High Taxation – Harming You, Harming Your Country.
In today’s difficult global times, it’s easy to look towards higher taxes for the wealthy as a facile solution, but as many economists agree, the situation is not as simple as that.
Back in January this year, Savills estate agents warned that the SNP’s new tax powers could cause an exodus of the wealthy from Scotland, as well as a collapse in the top end of Scotland’s housing market, with all the knock on effects that implies. Meanwhile, figures released in August show that the number of wealthy individuals emigrating from France rose by 46% in 2013, following the introduction of the top 75% rate of tax there.
Ahead of the general election in the UK there were fears that a Labour victory might cause a similar exodus, and in the US, state to state migration patterns do show a pattern of migration from higher tax states to lower tax ones. So what’s going on, and why are higher taxes on the rich not the dream solution they seem to be?
Problems with a High Tax System
There are numerous reasons why a high tax economy is not the best answer to an economic crisis. First and foremost, high taxes discourage wealth creation. It doesn’t take a genius to work out that a 75% tax bracket is a disincentive to many of the brightest minds around. You may look around for a country with a less punishing tax regime, and decide to invest your time and talents there instead. High taxation gives the people with the means to leave a huge incentive to do so.
“Good riddance!” You may say. Well, to put it simply… You need the rich.
When successful entrepreneurial businesses leave, employment opportunities in the home country fall. With fewer jobs, more people will need benefits – taking out of the system, rather than putting in.
Meanwhile, not only does home grown talent fly the nest, but the country becomes a less appealing investment target for entrepreneurs and businesses looking to relocate; jobs which might otherwise have been created fail to materialise, and local economies needing a boost are passed over in favour of investment elsewhere.
Of course, it’s also a simple numbers game. The top tiny percentage of the wealthiest pay a hefty proportion of the country’s tax revenues – so as the wealthy leave, the result is less tax into government coffers, not more. In the UK the highest earning 3,000 citizens currently pay the equivalent income tax of the lowest 9 million combined. With figures like that the UK should be doing everything it can to make the UK an attractive country to do business. Statistics show that the increase in tax collected when the rate soars is marginal compared to the negative effects on the perception of the country concerned.
An Alternative Solution
What’s needed to ease an economic crisis is more tax input, not less, but that does not mean higher taxes.
Research has shown that cutting taxes on businesses is one of the surest ways to encourage investment and to create wealth, opportunity and employment. Problem is, despite the evidence, governments often see it as a huge gamble and would rather ride out the storm so they can pass the buck to the next elected party.
It’s true of course that the broadest shoulders are more able to pay than others, however, demonising the wealthy is a short term, populist solution which has serious long term consequences for any government considering it.
Most of us want to travel the world and enjoy the success we’ve worked so hard for, but we’re also proud to be British, or American, or proud of our home nation wherever that may be. It’s not an easy choice to make to leave ones home country, but when your life and wealth are paralyzed by taxation, what choice do you really have?