Should The Rich Pay More Tax? by Jamie McIntyre
If you follow US politics you will have heard Obama’s political campaign to increase taxes on the rich.
The argument is: everyone should pay their fair amount.
On the surface it sounds reasonable… despite being deeply flawed.
And I’m sure there are many millionaires who don’t care if they pay more tax; billionaires even, like Warren Buffet.
And good on them.
However if they think raising taxes on the rich will solve the country’s economic problems, they are sadly mistaken.
Obama hopes this class war policy will help him win the election, because his opponent, Mitt Romney, is wealthy, and sensitive on the issue.
But is it good policy?
And is it fair to say the rich don’t pay their fair share of taxes in America?
Let’s take a look at the facts…
If the rich in America are taxed at 30% (increased from the current average of 17%) it will only raise $5 billion in extra taxes, which is irrelevant when facing a trillion dollar deficit.
Sure, it sounds like a lot, but it’s a drop in the ocean, which will make no difference. Actually it would most likely decrease productivity.
It won’t help the deficit.
So it may be good politics, but certainly not good policy.
Also the top 1% of Americans (in terms of income) already pay 40% of the US tax bill.
The top 5% pay 60%.
The bottom 50% only pays 3%.
So to suggest the rich don’t pay their fair share of taxes is simply not true. And taxing the rich could in fact reduce productivity and incentives.
If Obama really means it when he says, “everyone should pay their fair share”… really he should be saying the bottom 50% of US taxpayers need to be slugged with much higher taxes.
In fact it’s the wealthy and middle class in western society that are largely footing the bill for hospitals, roads, education, etc. Yet this is rarely acknowledged.
The top 5% could come out and say:
“It isn’t fair!”
“We’re paying the majority of the cost of schools, hospitals, roads, etc. But we don’t even use public hospitals and public schools. So how is it fair we pay 60% of the costs?”
There’s a failure to recognise the contribution of those that outperform financially and to see they largely represent the solution, not the problem.
They have achieved success against all odds and created jobs and wealth for society, which has boosted the overall wealth for everyone as a result.
That’s a good thing.
Increasing taxes to take from them and give welfare to those who are less productive is an act of wealth destruction and a form of institutionalisation that crushes the human spirit.
It’s like saying; “You aren’t good enough or can’t make it so here’s a hand out.”
Now as a compassionate capitalist, I’m all for being generous and helping those who unfortunately can’t help themselves.
However this requires a small fraction of taxes.
The higher living costs in western societies can largely be blamed on wastage by governments, and poor economic management destroying wealth.
Wall Street would be the only exception. It’s seen large increases in wealth for a select few through “Weapons of Mass Destruction”, as Warren Buffet would term them, that haven’t added wealth to society.
This needs to change.
What about Australia?
Well Australians pay a lot more in tax.
We’re a highly taxed nation.
30% is the company tax rate, which simply isn’t competitive.
Plus the myriad of other taxes such as: payroll tax, GST, stamp duty, and so on, makes it an expensive place to do business.
Good economic management is what you need to cut wastage and expenses. But you also need investments to stimulate jobs and grow the economy at the same time.
Something that will lead to the European downfall if Spain, Italy, and Greece don’t do it.
The top 1% of Australians paid around 22% of the tax in 2011.
Bottom 20% pay 2.1% of total taxes.
Simple Ways To Stimulate The Economy Are To:
Only borrow (go into debt) to invest into the country’s future.
So borrowing to invest into infrastructure and so on, which will lead to higher GDP in future years, is smart.
Borrowing to pay voters cash bonus for political bribery is not; or for pink batts or a $16 billion BER school program is not.
Selling assets to simply retire the debt generally created by poor government spending (as seen in Qld) is not.
Selling assets at the peak and remaining in control of assets whilst using the money to invest in other, more productive areas is smart.
Governments can do well from selling some assets at certain times.
Foreign investment is good.
Foreign control isn’t.
Taking from the rich to give welfare that makes others lazy and/or dependent is plain stupid.
Inspiring, encouraging, educating, and empowering those earning less to strive to do better financially grows the economy.
Starting class warfare and resenting the wealthy is like cancer in a society and a clear reflection of societies that are losing their way.
Ideas To Stimulate Higher Incomes For Everyone And Increased Wealth For An Entire Economy:
Increase the tax-free threshold for lowest income earners to incentivise working, ahead of welfare.
This is actually going to happen now, with an increase from earnings of $6,000 to $18,000 before you have to pay tax.
It also cuts the need for millions to have to file tax returns.
A smart move.
However if we used the argument, “the rich should pay a fair amount of tax”, then that would apply to everyone.
And that would mean the tax rate on the lowest income earners would jump up to the 30% companies pay in Australia.
This highlights the argument is flawed and of course shouldn’t occur.
Lower taxes across the board to stimulate growth.
What else?
Reduce the company tax rate for all companies.
However incentives such as only a 15% or 20% tax rate for companies earning less than $1 million a year would massively stimulate the growth of small companies at a time when companies can at least afford to pay higher rates of tax.
Elimination of payroll taxes, or at least in the short term raising the threshold to companies with less than 100 staff being payroll tax-free.
And other stimulating tax incentives could be used to boost productivity and the overall economy.
Many people don’t understand you can, in fact, lower taxes and increase total tax revenue.
And it’s this failure to understand basic mathematics that enables governments with socialist views to bribe electorates through self-interest…
…and for people to accept higher taxes thinking it’s just the way it needs to be when it simply isn’t the case!
Let me show you what I mean:
Say an economy turned over $1 trillion at a tax rate of 30% generating $300 billion in taxes.
Similar to the tax take of Australia, at approximately $350 billion p.a.
If lowering tax rates to an average of 25% down from say 30% stimulated the economy to $1.5 trillion…
Then 25% of $1.5 trillion is $375 billion, up from the reduced $1 trillion economy at 30% being only $300 billion.
A higher tax rate to run a country is a reflection of a poorly managed, inefficient economy.
Just as high costs of living is also.
The philosophy of, “Let’s use class warfare to attack the rich and increase taxes to then give to those earning less”, in an election campaign is dangerous and needs to be challenged.
And it seems to have a large following, even in rich countries where examples of wealth and success for anybody abound.
This mindset causes more destruction to wealth for everyone than anything else.
Whenever people start thinking, “It’s the rich. That’s why I’m poor.” Then now they really are poor and screwed.
Poor in mindset, poor in intelligence and common sense.
And poor in personal power.
When in fact, generally speaking, it’s the wealthy that have increased the wealth of society by taking calculated risks and growing companies that employ others and boost the economy.
And it’s the desire to strive to have more that grows an economy and helps increase everyone’s wealth.
Of course this doesn’t mean people need to be materialistic or unbalanced…
But achieving a fraction of one’s financial potential, who does it help?
- The tax department
- Your children
- Your employer
- Your country
Being poor and a burden on your family and on society helps no one.
May sound harsh but it’s true.
Striving to do better is a contribution to society.
A willingness to give your effort, intellect, and sweat to make society and the world a better place in a small or big way.
Of course there are exceptions to the rule however the key distinction is:
Wealth is created by taking responsibilities for your actions.
Accepting your life is largely the result of your own thoughts and actions and then taking calculated risks when there is no certainty of success to increase your chance of success.
Whether that risk is to start a business, or to invest, or to change careers, or to invest in your education.
All for the chance to succeed.
Without this desire or opportunity we would all be poorer.
Let’s encourage people to strive to be better, to be wealthier, to add more value and to give more.
Society as a whole will be better off.
Jamie McIntyre
CEO of 21st Century Education
In the USA there is no amount of tax they can levy people to get them out of the mess they are in. Taxing the rich more in the USA is akin to applying a tourniquet to a severed leg, eventually the patient would die.
America’s final solution has to be the curtailing of their massive spending, mainly in their military extravagances and adventures. They have to become a country that does business not wage war.
The case is slightly different in Australia. Yes, we have to do the same in that we should not so willingly get involved in military adventures for no other purpose other than to support a misguided USA. (There is a whole argument to be had on that front and our role within it)
Joe Hockey stated this morning that a review of our welfare payments ought to be carried out. He added that the days of entitlements were fast coming to an end in the West. I could not agree more.
I suspect, however, that he was talking about the bottom of the pile. It has always been a burr on the backside of conservatives that those that don’t work are recipients of their taxes. On the face of it one can comprehend the feelings because those that earn the big bucks, by and large, have never known hunger and financial desperation. Their biggest crisis might have revolved about downsizing their home or having to drive a local or Japanese car rather than a European one.
As for the need for higher taxes; I say hold a while. Firstly; let’s start of by doing precisely what Joe Hockey intimated this morning and review our welfare system. Middle class welfare and subsidies should be first cab off the rank.
Then we might have to invest some to gain more. We have to ensure those on disability are in fact disabled. That could prove uneconomic to implement in the short term but I think the systems have to be reviewed to ensure their fidelity.
Single parent should be next. Again that could prove cumbersome because it would involve a lot of bedroom snooping to ensure those parents are in fact single and not in de-facto relationships with new partners.
The policing off the latter two forms of welfare could prove cumbersome and in fact impossible because on the one hand we could expose people that might seem fine on the outside but who do suffer mental illnesses and physical disabilities that could be exacerbated by their having to go to work every day or even on a part time basis. We should not be in the business of demanding governments either expose people to harm or place them in positions where they might be likely to be exploited by some simply by virtue of their having to work when their unable to make what we would consider sane decisions.
With single parent’ of course, we have to remember that there are children involved and again, governments have to be careful they don’t throw the baby out with the bathwater, (Pardon the pun). We should err on the side of humanity in some cases.
Going back to middle class welfare, I am sure that as recently, people in that income band would scream ‘blue murder’ if asked to forego any of their ‘entitlements’.
The thing that I look at is the morality of some to expect that someone earning less than the average wage, and that is the majority of people by a long way, to support their lifestyle and their assets.
Conservatives have always advocated personal responsibilities. It would seem that advocacy does not extend to their view of their obligations.
Take a single person in Sydney earning $40k to $45k. Their take home pay is $600 to $700 pw. They pay at least $250 rent, electricity and gas on their own, $30 pw. Transport $50, and then the $200 PW they use to socialise in the hope that they might not end up alone. We have all done that; it is the nature of the beast.
That leaves less than $100 pw to build a future on. Unless they partner up they are destined to a life of living week to week. If they want a car as well, the payments will ensure some weeks they don’t quite make it.
If that single was once partnered and is supporting kids, he or she is in a parlous financial state and the $200 pw is spent on child support and a few bits for the kids. (I know what I am talking about here)
For people where two of them are finding it a bit tough to meet their $300k + mortgage to expect that single to pay one extra cent so they don’t have to in tax is just immoral. Face the crisis I mentioned before and downsize; that is what I say they should do instead of wailing like spoilt brats at being taken off the state’s teat.
It shouldn’t be based merely on income. A single earning $80k is doing it nicely but a single income family on the same money with 2 or more kids might not be doing it so well and they might indeed merit the state’s help.
Households of on $100k or more, however, have no case to be aided in their lifestyle.
Your question was “should the rich pay more tax?” You might argue that taken welfare away from them amounts to the same thing. Some might argue that governments, especially this current one, should be compelled to cut their spending and reduce the size of their bureaucracy and there might be a case for that in certain areas.
On a string on the ABC’s The Drum, I wrote the following in the form of a post, (you’d have to do a control F and type my first name to find it):
“Governments like Howard’s governed mostly for the day. They gave the punters what they wanted and spoiled them as grandparents spoil their children’s children. Tax cuts and incentives to borrow and spend at will as though the party would last for ever. We have a generation of people that are not prepared to save and wait; they want everything now.
Howard’s longest view was to the next election. Governments ought to be about more than that. They ought to be about nation building whenever possible. It was never more possible than when he was in power but instead of building a national spirit, a common purpose for the people of Australia to embrace, he chose to hand out lollies, for that is what it amounted to.”
Those sentiments, I think a relevant in answering the question you posed.
Along with the basics of government there is a duty, I feel, or any government to endeavour to improve the nation and leave something behind that will benefit generations into the future whilst ever conditions permit such projects
Those things can be systemic as in Keating’s actions of opening up our economy, Medibank/Medicare in the case of Whitlam or tangible things like the Snowy River Scheme, that Harbour Bridge, etc.
Howard only left the GST behind. Some might argue the merits of such a tax; I’d argue it is the laziest form for revenue raising by a government.
The current government is ruling at a time when it is still possible and will be more so in the not too distant future, for them to engage in looking and planning for a nation well after their time in government. In doing that, they’re living up to their responsibilities.
You and others might not agree with some or all of what they’re doing but I and many others think that if you’re going to oppose this government’s direction then it behoves you to verbalise that vision. A word on that, if I may; please do not advocate for a direction aimed solely at enhancing profits to enjoyed today by people that already have more than they should need.
Governments that enjoy favourable economic conditions and despite the opposition talking down the economy, we’re not doing it too badly, have a responsibility to ensure conditions in the future are helped by what they do today.
Finally, to answer your question; yes, those that can, should pay more and that includes companies reaping great riches out of our natural wealth.
Hi Jamie,
I read your articles frequently and this is one issue I could not agree more with. I believe that some companies are ‘excessively’ profitable however at the end of the day, they are getting rich because they are providing a product/service which is in demand and interfering with this in most cases, only hurts the average consumer.
An example I wanted to share with you is the new tax hike on developers here in Canberra. If a developer wants to change the purpose clause on a house block/s, they will be forced to pay an extra $50,000 (or more in some cases) per unit being built in a development and there have been rumours of the tax being as high as $70,000 per unit by 2016.
Our local government expects to earn another $20,000,000+ in revenue per year from this new tax, as the Labor politician Andrew Barr believes that developers are making too much money at the expense of the regular Canberran (Mean while, the Labor government has installed over a dozen large pieces of art around the city in the last 2-3 years, most of them being very ugly and bearing a cost of $200,000 – $600,000 each at the tax payers expense)
While in theory this extra revenue sounds good if you’re a government accountant, this has killed off a massive amount of new developments (this can be seen on the ACT Planning Authority webiste, the development applications are becoming even more scarce)
The lack of new developments in established locations can only fuel our housing shortage down the track, which which would benefit investors and home owners which is what the government is trying to stop in the first place. It is also highly likely that they will actually earn less tax!
It’s always a pleasure to read your responses Rubens. I would argue though that it wasn’t the Howard government who handed out lollies to the kids, but the Labor government. I will add that it is highly likely that the Howard government starved the little grandkids from their right to a treat, which then resulted in a knee jerk reaction from the parents (labor). We do need a longer term view, but it can’t be the only view.
In saying all this, any salesman will tell you that it is action that creates action. So even something as stupid as the carbon tax and how it was implemented will then go on to create more effect. As in, causuality.
On topic, a tax system needs to be simple and effective. Reward the rich for achieving, without trodding on those that supported the saviours. But ask any human, and they will tell you that perfection breeds stagnation and boredom. (Even the strongest iPhone devotees are getting bored with it’s format). Change for the sake of change is stupid. But change, heading toward a more balanced future when we are dealing with the hangover of the glutten of the night before can only be a good thing.
Anthony Wasiukiewicz
By ‘lollies’ I meant eight years of consecutive tax cuts at about $4 to $5 billion at a time. Ad to that all the middle class welfare and Howard gave away more than $35 billion during his tenure.
He would have done better spending half of that on public housing and the other half on things like hospitals.
Had he done that we might now have a better health system and much, considerably so, cheaper housing. We’d all be better off because our mortgages would have been that much smaller.
I think when it comes to taxes there should be an expectation that you will pay certain percentage of your earnings in taxes and no cuts will be considered, ever. If there is a surplus it should be invested to better the nation and part of it saved. Howard only did the latter.
At the end off the day, it was the banks that came out in front.
By the way, thanks for the vote and compliment.
I did come across a investment guru who stated something like; ‘When a company doesn’t know how to grow, it implements a share buy-back scheme’.
One could argue this of the Howard era (hindsight); Money in they bank, what do we do with it? Give it back.
So I see the point you are trying to make.
If people were getting less tax cuts, and therefore the people as a whole were spending less on property, I can see how property prices might be a bit lower. Less demand, same suppply (arguably).
But alas all this is hindsight. I can understand now why the people voted Rudd in 07. I couldn’t then.
Back on topic it always has to be a fine balance between taxing the rich too little or too much.
I would be all for a Super profits tax within reason. Afterall, they have had nearly 20 years of concessions and discounts. Maybe it is time to pull the reigns in. But only gently.