Tax the Rich!
Opinion: 'Tax the rich' is an empty virtue signal with moving goal posts and no hope of implementation.
‘Tax the Rich’ is a popular slogan that regularly gets recycled and revamped. ‘Eat the Rich’ was another popular variant spanning back from the 1970’s. It is a beautifully succinct solution to all of society’s woes as it only requires a sacrifice from a small percentage of the population. It is typically popular with the young left wing movements and (understandably) less popular with older generations who are owners of the wealth.
That being said it is a slogan that has been weaponised by politicians on the American left to rally their support base. It’s not aimed at millionaires; it’s apparently aimed at billionaires.
Bernie Sanders (US Senator of Vermont) suggests the following annual wealth tax:
It would start with a 1 percent tax on net worth above $32 million for a married couple. That means a married couple with $32.5 million would pay a wealth tax of just $5,000.
The tax rate would increase to 2 percent on net worth from $50 to $250 million, 3 percent from $250 to $500 million, 4 percent from $500 million to $1 billion, 5 percent from $1 to $2.5 billion, 6 percent from $2.5 to $5 billion, 7 percent from $5 to $10 billion, and 8 percent on wealth over $10 billion. These brackets are halved for singles.
Under this plan, the wealth of billionaires would be cut in half over 15 years which would substantially break up the concentration of wealth and power of this small privileged class.
With ideas like this you can see why, despite being the most popular Democratic candidate, they would never allow him to be President. The American tax system factors in your global assets (not just American) so a tax system like this would be devastating for the finances of the rich elite as the simplicity of it makes it very difficult to circumvent.
Alexandra Ocasio Cortez (AOC), U.S. Representative for New York's 14th congressional district, has a much more palatable solution and that is to tax income at 70% once income reaches $10m dollars. This would be fine because tax loopholes can be employed to extract money and enjoy wealth without triggering excessive taxes. It is therefore safe for the rich elite to champion AOC and probably explains why she gets to go to all the good parties.
As a member of the billionaire elite appearance is everything. They need to appear to be for progressive tax systems that are supposed to look like they will limit their power and influence. By supporting candidates like AOC (who won‘t threaten their wealth) they avoid getting attacked by the mob AND they get to keep their wealth. It’s a win win.
Who Actually Pays Tax? It’s Always The Middle Classes
It’s very difficult to tax the poor and the wealthy. The poor don’t earn enough to pay tax and are very good at getting by without engaging with the tax man. Cash in hand payments, ‘borrowing’ items and ‘I’ll scratch your back if you scratch mine’ are all arguably transactions that the tax man should be able to claim on yet are extremely difficult (at present) to levy.
The rich are equally troublesome. Tax codes are typically so complex there are plenty of loopholes and avoidance schemes available (all legally) to minimise their tax contributions. While the Rich can successfully argue that they are the greatest tax payers (which they are) their wealth makes the use of offshore accounts, holding companies and all those other schemes viable.
The main tax burden will always fall on the middle classes who have their tax taken at source from their income. Any ‘tax the rich’ schemes will always fall on their shoulders.
The Ever Present Threat of Communism/Socialism/Marxism/National Socialism
Everyone knows the system isn’t fair which is why alternative systems continue to be so seductive. Communism, socialism or whatever else it rebrands to has occupied the peripherals of society for over a century. The idea always revolves around everyone getting a fairer share of the wealth.
Do not fall into this mental mind trap, all it does is replace one elite with another. Communism has never worked and will never work. The Sickle & Hammer is the logo of hard forced work and nobody wants that!
What Is the Laffer Curve?
The Laffer Curve is a theory formalized by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments. The curve is used to illustrate the argument that sometimes cutting tax rates can result in increased total tax revenue.
The Laffer Curve describes the relationship between tax rates and total tax revenue, with an optimal tax rate that maximizes total government tax revenue.
If taxes are too high along the Laffer Curve, then they will discourage the taxed activities, such as work and investment, enough to actually reduce total tax revenue. In this case, cutting tax rates will both stimulate economic incentives and increase tax revenue.
The Laffer Curve was used as a basis for tax cuts in the 1980's with apparent success but criticized on practical grounds on the basis of its simplistic assumptions, and on economic grounds that increasing government revenue might not always be optimal
There is a sweet spot that is constantly in fluctuation in society by a political and societal Tug of War. The main takeaway is that greater taxation or even the ‘Tax the Rich’ narrative will not lead to greater inflows of revenue for the government. It also completely mitigates the further conversation of how affective governments are at distributing the wealth (hint: they are atrocious at this). Be mindful of this the next time you think that taxes should be raised for one group only, it will end up hurting all in the end.
What Are The Solutions?
For government there is only one easy solution. They can use inflation as a stealth tax. This involves paying government debts with newly printed money, passing the debt on to its citizens by debasing the currency which leads to higher prices. Inflation is one of the few ways governments can tax their populations without triggering revolts.
For everyone else we can take a few pointers from the rich who know how to shield themselves from Tax. In the west this is not a “Bad” thing to focus energy on, in fact it should be your prerogative to invest time and energy into learning how to shield yourself from taxation.
The biggest investment you will ever make in your life is not your mortgage or kids it is your government.
As discussed here, you pay a lot of tax already.
How Do You Help Yourself ?
You need to secure assets which over time gather value which is not taxable until you sell them. If property, Stock & Shares or Crypto Assets are purchased for £100k and increase in value to £200k you are sitting on a £100k unrealised gain. This is not taxable until you draw that “gain”. For every £1 in salary somewhere in the region of 20-45p goes to straight to the tax man before it hits your bank account (enjoy your scraps peasant).
The wealthy are asset rich and can control the income they take from their assets. This is why the idea of “Tax the Rich” is a bit of a fallacy because they shield their wealth in such a way that it can’t be taxed without significant changes to the law and the foundations of our society. Hint: This won’t happen!
What can you do now?
Make sure your outgoings are less than income
Take your savings and invest them on a monthly basis
Look for assets that will give a high probability of strong future returns
Continue to do this for years. Hold them and don’t sell
The above may seem simple with a distinct lack of depth but it is the basic premise that all the rich have used to compound wealth, shield it from taxation and become wealthy over the years.
We at The Wealth Gap are putting together a guided course on “How to get Rich” to fully explain and detail the main steps to wealth creation. If you like this idea then we would love to here from you! Feel free to DM us on Twitter or drop a comment below and we will get back to you
Till next time
The Wealth Gap Team