We should dramatically increase the rate of income tax paid by the rich
Last updated: June 20, 2017
Income disparity between the rich and poor, which harasses most government in the world, is getting bigger and bigger. According to an official report that in China 0.4% rich people get control of 70% of wealth. In the U.S. the top one fifth of the population possesses almost two thirds of social wealth. Looking at the world as a whole, there is a tendency that the rich family is getting richer and richer while the number of the poor family keeps growing based on a report by UN. While in many countries, social problems are emerging due to enlarging income disparity, a large number of governments all over the world are handicapped because of the financial structure, facing the financial slump started last year. Increase the income tax rate of the rich is a choice to solve those problems.
Redistributing wealth to balance the inequality of income disparity
Income disparity between the rich and poor, which harasses most government in the world, is getting bigger and bigger. According to an official report that in China 0.4% rich people get control of 70% of wealth. In the U.S. the top one fifth of the population possesses almost two thirds of social wealth. Looking at the world as a whole, there is a tendency that the rich family is getting richer and richer while the number of the poor family keeps growing based on a report by UN. While in many countries, social problems are emerging due to enlarging income disparity, a large number of governments all over the world are handicapped because of the financial stricture, facing the financial slump started last year. Increase the income tax rate of the rich is a choice to solve those problems.
Harms of income disparity:
Income disparity is the warm bed for problems and social unrest. Evidence shows that poor people in vulnerable countries are more likely to resort to violence or terrorism. Sociologists argue that in poor household, members of the family are five times more likely to commit crime. Among those suicide bombers in vulnerable countries, where income disparity is huge, a large proportion (about 81.3%) of them has the experience to live in property. Crimes and violence is the major threat of social stability.
Wealth redistribution is the way to solve the problem:
Since income disparity is the source of many social problem, wealth redistribution, which means to balance the inequality if income among people in the society, could be helpful to restore social stability. For example, in countries where the number of the Gini coefficient (economic parameter used to measure income disparity in a country of region, the bigger the number is, the income disparity is much more serious) is small, people enjoy better stable and secure living environment. According to UN Human Development Report, the Gini coefficient in Columbia is 0.572; in Zimbabwe is 0.568; in Denmark 0.244; in Sweden 0.250. Respectively, the criminal rate in Columbia and Zimbabwe is roughly sixth times as high as in Denmark and Sweden. From this example, it is clearly to see that in a society where income disparity is not too serious, people enjoy better life. Wealth distribution could shorten the income disparity, thus helpful to solve problems of the disparity.
Progressive income tax policy is the remedy:
In order to maintain stability, an dramatic increase of the income tax rate by the rich will have an effect of redistribution of wealth, because the income of rich people takes a large proportion of GDP. By increasing tax of one rich people, averagely twenty low-income people could get relevant financial support. Thus redistribution of income could be carried out.
Even countries such as Sweden, long held as a bastion of the benefits of high taxes has its problems. A Swedish research paper from 2005 examined the efficiency of the public sector in 23 industrialised countries. Sweden comes absolute last on the list when the level of welfare provided is related to the level of taxation made. In the US New Hampshire is a good illustration that high taxes are not needed for good public services it has no income or sales tax, yet it has high-quality schools and excellent public services. Although New Hampshire spends about $1,000 a year less per resident on state and local government than the average state New Hampshire’s public schools have the fourth-highest test results in the US. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet has the second-lowest test scores.[[ Arthur B. Laffer, The Laffer Curve, Past, Present, and Future, The Heritage Foundation, 1st June 2004, http://www.heritage.org/research/taxes/bg1765.cfm#pgfId-1118367%5D%5D What tends to happen in countries with high income taxes is bureaucracy rises and when bureaucracy rises efficiency falls. The government is quite simply not as good at spending our money as we are and in order to solve social problems such as inequality it is spectacularly ineffective.
We need government for some things such as schools, roads, the police and so on. But the best government is a small government, one that protects people from harm and focuses on creating the most entrepreneurial, problem-solving society it can. Not by raising taxes to the roof.
Balancing governmental deficits for common good of society
The recent financial crisis drags government across the world a tough period, bringing huge deficits and lacking of public funding. The chancellor of UK, FOR EXAMPLE, said the recession and credit crunch had blown away both the growth and deficit forecasts he made in November's pre-budget report as he forecast the government would borrow a record £175bn in this fiscal year. A year ago he forecast growth for this year of around 2.5% - in line with the economy's long-term average. By November's pre-budget report that had fallen to around -1% but now even that has turned out to be hopelessly optimistic and blew away a decade of boasting from Gordon Brown that he had abolished "Tory boom-bust". The unemployment rate in America, however, hit 26-year high, rising to 9.6%, and it is expected to hit 10 percent within months. Earlier this year in France, President Nicolas Sarkozy was under pressure to raise taxes on the wealthy, as his pledge to make his country richer is under great pressure by the economic crisis. French labour unions planned a nationwide strike to call for a tax increase on high-income earners. In China, where is considered a country less influenced by financial crisis, rich people are paying enough tax and not willing to pay more leading the gap between rich and poor and between the most affluent eastern and less developed western areas are deepening everyday. 5.1 million college graduates are not able to find jobs this year while 134.9 million people still live in poverty. Social problems like increasing unemployment rate, anti-poverty programs etc. all needs huge governmental funding, which facing severe challenge under financial crisis.
Solution to huge deficits and public funding:
Significance of the increase of income tax of the rich is that the government would get increasing tax revenue which could be used to invest in public projects and services hence the well being of the whole society. According to the World Bank, under the current crisis, increased public funding and spending is a way out of the hole we're all in. Governments in deficit can not just start printing money in an ad hoc fashion, which will lead to dramatic increases in inflation and recession and everyone would suffer more, rich and poor alike. Progressive taxation should increase the total tax take. This means that increased funds are available for spending on worthwhile socially beneficial programs, such as education, health care, infrastructure etc. For example, in countries like Canada, the tax revenue is the major source of public investment. Though tax is high, but in turn the whole society dramatically benefit from it. More health care provided while mortality rate and fertility rate remains one of the lowest one in the world. It is clear to see that tax revenue is significant to improve social well being. Obama’s campaign pledge includes taxing on the rich people for more fairness and balance between the rich and other social groups. After 2010, American households making over $250,000 would see the rate at which they can deduct mortgage-interest payments and other items from their taxes reduced to 28% from the current 35%, which means they will pay more tax for $318 billion over 10 years. All those money will be used to start expanding health-care coverage to all Americans.
Rich people have very good accountants and will always come up with ways to avoid what they consider to be an unfair burden. One obvious thing that happens is rich people move out of a country where they are being heavily taxed and into a country where the tax regime is less burdensome.
The latest example of this comes from the footballer Andre Arshavin who has said he wants to move from the UK to Spain because the UK has just increased it's top rate of income tax to 50%. This was an increase of only 10% over the previous high rate - so can't be considered 'dramatic' - yet it is high enough to cause this one very rich individual to consider taking his money elsewhere. And not only would the taxman lose all the taxable income he pays, but football fans across the country would also lose out on watching a very gifted individual ply his trade.
Rich people care about protecting their money and have the desire and the ability to continue to do so if tax rates are hiked up. However, rich people are not inherently unfair. They will pay a fair rate of tax, they will contribute to the society in which they live and they will benefit the rest of us provided the tax rate is not set so high as to force them to avoid it.
Principles of allocating the burden of taxation in society
The Ability-to-Pay Principle:
The rate of income tax should be based on the financial ability of the tax payers. The nature of taxation is to reallocate individual incomes for building a best social environment and public courses to guarantee the welfare of all citizens. It is an essential part of the social contract every citizen should abide by. This is a reflection of a citizen performing his role of social being and his burden of corporate social responsibility. The scope of such a responsibility is closely linked to the status of income. The more income a person earns, the stronger ability he possess to fulfil this obligation, hence the heavier burden he shares for tax to government for a better society. Even by dramatically increasing tax, the rich do NOT become poor. We admit that this would leave them less rich financially but morally whether because they are the most capable group of tax payer in society and have the strongest responsibility of helping their community and society , especially under the circumstances that the whole world is suffering from the biggest economic crisis, an emergency since the Second World War. In a time when governments are currently facing the most serious budget deficit and unemployment rate, it would be hard and sad and even shameful to imagine the rich don’t do their best for the society as the most capable group of ppl at a time when more and more people are worrying about the basic cost of living, suffering from losing their jobs, and are concerned about their children’s education and shelter. It is high time for the rich to shoulder social responsibility and share the burden of the local government as well as that of the world by energizing or invigorating the government financial strength and restoring confidence. In this case, tax, as a means of socially responsible investment, sending a clear and strong signal that income and wealth are social means which can be used for the collective good, that it encourages social cohesion and beneficial for both the poor and the rich, the individuals and the country, that it will transform a society for the greater good.
The Benefits Principle:
The rate of income tax should also be based on the degree of benefits tax payers can get. The very rich people enjoy public resources or facilities, which are largely built upon tax-payer’s money more than other groups of people in society and much more than those who live in poverty. Rich people usually want better security, because they need more protection of their wealth. Though every member of society asks for security, a more secure and stable society in turn will bring benefits or better safeguard for rich. Rich people benefit from social stability and public services more hence they should pay more for it through the form of tax and they will benefit more later which is fair both in the means and ends.
Moreover, they actually take less out of the state. Rich people often have private healthcare, so no burden on the state there. They'll educate their children privately, at no cost to the state, they don't need free legal care, free transport, free meals or any of the other services their taxes pay for.
Rich people also tend to spend a lot more money too. They’ll buy products or services from the country they live in, so providing more income for the state. Even if they buy products made overseas the sales taxes bring money into the exchequer.
Rich people are not sources of money we can just tap whenever we feel like it. In fact, we should remember the parable of the man who killed the golden goose. If nurtured correctly the goose could have continued giving for many years. But greed took over and greed caused the source of income to dry up. Don’t be greedy.
Defending the first argument of proposition side.
Look at the world as a whole instead of only rely on statistics from one country. The pirate problem in Somalia is still a stingy issue to the international community. Their primary purpose of looting and robbing is to get the ransom money.[[http://www.nytimes.com/2008/10/01/world/africa/01pirates.html]] Once again, poverty is the answer to the root of the problem. An example in Afghanistan: recently, Taliban recruited and trained a large number of child suicide bombers. Many of those kids were simply ‘brought’ by them from poor thresholds.[[http://edition.cnn.com/2009/WORLD/asiapcf/07/07/pakistan.child.bombers/]] You said that" to solve the problem by making the poor richer, by giving them every opportunity to enrich themselves and by levelling the opportunity playing field." This is a good and nice statement. Everybody knows making the poor richer should be the panacea. But giving them opportunities to improvement is a huge and big projects for most governments in the world. According to UN report this year, that 90 million people are living under poverty line[[http://www.alertnet.org/thenews/newsdesk/L2892172.htm]]. Governments need money to give the poor opportunities they need. Tax income is the main source of government fund. In the background of financial crisis, taxing the rich is the efficient way to raise money.
Examples in Sweden, New Hampshire and California are sweet but all in the developed countries. Even if in those developed countries, poverty is the cause of violent crime. Refereeing to the opposition’s reference^2^, violent crime rate was declining between 1994 and 2005, but a closer analysis would reveal that the Blacks, Hispanic and other underprivileged groups took a large portion of violent crimes. A common point is that they all suffer from financial stricture.[[Statistics could be found in the book Essentials of Sociology by By David B. Brinkerhoff, Lynn K. White, Suzanne T. Ortega, Rose Weitz published in 2004. http://books.google.com/books?id=c6UAAAAACAAJ&dq=essentials+of+sociology%5D%5D
What America proves is that a country can have high income disparity and falling rates of violence. The period covered by the BJS details was also a period when income disparity grew hugely in America. If your theory is correct violence should also have increased. The fact it did not shows there is more than simple poverty at play here.
Pirates do not rob because they’re poor. They rob because they’re greedy. They don’t hold cargo ships to ransom in order they be able to feed their village. They get the huge fees and go and buy Toyota Landcruisers and AK47s and further terrorise their villages.
A more level economic playing-field in Afghanistan will not harm the Taliban’s recruiting strategy as long as American drone planes keep dropping bombs on wedding parties. The Taliban recruits because Afghani’s want their country back and want to avenge their dead. The element of people they get because a villager needs to sell a child to reduce his or her food burden is minimal.
Poverty is not the cause of violent crime. Poverty is an excuse used by greedy and violent individuals to play on the sympathies of the judge in order to get a reduced sentence. As a rule Western industrialised nations do not have people starve to death for lack of money. The only place this seems to happen is in countries such as North Korea where income disparity is minimal – apart from the very, very, few at the top.
Moreover when you charge that there is no link between low tax on the rich and falling crime rates the same charge might be thrown back at you. What does ‘pirate problem in Somalia’ have to do with high or low taxation? I am pretty sure that the pirates don’t pay any tax at all whether Somalia has a tax regime or not. If you are trying to blame the problem of piracy on the current liberal regime of reasonably low taxes on the rich then you are wrong. Piracy has always existed, and as it is something that is outside the law already taxes have very little impact. Getting ransom money does not change this as they are getting ransom money mostly for cargo and the ships they capture rather than the people, this is paid by companies rather than individuals.
On Laffer Curve
the trickledown economics ideas championed by Reagan are out-of-date and did NOT work, witness the income disparities an any developed and developing economy and the huge numbers with no affordable health care. what the opposition’s plan is there as even with outsourcing, if they outsource to countries with poor health care their workers won't last very long because of ill health and the costs of continuing to relocate would be prohibitive.
I think the opposition should also be aware that it's not just an economic debate however, it's an ethical and philosophical one as well. Do we want societies that exploit the less well off? We in China have that now and are striving towards an equally well off society and that is part financed by raising tax revenues. The system here is relatively new and so far there are still many that don't pay tax as they don't earn enough but the idea is there. That it is everyone’s job to help the less well off. That it is the rich person's job to contribute towards the creation of a welfare system for ALL precisely BECAUSE they can afford to do this and will be ENRICHED because of this. Is not a loss of wealth, it is a reallocation of affordable resources. It is not a disincentive as you said, it can't be as there is NO such word, it isn't a disincentive either as nobody on this side of the house is talking about taxing the rich to death, we can raise taxes dramatically and they can still afford and we can cap their contributions based on the principles you raised with the Laffer curve idea, that we do not raise them so much that we cripple the economy.
That we advocate not taxing the rich a ‘dramatic increase’ over what they are currently paying on their income tax does not mean that we are against taxes on the rich. Simply put there is a need to be more creative and find ways of taxing the rich that does not affect the rate of investments, or will force the rich to flee abroad. In other words we advocate taxes that would be regarded by the rich as fair, that they would be willing to pay. The most obvious is the ‘death tax’ that rich people seem to hate but is considerably fairer than income tax as any inheritance that is passed on is unearned wealth whereas in most cases people have earned their income. To be a bit more creative why not fund national healthcare by taxing the rich extortionate amounts on their private healthcare, if the cost of their treatment could pay for several poor people to have subsidised healthcare will the rich complain if they are still getting the best available, the chances are they will still be willing to pay for it. To a great extent public transport in the form of trains and planes are already paid for by the rich paying a lot for first class allowing the 2nd class or economy class tickets to be subsidised. The other possibility is imposing immense taxes on the things the rich want that are status symbols and are therefore willing to pay more for, and may even be happy to pay more as the more expensive they are the more of an aspiration they are and so the harder they are willing to work to get them; goods like luxury cars and designer clothes, services like expensive meals, and particularly their housing.
So no I reject your premise that this is an ethical and philosophical argument as well as an economic one. “Do we want societies that exploit the less well off?” You can’t seriously think that we would say yes we do want exploitation? However the premise that a relatively low tax rate on the rich equals exploitation of the less well off is wrong. The creation of a welfare system and a high rate of tax on the rich are not intrinsically linked. Britain has a good welfare system and only taxes the rich 40% on income (with this maybe going up to 50% on those earning over £100k).
on possibility for evasion or backlash by the rich
The fact is that rich people will respond to an increased rate of income tax. To deny this will happen is to reveal a fundamental lack of understanding about human nature. No-one likes paying taxes and just because rich people have a few millions doesn’t make them less likely to care about losing a few hundred thousand. Rich people will move their money or their person out of the burdensome tax regime to a more favourable one. They will take their spending and their income generation away. Or at the very least they will come up with elaborate schemes to avoid paying tax which the state will find prohibitively expensive to police. As many things in life the solution to this problem is counterintuitive. We don’t prevent illness by staying surgically pristine, we get a little dirty so our immune system can build up. The best form of defence is attack. And the best way to get more money flowing into a country is to have taxes set at a rate which people are willing to pay.
P.S. Would it have made a difference to your argument if I had used Reagan’s tax reductions instead of Kennedy's? During the period of Reagan introducing tax cuts federal revenues increased significantly Revenues from individual income taxes climbed from just over $244 billion in 1980 to nearly $467 billion in 1990. Inflation-adjusted this amounts to a 25 percent increase.[[ Peter B. Sperry, The Real Reagan Economic Record: Responsible and Successful Fiscal Policy, The Heritage Foundation, 1st March 2001, http://www.heritage.org/research/taxes/bg1414.cfm%5D%5D This was despite slashing the top rate of income tax from 70 percent to 28 percent.[[ William A. Niskanen, Reaganomics, in The Concise Encyclopaedia of Economics, http://www.econlib.org/library/Enc1/Reaganomics.html%5D%5D “greed is NOT good and there very much IS such a thing as society and it needs helping and one way is to dramatically increase tax because people don't pay enough NOW.” Greed may not be good but it is in human nature, is to get rich still glorious? There is something called society, but society is not dependent on taxes, society still exists no matter what rate the rich pay. It would be much better for Society if as in the late 19th century there was low taxes (see response to ‘government's role in financial crisis’ below)and an immense amount of philanthropy. The government taking money does not demonstrate society, its free giving would.
on lack of innovation and investment
A dramatic rise in tax rates on the rich is not a creative idea, it has both been tried and failed before (UK 1970s) and is the usual response to high wages or some people being unable to keep up in the capitalist world. To be creative we need to move away from the idea that statist policies can solve poverty and reduce inequalities. Microfinance has been one of the most successful ways of reducing poverty over the last decade. Microfinance essentially brings capitalism to the poorest. It is they themselves who know how to get out of poverty not the bureaucrats in the state machinery. Essentially microfinance provides loans to those who otherwise would not have access to capital. “Unless the poor can borrow, they are likely to remain trapped in poverty. The people who have been able to borrow have often seen their incomes rise and their future transformed. And, overwhelmingly, they have repaid their loans.”[[http://www.ifad.org/media/pack/microfinance.htm]] Obviously not everything goes the right way, if someone fails to use their loan wisely they are potentially in an even worse situation than they started. In Bangladesh some 21 per cent of Mr Yunus’ (the founder of microfinance) Grameen Bank’s microcredit programme members raise themselves from poverty within four years of joining the bank.[[Paritosh Srivastava, Microcredit Reducing Poverty and Empowering Communities, UN Chronicle Online, http://www.un.org/Pubs/chronicle/2005/issue3/0305p45.html%5D%5D The market can work even for the poorest people so long as there is some credit made available.
on the rich will leave
There is indeed difference of tax rate on the rich and possible rich people would move between different countries to escape paying more taxes. It is inevitable that tax rate would be different from one county from another based on their economic situation. But what we value is that rate of income tax on the rich should be increased in every governments around the world. Though rich people may move from one country to another country with comparable lower tax rate, but they are still paying the “high tax” in the second country, which all still bring chains of benefits to the social welfare. The rich will leave does not necessarily mean that we should not increase the tax rate on them.
Capital will only goes to the place where it’ll generate more money. Fundamentally, the rich people would go to any place where there’ll be more profits and less tax burden. We don’t deny that will happen, but just because it happens doesn’t mean it is right. What we can see here is a nature of profit-seeking, and further more an action of avoiding social responsibility among many rich people. They do not care about other groups of people as long as they make most of the money. And as we explained in previous arguments, this phenomenon is severe in China. It is exactly what harms the process and education of real development of citizenship. A problem our policy is addressing today. Karl Marx once said: experience praises the most happy the one who made the most people happy. We believe this is universally right beyond the border of China as we propose to increase tax for rich in all governments. The rich might leave, but there should be no place in the world they can escape, as a most capable group of people, to avoid their share of corporate social responsibility
government's role in financial crisis
The truth is, as libertarian as a government seems nice to be, nowadays many governments around the world are taking stronger intervention in deciding new economic policies to regulate or restore their nations from the attack of financial crisis. As we mentioned our second argument, Obama’s policy includes increasing tax rate to the rich, yet he still wins the vote of many rich citizens in the election. $318billion dollars government revenue will be raised over next 10 year, and this is certainly brings both immediate and also mid-term greater tax return to the State. Compared with issue more currency or borrowing more money from other governments, which either brings inflation or increasing deficit to deteriorate the situation, raising money from tax is creating more surplus into the budget, which will ease government’s financial burden in the right way. We don’t say that raising tax is a perfect or only way to face the crisis, but it is an effective and necessary way out of it. The proposition side stands for a responsible government to propose and act, while the opposition basically do nothing—quote Abraham Lincoln or Adam Smith doesn’t solve the problem. In fact, the financial crisis itself is an inevitable situation out of the control of the Invisible Hand—free market economy has its Achilles Heels—it seeks for protection of individuals, but not society; it seeks for eternal profit, but not fairness.
One issue or internal conflict of this debate is the conflict between the interest of a small group of rich ppl and the interest of vast majority, a conflict between individual profit and social fairness or welfare. When market cannot regulate these conflicts because of its profit-seeking and individual-orientated nature, it’s the government's role and obligation to regulate the relocation of social resources for the greater good, and in the context of financial crisis, it is the government's job to raise tax of the rich to get money for public services and the balance all groups of interest toward better economy and better society.
Almost all countries have developed based upon low taxes, the option to raise taxes and create a welfare state only really exists once a country has joined the rich nations, it no longer needs to undercut the rich nations as it has reached the highest stage of production; the goods and services that add most value. During the fastest period of British growth during the industrial revolution there was no income tax. It was abolished in 1816 after the end of the Napoleonic wars meant that spending on the military could drop. It was not reintroduced until 1842.[[http://www.economicexpert.com/a/Income:tax.htm]] This was introduced at seven pence in the pound on incomes over £150.[[John Morley, The Life of Richard Cobden,(London, 1903) http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=1742&chapter=90515&layout=html&Itemid=27%5D%5D Since there were 12 pence in a shilling and 20 shillings in a pound this comes out as a massive 2.9%! by 1860 Britain’s share of world manufacturing production was 19.9%. She was responsible for a fifth of world commerce and two fifths of trade in manufactured goods.[[Paul Kennedy, The Rise and Fall of the Great Powers, (London, 1989), pp.194-5.]]
Not surprisingly given its government structure there was no federal income tax during the period of catch-up in the US at the end of the 19th century and start of the 20th. US Income taxes were raised during the civil war (similar to the UK during the Napoleonic wars, the expense of war needs ‘extraordinary’ taxation) but were ended in 1872. Income tax was reintroduced in 1894 at 2% for incomes over $4,000, it was however declared unconstitutional by the supreme court in Pollock v. Farm Loan and Trust Co.[[http://www.tax.org/Museum/1866-1900.htm]] It was not until 1913 that income tax was accepted at 1% on incomes over $3000.[[http://www.tax.org/Museum/1901-1932.htm]] If looking at the period between 1850 and 1999 it was between 1850 and 1900 economic growth expanded fastest. US GDP grew from $98,374mil in 1870 to $517,383mil in 1913.[[http://en.wikipedia.org/wiki/List_of_regions_by_past_GDP_(PPP)#1870]] Living conditions of the masses also improved at their fastest rate between 1850 and 1900. It was the increasing intervention of the state during the twentieth century that slowed this increases/improvement. Similarly in the post war period the early 1950s experienced the fastest growth and this was the period before the ‘Great Society’ caused large increases in welfare provision.[[Carlos Sabillon, Manufacturing, Technology and Economic Growth, (M.E. Sharpe, 2000) p.161-3.]]
Compared to these two previous examples China’s tax rates are very progressive and high with a sliding rate from 5% up to 45% on wages over 100k yuan per month(about $14,600)[[http://www.chinatax.gov.cn/n6669073/n6669088/6888498.html]] At the same time as China has turned to runaway capitalism China’s poverty headcount rate fell from 65% of the population in 1981 to 4% in 2007; more than half a billion people were lifted out of poverty.[[World Bank report urges broadening of China's poverty reduction agenda, 8th April 2009, http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22136984~pagePK:34370~piPK:3442]] Obviously in all these cases there are other factors such as tariffs and changing technology however it is impossible to argue that low tax rates on the rich has hurt poverty reduction.
Why we need to raise taxes on them
More tax on the rich = more possibility for evasion or backlash by the rich!
Admittedly the US is a different country from the People's Republic of China but you guys have still got people like basketball star Yao Ming (and I'm not trying to questions the man's character) but increase the taxes and you might inspire the same patriotic loyalty from other people in contributing to society or paying their taxes. In short if people don't think that the system is legitimate for them then they'll try and make the system legitimate for them which may not be necessarily in favour of poor people. After all commerce is one of the foundations of legitimacy according to Adam Smith ‘commerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals’.[[Adam Smith, The Wealth of Nations, Andrew Skinner ed., (Harmondsworth, 1982), p.508.]]
The rich will leave
The rich are the most mobile group of people. If taxes on the poor are increased they have little choice but to pay, or else sooner or later be caught by the taxman. They are unlikely to leave, as they lack the knowledge, expertise or money to go elsewhere. However the rich can. They can also afford to cut their taxes through creative accounting. Within the US from 1998 to 2007, more than 1,100 people every day moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas.[[Stephen Moore, Soak the Rich, Lose the rich, The Wall Street Journal, 18th May 2009, http://online.wsj.com/article/SB124260067214828295.html%5D%5D
This does not just occur within countries but also internationally. Even in Britain where the tax rate for the rich is not particularly high by European standards, and new labour is "intensely relaxed about people getting filthy rich"[[Roger Cohen, The filthy rich are different from you and me, International Herald Tribune, 1st July 2007, http://select.nytimes.com/iht/2007/07/01/opinion/02cohen.html?_r=1%5D%5D there are a lot of rich people who commute to tax havens. Rich Britons such as retailer Philip Green and the Easyjet founder Stelios Haji-Ioannou along with hundreds of directors and bankers give their address as Monaco.
Due to a tax loophole non-residents can spend 90 days a year in Britain, plus the day of travel out and the day of travel back. This means they can fly in to Britain on Monday morning, work four days, fly out on Thursday night, and do this for most weeks in the year without breaking the rules. If the loophole was closed these rich people would leave entirely, as it is increasingly easy to run a business from outside the country using the internet and mobile phones.[[David Leigh, The tax haven that today's super rich City commuters call home, The Guardian, 10th July 2006, http://www.guardian.co.uk/business/2006/jul/10/frontpagenews.uknews%5D%5D
Hitting the rich with tax increases will also hit the poor and middle classes more than it does the rich themselves. The rich have often become rich by being financially savvy and are likely to cut back expenditure to balance their budgets. This is likely to result in them sacking their maids, butlers, gardeners, pool cleaners, personal assistants, chauffeurs etc. It makes much more difference to the person fired because the millionaire is trying to balance the books to compensate for the increase in taxes than it does to the millionaire him/herself.[[Grant Carbone, Taxing the rich hurts the middle class, The Huffington Post, 4th November 2008, http://www.huffingtonpost.com/grant-cardone/taxing-the-rich-hurts-the_b_140895.html%5D%5D
Lack of innovation and investment
Investment like people is mobile, and with globalisation becoming more global. There has been a particular trend of outsourcing jobs and investment over the last few decades. As tax is a cost to the rich businessmen it is likely to create more outsourcing. The rich are the wealth creators of the country, the innovators, inventors and investors, scare them away and they will no longer invest in the country. Most of them are hard working and because they are mobile will be very sensitive to tax changes.[[Harry Phibbs, Piling taxes on the rich will hit the wrong people - and raise diddly squat, MailOnline, 24th March 2009, http://www.dailymail.co.uk/debate/article-1164123/HARRY-PHIBBS-Piling-taxes-rich-hit-wrong-people--raise-diddly-squat.html%5D%5D
Overall the level of taxation has an inverse relationship to the level of economic growth. This is because the investors do not feel as rewarded for their investment if they cannot gain most of the profit, they want to know why the government which has often done very little to help them should gain the benefit of their investments through taxation when the economy is already gaining through higher number of jobs. The higher the tax rate the higher the rate of return investors will require for their investments and the less they will pay for a given investment. In the US from 1997 to 2007 the non-income tax states had 21% job growth compared to 11% job growth in the high income tax states. Also Personal income grew by 84% in the non-income tax states, versus 64% in the high income tax states. This is most severe where there is a progressive taxation regime i.e. higher taxes on the rich than on the poor. According to a Joint Economic Committee of Congress report in 1982 “Income taxes levied on individuals and corporations are particularly detrimental to growth... Progressive taxation not only lowers the rate of economic growth compared with proportional or regressive taxation, but in the process hurts the very persons that progressive taxes are designed to help: The poor.”[[Arthur B. Laffer, Stephen Moore & Jonathan Williams, Rich States, Poor States, American Legislative Exchange Council, (Washington, 2009), pp.34-36, http://www.alec.org/am/pdf/tax/09RSPS/26969_REPORT_full.pdf%5D%5D
Tax has a similar effect on the stock market, if the rich are being taxed more on their income they will have less to invest on the stock market. Moreover if returns from investments (capital gains) are counted as income then the higher the tax rate the fewer investment opportunities there will be that meet the new required higher level of return.[[Daniel Obrycki, Rafael Resendes, Tax the Rich, Starve the Poor, Real Clear Markets, 24th January 2008, http://www.realclearmarkets.com/articles/2008/01/tax_the_rich_starve_the_poor_1.html%5D%5D There will therefore be less trading and investing and companies stock will be worth less, which in turn reduces the amount of capital in the country reducing investment.
Overall as higher taxes equals less investment which in turn equals lower economic growth then the consequences of raising taxes are negative. This lower growth will mean less jobs so more are out of work, while those in jobs get lower pay increases. There is less building of infrastructure such as roads and railways, less choice in services such as banking and education, and less exciting new innovations such as debatewise!
The laffer curve is shaped like a U on its side. Obviously at a tax rate of 0% the government will raise no taxes. However once the tax rate is 100% the government will also collect no taxes because the government would be taking everything there is no incentive to work at all as the government is taking everything. At some point in the middle is the ideal point where the government gets most tax revenue because it has struck the perfect balance of incentives to work thereby increasing the tax base and actually taking the money. However the laffer curve does not tell us where this point is as this is infinitely changeable depending upon the tax system, culture, the economic climate etc.
However we can be pretty certain that a ‘dramatic increase’ called for by the defenders of the proposal would put taxes of the rich into the ‘prohibitive range’ where tax revenue actually decreases with an increase in the rate. Adam Smith compares the government raising taxes in such a situation to: “a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.”
There have been several examples of the laffer curve in action, particularly notable are the tax cuts by Kennedy in the USA in the 1960s. The 1964 tax cut reduced the top marginal personal income tax rate from 91 percent to 70 percent by 1965. In the four years after the cut tax revenue adjusted for inflation grew 8.6% per year compared to the 2.1% it had been growing at before. Not only did tax revenue increase despite the tax cut it increased at a much faster rate.[[Arthur B. Laffer, The Laffer Curve, Past, Present, and Future, The Heritage Foundation, 1st June 2004, http://www.heritage.org/research/taxes/bg1765.cfm#pgfId-1118367%5D%5D
Income tax is not the best way to redistribute wealth or pay for public goods.
Land tax also has firmer ethical foundations than income tax, eg: Land rents can only be collected by individuals because the state records and enforces land titles. Land values go up with population growth and government expenditure on infrastructure such as roads, not anything to do with the efforts of the landlord (which are capital improvements, not extra Land). Ownership of goods is founded on the idea that a thing belongs initially to its maker and may then be traded freely, but Land was not made by anyone.
Many philosophers and economists have said the same: Locke, Paine, and Mill for a start.
Since a land tax can achieve all that a high income tax can without the negative effects, a high income tax can not be the best option.