Excerpted from Allan Engler, whose full article also gives the historical evidence backing up the democratic, social justice and environmental arguments in favour of progressive taxation mechanisms:
“If public deficits were the real problem—not just a pretext—military spending particularly in the U.S. would be drastically cut. Taxes would be raised. Of course, tax increases have consequences. Higher sales and value-added taxes reduce consumer purchasing power, further weakening markets in times of recession. Taxes on enterprise revenues can reduce expenditures for plant and equipment and lead to the failure of more businesses.
Steeply graduated income taxes would upset the super-rich but are otherwise benign. Taxing income over $200,000 a year at rates of 75 per cent, and over $500,000 at 90 per cent would substantially increase government revenues without reducing markets for most goods and services. Taxing profits on the buying and selling of stocks, bonds, real estate, and currencies could raise additional revenues. International agreement to raise tariffs to 15 to 25 per cent from the current average of five to ten per cent would raise more. Although the profits of transnational corporations would be squeezed, the resulting growth in local production for local consumption would expand employment, income, and public revenues everywhere.
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Steeply graduated income taxes would make public debt manageable. Unlike taxes on consumption, taxes on the highest incomes would not dampen markets for consumer goods. Additional public revenues could be used to improve education, healthcare, social housing, income support, public transit. As employment and markets expand, enterprises would be encouraged to invest more.
Undistributed corporate profits are the main source of investment in research, development, plant, and equipment. By discouraging the distribution of profits as dividends, executive salaries, and bonuses, confiscatory tax rates on the highest incomes would give enterprises more reason to retain earnings, increasing the funds available for investment in real means of livelihood.
With far higher taxes on capitalist income, the super-rich will have to make do with less sumptuous homes, fewer and less luxurious automobiles, yachts, and vacation spots. For everyone else, the cost of keeping up with the Joneses will be less. People in all income groups are likely to save more, making more funds available for investment in housing and local enterprises.
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Steeply graduated income taxes would transfer control of social surpluses from a corporate oligarchy to elected national, regional, and local governments.
Can governments and elected representatives be trusted to act in the common interest? With steeply graduated income tax, a small self-serving minority would have less money to influence legislation and corrupt politicians. Billionaires, like the Koch brothers—two of the wealthiest men in the U.S. who have bankrolled the U.S. Tea Party—would have less spare cash to dominate and manipulate political agendas in their narrow class interests.
Steeply graduated income taxes alone would not end capitalist entitlement, but as elected governments gain more revenues to expand social entitlements and public employment, people will demand to have a voice in economic decisions. The right of wealth-holding minorities to impose their immediate interests will be replaced with the transparent, democratic right of people to direct economic life in the common interest, in the interests of human and environmental well-being.
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The wealthiest one per cent presently claim twenty per cent and more of total income. If their share were reduced to five per cent, extravagant consumption and the accompanying waste of resources would be greatly reduced.
Governments would have the funds needed to replace dependence on private automobiles with fast, accessible public transportation. Federal, regional, and local governments could be provided with the funds to construct public heating and cooling systems that require less fossil fuels. Investments could be made in local agriculture for local markets. Environmental protection agencies could employ enough inspectors to investigate complaints and to act against corporate damage to ecosystems.
As control of social surpluses passes from the hands of wealth-holding minorities to elected governments, people will mobilize to demand that national, regional, and local communities provide more employment and goods and services as human rights. Fewer people will come to depend on the profitability of capital in general and of transnational corporations in particular. More people will be free to oppose environmentally destructive industrial activity.
As communities replace private corporations as the institutions making economic decisions, industrial and service workers, professionals, the retired, homemakers, students, farmers, mushroom pickers, loggers, and ecologists will all have the right to a voice and equal vote. The interests of major shareholders and top corporate executives will no longer take precedence over the income and employment of common people, or over the carrying capacity of environments.”
“Taxing income over $200,000 a year at rates of 75 per cent, and over $500,000 at 90 per cent would substantially increase government revenues without reducing markets for most goods and services.”
Sigh. Some people never learn.
All that would do is to drive the high income earners to hide some of their income and, failing that, to emigrate to less hostile tax environments. It has been shown time and time again that progressive income tax does not hit the high income individuals OR the high income corporations proportionately. They always find ways around and if they can’t, they leave. How many corporations have their headquarters in countries that ask little by the way of tax? How many individuals eventually end up physically living in a tax heaven or at least in a country that does not tax them to death?
Want a solution?
Tax liquidity. Who uses more (liquid) money pays more. Who uses less (liquid) money pays less. Very simple. Bank accounts can be taxed with a low percentage every month, and cash can be periodically re-issued, taxing it in the process. In any case, about 97 % of all liquidity is in electronic form, accessible to easy taxation.
That would allow ALL other taxes to be scrapped.
Income tax only acts to stifle initiative (why work my ass of, if I will be taxed 90%) and sales tax hits the poorest hardest, as they have to spend a high percentage of their disposable income on items that are subject to that tax.
Taxing money (it’s also called demurrage) would be the great equalizer.
And it would equalize in the right direction, i.e. it would hit the ones with the largest activity the most. It would especially hit speculators, who have to have large stocks of liquid money to do their speculating.
What more could we want?
Hi Sepp, I hadn’t read the 2nd part of your answer in facebook, if it was there … In any case, would you be interested in curating a series on tax alternatives for the blog, in the medium term, it’s really important topic … in the short term, expanding on your idea here would already be interesting,
Michel
Unfortunately it is well established that taxing income, if that income derives from productive activities (including exchange), only serves to burden productivity, which is the last thing we want if our goal is to spread prosperity.
The very wealthy do in fact benefit from unearned wealth (or “rents” in econ parlance) but using common income taxation methods it is impossible to ascertain where is the line between earned and unearned for a given individual; it becomes an exercise in arbitrariness, making it easy for critics to fire back that one is out to rob the “makers” and give their wealth to the “takers.”
Also, if the last century has taught us anything, it’s that it is too easy for the very wealthy to both escape income taxation, and gradually shift it onto lower income earners.
Another important part is the sheer economic cost of compliance with income tax itself, as well as the onerous invasions of privacy and hours of involuntary servitude it places upon the taxpayer.
There is a much better way. One form of tax meets both tests of ability-to-pay and benefits-received; falls purely on provably unearned income, rather than labor, employment or productive investment; and cannot be shifted or escaped: tax on land and resources. See Henry George! Or see contemporary Georgian economists such as Mason Gaffney, Michael Hudson or Fred Harrison.
hi david, but that’s the whole point, above a certain income, the income is usually derived and used for speculative activities ..
Dear David, feel free to offer an article on alternative taxation, where you explain your point above in a bit more detail for our readers!
Michel