This Guardian article reports on the IMF Fiscal Monitor that has said raising taxes on the richest would have a net positive impact on the economies of wealthy nations. The report states that higher taxes on the wealthy would reduce inequality and would not lead to a slow down in growth...as long as the tax was not excessively progressive, that is!
Inequality remains one of the most serious issues the planet faces; some economic theory suggests that a more progressive tax system is the solution. Greater tax would be levied on the rich which is then distributed to lower income earners in the form of goods and services (merit and public); this may be in the form of cheaper healthcare or education. However, progressive taxation has been out of fashion since the 1980's.
Why is this the case? Joseph Stiglitz shares some insightful reasons in "The Price of Inequality" (2012) and expresses that 'government capture' by corporate and wealthy interests means that those with power often abuse it to protect themselves from what would be fair and equitable tax treatment and are advantaged at the expense of the rest. It is not just through taxation that the affluent are advantaged but they are often granted excessive power through politics to enable them to further thrive. One example of this from Stiglizt was that to regulate against dodgy loans, regulations were passed that protected people when borrowing, this covered all borrowing but excluded auto loans. There was no rational reason to exclude car loans but he writes that they were exempt due to car sales lobbyists vast amount of spending on donations that ensured legislation affecting their industry would not pass.
Richard Wilkinson, in his wonderful TED talk, explains how inequality severely harms societies. His fascinating data driven talk shows that lifespan, stress, mental illness, happiness and even the number of people in prison correlate to the level of inequality within a society.
With this in mind, it is good to hear that the IMF recognise this as an important fiscal measure to reduce inequality and there will be hope that we may see countries moving towards a system that is more equitable in its treatment, and therefore outcomes, when it comes to taxation.
When considering the marginal propensity to consume (MPC), we know that higher income earners have a lower MPC and tend to save more of any additional income received. It follows then that we are more likely to see a positive multiplier effect and economic growth by giving tax relief to the lower income earners while progressively taxing the more affluent; it makes perfect sense to have some transference of purchasing power via progressive taxation in order to achieve both economic growth and a reduction in income inequality.
Inequality remains one of the most serious issues the planet faces; some economic theory suggests that a more progressive tax system is the solution. Greater tax would be levied on the rich which is then distributed to lower income earners in the form of goods and services (merit and public); this may be in the form of cheaper healthcare or education. However, progressive taxation has been out of fashion since the 1980's.
Why is this the case? Joseph Stiglitz shares some insightful reasons in "The Price of Inequality" (2012) and expresses that 'government capture' by corporate and wealthy interests means that those with power often abuse it to protect themselves from what would be fair and equitable tax treatment and are advantaged at the expense of the rest. It is not just through taxation that the affluent are advantaged but they are often granted excessive power through politics to enable them to further thrive. One example of this from Stiglizt was that to regulate against dodgy loans, regulations were passed that protected people when borrowing, this covered all borrowing but excluded auto loans. There was no rational reason to exclude car loans but he writes that they were exempt due to car sales lobbyists vast amount of spending on donations that ensured legislation affecting their industry would not pass.
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| A slide from Richard Wilkinson's TED talk |
Richard Wilkinson, in his wonderful TED talk, explains how inequality severely harms societies. His fascinating data driven talk shows that lifespan, stress, mental illness, happiness and even the number of people in prison correlate to the level of inequality within a society.
With this in mind, it is good to hear that the IMF recognise this as an important fiscal measure to reduce inequality and there will be hope that we may see countries moving towards a system that is more equitable in its treatment, and therefore outcomes, when it comes to taxation.
When considering the marginal propensity to consume (MPC), we know that higher income earners have a lower MPC and tend to save more of any additional income received. It follows then that we are more likely to see a positive multiplier effect and economic growth by giving tax relief to the lower income earners while progressively taxing the more affluent; it makes perfect sense to have some transference of purchasing power via progressive taxation in order to achieve both economic growth and a reduction in income inequality.
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