Is Taxing the Rich Bad? Progressive taxation, wealth tax explained



In 1789, Benjamin Graham, known as the father of investing, made his famous quote. He said, “In this world nothing can be said for sure except death and taxes. Globally, there is a growing perception that the rich are not paying their fair share of taxes. There are clamors for raising taxes for the rich. Is Taxing the Rich a Bad Idea and How Do Governments Tax the Rich?

Wealth inequality has only increased in the past year. A simple scroll through the list of richest people will reveal that the rich have gotten richer in the past year due to the stock market boom where the richest investors have almost all of their wealth tied up. The other side of the story is that amid job losses (and higher inflation), the poor got poorer.

Should we tax the rich more?

Inflation, often referred to as the worst tax, hits the poor hardest. Food and fuel inflation, where the middle class and the poor spend a large part of their income, is higher than the CPI (consumer price inflation). Over the past year, governments around the world have left their purses wide open to contain the economic impact of the COVID-19 pandemic.

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This fiscal extravagance led to a skyrocketing budget deficit and US debt to GDP soaring. Fiscal easing cannot last forever and governments know it. The UK became the first major economy to raise taxes earlier in September.

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Meanwhile, Britain’s Labor Party criticized the government for the widespread tax hike and argued that it should have been directed more to the rich.

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Taxing the Rich, a Bad Idea?

The general belief is that higher taxes on the rich lead to an exodus of the rich (and their wealth). Simply put, the rich move to a jurisdiction that has lower taxes. There are a lot of countries waiting to welcome the super-rich who want to relocate.

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Moreover, a heavy tax on the rich could go against the very idea of ​​capitalism. A very high tax would reduce the incentive to create wealth. Another aspect to consider would be that high taxation often leads to tax evasion.

A global minimum tax for individuals, modeled on the one Biden proposed for businesses, could help address fears of the wealth drain. Overall, I would say taxing the rich isn’t as bad a idea as some people think. This is especially true given the precarious fiscal situation in the United States and for most governments around the world.

With their wealth rising amid near record-breaking stock markets, the rich shouldn’t worry about higher taxes either, at least for the next few years.



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