ordinary people have to leave, and idle, underutilised assets are the order of the day.
In any case, how do you spend $100bn or so of value in shares? If you start realising your stocks and options, the confidence bubbles on which they precariously depend may start popping. The net worth of the world’s top 10 sometimes changes more in one day than the GDP of a small country.
What about a system of set-off — between income tax paid over time and capital gains tax paid at the end? A kind of slate that tends towards tax at an average rate of wealth creation over time. This logic would need to include other capital assets like property and inheritances.
At the opposite end of the spectrum, at the standing start entry into the journey towards economic prosperity, for individuals and SMMEs, incentives should be found in abundance. Tax deductible cost of capital, deferral of tax due taxable cash flows are re-invested, decentralisation incentives, employment allowances — the whole ambit.
Sensible spending of tax revenues is an essential underpin to any tax reform. If money is wasted or essential services (like energy) become expensive through inefficiency, there is no tax system that can cater for that, and we will never create that powerful middle class we need to ensure our very survival.
• Mark Barnes is CEO of the Post Office.
What about a system of setoff between income tax paid over time and capital gains tax paid at the end? A kind of slate that tends towards tax at an average rate of wealth creation over time. This logic would need to include other capital assets like property and inheritances.
At the opposite end of the spectrum, at the standing start entry into the journey towards economic prosperity, for individuals and SMMEs, incentives should be found in abundance. Tax-deductible cost of capital, deferral of tax due taxable cash flows are reinvested, decentralisation incentives, employment allowances – the whole ambit.
Sensible spending of tax revenues is an essential underpin to any tax reform. If money is wasted or essential services (such as energy) become expensive through inefficiency, there is no tax system that can cater for that, and we will never create that powerful middle class needed to ensure our very survival.
Barnes is CEO of the Post Office

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