Rich people should pay more taxes. Do you agree or disagree?

The rich are getting richer and the poor are becoming poorer. This leads to, in an era of fiscal consolidation, impassioned discussions on a social, economic and political theme – increasing income taxes for the top one percent. Over the past decades, with both republican and democratic tax reforms all over the world (1), economic outlooks are uncertain. While some, such as the world-renowned technology pioneer Bill Gates, recommend higher levels of taxation, others, such as Ben Shapiro, who graduated summa cum laude from the University of California, Los Angeles and the cum laude from Harvard Law School, advise expansionary fiscal policies, meaning tax cuts. This short essay, will discuss and explore the concept of taxation and if “richer” citizens should pay more taxes than the middle and lower class.

While some believe that direct or income tax is the sole source of fiscal revenue a government generates through its inhabitants, other forms of taxation do exist and are considered to be more efficient than increasing taxation on the wealthier portion of society. As explored in Bachelor and Master economics degrees, there are numerous forms of indirect taxation on goods and services, such as the ad valorem (VAT) tax. Instead of directly taxing the so called ‘rich’ based on income this, alternative, form of taxation, would be applied on luxury goods and services. The effect special goods or services, also named “Veblen Goods”, has on the superior pecuniary class is alluded to in Thorstein Veblen’s “Theory of the Leisure Class”. He states that: “For this class also the incentive to diligence and thrift is not absent; but its action is so greatly qualified by the secondary demands of pecuniary emulation, that any inclination in this direction is practically overborne and any incentive to diligence tends to be of no effect. The most imperative of these secondary demands of emulation, as well as the one of widest scope, is the requirement of abstention from productive work […] [L]abour is felt to be debasing, and this tradition has never died out […] In order to gain and to hold the esteem of men it is not sufficient merely to possess wealth or power. The wealth or power must be put in evidence, for esteem is awarded only on evidence […]” (2) . As expensive goods and services are more than a “symbol of power” or a simple possession of wealth, such could and should be taxed more. Furthermore, this could help the government generate fiscal revenue, thus lowering overall, national debt. These economic means could be allocated towards improving the bonum commune communitatis (common good of the community) through enhanced public services, cheaper health-care and access to social security while experiencing frictional or cyclical unemployment.

A point often overlooked is that Germany, the ultimate Sozialstaat (welfare state), has an income tax rate that ranges from 0 to 45%, meaning it is of progressive nature. Furthermore, it ensures that no income tax is charged on the basic allowance, which is 8,345€ for unmarried persons and 16,708€ for married couples (3). One might consider that “rich people” should perhaps pay higher levels of income tax if it contributes to the functioning of state organs, social stability and the preservation of public services. One of the most compelling evidence is that Germany and other Nordic countries are known for their well-functioning infrastructure and relatively low levels of criminal activity, which, generally speaking, indicates a high standard of living. For this reason, it may be effective to uphold such standards with higher levels of income taxes for the wealthier section of society. However, other countries that do not effectively allocate tax revenue towards infrastructure, education and healthcare, all of them being components and possible factors of supply-side economic growth, should first propose or implement effective planning before levying higher marginal tax rates on the rich to compensate for mal-allocated fiscal revenue. Generally speaking, one point has to be made, it is not the “rich people’s” unwillingness to pay high-levels of taxes for the above-mentioned reasons, it is rather their skepticism towards how government entities allocate their resources.

Overall, it can be said that the prompt allowed for extensive interpretation and allowed to place the question, if rich people should pay more taxes, into different perspectives. On the one hand, other forms of taxation do exist, besides income tax, which according to Thorstein Veblen’s theory of the “Leisure Class” are proven to be effective when placed on luxury goods and services, the rich can afford with the motive of demonstrating status. On the other hand, when placing this issue in another context, income tax for the wealthier section of society should be taxed more if state resources are allocated towards infrastructure, education and public spaces. To conclude it can be said that, even though this highly debated socio-economic issue is gaining extreme momentum, at the end, it should be about maintaining balance and ultimately ensuring constant enhancement in everyone’s quality of coexisting in a stable community.

Bibliography

(1) http://www.independent.co.uk/news/world/americas/bill-gates-tax-rich-people-pay-higher-cnn-trump-reform-a8217431.html

(2) http://xroads.virginia.edu/~hyper/VEBLEN/chap03.html

(3) http://www.gesetze-im-internet.de/estg/index.html