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Taxing the Rich: Justice or Folly? by Daria Fedotova

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Commentary

Taxing the Rich: Justice or Folly?

“The free born Briton or a perspective of taxation” (1790) by William Dent (1784-1854), part of the British Museum’s “Satires” collection.

Each day, millions sit on their couches with phones in their hands. The shimmering screens offer them images of a life they are unlikely to ever experience, one of carefree comfort and splendour. All too often, these images are illusory; but that does not matter. It is not the appreciation of aesthetics that creeps into the hearts of most viewers. It is envy, a frustrated dream of wealth that breeds resentment—which, in turn, feels wrong. It needs a different name to hide its contemptible nature. And so, it is called ‘justice.’

“The French Revolution was not about ‘equality and fraternity,’ as people like saying. It was about getting rid of the ruling class. French people don’t like the rich―unless they are soccer players,” said Pierre-Francois Taittinger, quoted by The Washington Post in 2006. Like many other men of fortune, he was targeted by the French wealth tax introduced by the proponents of redistribution. The darkest side of democracy is revealed in their argument: if he can afford to pay, he must—because we want it.

When these people talk about taxing the rich, they mean taxing the rich more than everyone else. For them, it is not enough that the dreaded elites would already pay proportionally to their income if flat rates were applied. Most countries use progressive income tax rates, which means paying a larger percentage of the higher levels of income. For example, the UK has a basic rate of 20%, a higher rate of 40%, and an additional rate of 45%. It is also worth noting that 13 of the 15 heaviest taxed states are European, Sweden leading the list with a truly ludicrous 57.1%.

In some jurisdictions, there is also a separate wealth tax charged based on an individual’s net worth. In 1990, this existed in twelve European jurisdictions, but most of them discarded it; Spain, Switzerland, and Norway are among the few exceptions. The reason was its inefficiency. First, there is always an option to move to a country with a more favourable tax regime: France, for one, experienced a mass flight of capital after the so-called “solidarity” tax was introduced. Second, high administrative costs are necessary to ensure compliance, and even those might not be enough. The evaluation alone is not an easy task, as governments must hire experts who specialise in stock markets, real estate, art, antiques, and luxury items.

Still, the European experience does not deter American leftists. In March 2021, Elizabeth Warren, Bernie Sanders, and several other senators introduced the project of the Ultra-Millionaire Tax Act, calling for a 2% annual tax on wealth of $50 million and more and 3% on wealth exceeding $1 billion. Unlike almost any other country in the world, the US requires its citizens to pay taxes rather than its residents. So, in order to prevent a millionaires’ exodus, they came up with the idea of a draconian “exit tax” to be paid by an individual who would wish to renounce his citizenship.

Senator Warren described this measure as “popular among voters on both sides for good reason: because they understand the system is rigged to benefit the wealthy and large corporations.” Her ally, Pramila Jayapal, used the language that was sure to win the Twitter mob’s appreciation.  “As working families struggle to put food on the table, keep the heat on, and pay the rent during this devastating economic crisis that has caused the poverty rate to jump by the largest amount in at least 60 years, the rich have only gotten richer and the wealth of billionaires has jumped by 40%,” she said, conveniently forgetting that the crisis had a lot to do with questionable decisions during the pandemic. “The Ultra-Millionaire Tax Act will help level the playing field, narrow the racial wealth gap, ensure the wealthiest finally begin to pay their fair share, and invest trillions of dollars into our communities so we can make a real difference in the lives of people across America.” It should be noted that, ignoring political realities, it is unclear if they would succeed, especially given that the federal wealth tax may be unconstitutional.

There is an important question to be asked when considering new taxes. Does the government actually need more funds than it already has? In most cases, the answer is no―or, at least, not to sustain the state’s core functions of regulation, order, dispute resolution, and international relations. But then, any modern state also has a black hole of limitless spending called social security. It is a system of dependency on the one hand and compulsion on the other, a system where those who enjoy comfort and success are coerced into caring for their less fortunate compatriots. They are not free to judge whether a particular person deserves their help, nor do they have an option to prioritise their own needs. The poor, meanwhile, are patronised and taught to seek aid from the state that promises to “make a real difference,” by force if necessary.

Leftists are quick to claim the moral high ground, calling for the redistribution of assets. Is it not unfair, they ask, that the minority of the population holds the majority of the planet’s resources? How can it be that while some buy diamond watches, others struggle to feed their families? This is, of course, extremely manipulative wording; they do not usually ask if it is fair that somebody can pay for their child’s expensive therapy while others are buried beneath their gambling debts. But even so, how does it matter if a certain wealthy man or woman is a paragon of virtue or evil incarnate? We must respect his or her private property and lifestyle choices, having ours respected in return. After all, charities still exist for those wishing to help their neighbours. As for the imbalance, such a state of affairs is only natural. Inheritances, proper management, spending habits, education, confidence and charisma, even luck―all account for it.

Speaking of fairness, is it not also fair that both sides should benefit from a transaction? When the said wealthy man hires an employee, he pays that employee a salary for the work done. But he gains nothing from the random strangers he is supposed to feed or educate. It may be said that such an arrangement is his security for a rainy day, but, in truth, he has very little control over it, much less than over a trust or insurance. Chances are, he will never find himself in need of welfare benefits.

Some believe that society should prevent great financial discrepancies in order to escape upheavals, so the upper class should be prepared to share. This appears to be a rather cowardly position and also quite ill-informed. There will never be ‘enough.’ There will never be less hate. In the Soviet Union, the nobility was the first to go; the traders and bankers followed. Soon the mob came for the farmers, ‘kulaks,’ who owned slightly more than the rest and could afford hired labour. Where there is freedom, there are differences, and where there are differences, there is jealousy. Partial redistribution will not keep the peace. However, functional markets and effective law enforcement will. Revolutions did not happen simply because of a gulf between the rich and the poor: incompetent governance had a lot more blame to bear.

There is no point in punishing success. There is no virtue in extorted aid. At best, it is an attempt to soothe one’s conscience by making someone else―namely, the millionaires, who might already be doing more than the person in question―care about the destitute. At worst, it is plain envy.

Daria Fedotova is a lawyer and writer based in Ukraine.

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