Cutting top rate taxes makes the rich richer. And that’s it

So, cutting taxes just makes the rich richer. And that’s it. And since we know inequality harms society these tax rates, it follows, are harmful to us all – the rich included.

Inequality 2

Richard Murphy is the founder of the Tax Justice Network

As David Cay Johnston has written in a recent article:

A revealing new examination of the top 1 percent in a variety of countries brings into focus how the American government’s tax, union bargaining, inheritance and other rules widen the growing divide between those at the top and everyone else.

What he notes is that:

Four economists found that such wealthy and technologically advanced countries as Japan, France and Germany have seen growth at the top, but not the chasm of inequality created in recent decades in the U.S. and Britain. The paper’s authors include Emmanuel Saez, the UC Berkeley economist who has won renown for his work examining more than a century of global data on top incomes. The lead author is Facundo Alvaredo of the Paris School of Economics.

He adds:

Cutting tax rates has become the signature issue for Republicans in Washington. Whatever economic issue arises, their answer is to lower tax rates, which they say will spur the economy.

What the authors find should raise questions about that mantra. They looked at tax rates and economic growth in advanced countries around the world:

If we look at the aggregate outcomes, we find no apparent correlation between cuts in top tax rates and growth rates in real per capita GDP. Countries that made large cuts in top tax rates, such as the United Kingdom or the United States, have not grown significantly faster than countries that did not, such as Germany or Denmark.

RM graph

So, cutting taxes just makes the rich richer. And that’s it. And since we know inequality harms society these tax rates, it follows, are harmful to us all – the rich included.

So let’s remember that the next time a change is called for, shall we?

5 Responses to “Cutting top rate taxes makes the rich richer. And that’s it”

  1. LB

    No spending less than you take home makes you richer.

    Look at Switzerland. Go into any Migros and ask what the check out girl takes home. Compare that with what a check out girl in the UK takes home.

    Now look at their standard of living.

    Now ask what the hell the UK is doing wrong. It’s very simple. It’s taxing the poor. Its taking their NI and pissing it away.

  2. Selohesra

    So there we have it – its more important to stop rich people getting richer than to maximise the tax raised from the rich. No wonder the world is such a mess

  3. Selohesra

    I quite liked this – not my own work unfortunately

    Suppose
    that every day, ten men go out for beer and the bill for all ten comes to
    £100…

    If
    they paid their bill the way we pay our taxes, it would go something like
    this…

    The
    first four men (the poorest) would pay nothing.

    The
    fifth would pay £1.

    The
    sixth would pay £3.

    The
    seventh would pay £7..

    The
    eighth would pay £12.

    The
    ninth would pay £18.

    The
    tenth man (the richest) would pay £59.

    So,
    that’s what they decided to do..

    The
    ten men drank in the bar every day and seemed quite happy with the arrangement,
    until one day, the owner threw them a curve ball.

    “Since
    you are all such good customers,” he said, “I’m going to reduce the
    cost of your daily beer by £20”. Drinks for the ten men would now cost
    just £80.

    The
    group still wanted to pay their bill the way we pay our taxes.

    So
    the first four men were unaffected.

    They
    would still drink for free. But what about the other six men?

    The
    paying customers?

    How
    could they divide the £20 windfall so that everyone would get his fair share?

    They
    realised that £20 divided by six is £3.33. But if they

    subtracted
    that from everybody’s share, then the fifth man and the sixth man would each
    end up being paid to drink his beer.

    So,
    the bar owner suggested that it would be fair to reduce each man’s bill by a
    higher percentage the poorer he was, to follow the principle of the tax system
    they had been using, and he proceeded to work out the amounts he suggested that
    each should now pay.

    And
    so the fifth man, like the first four, now paid nothing (100% saving).

    The
    sixth now paid £2 instead of £3 (33% saving).

    The
    seventh now paid £5 instead of £7 (28% saving).

    The
    eighth now paid £9 instead of £12 (25% saving).

    The
    ninth now paid £14 instead of £18 (22% saving).

    The
    tenth now paid £49 instead of £59 (16% saving).

    Each
    of the six was better off than before. And the first four continued to drink
    for free. But, once outside the bar, the men began to compare their savings.

    “I
    only got a pound out of the £20 saving,” declared the sixth man.

    He
    pointed to the tenth man,”but he got £10!”

    “Yeah,
    that’s right,” exclaimed the fifth man. “I only saved a pound too.
    It’s unfair that he got ten times more benefit than me!”

    “That’s
    true!” shouted the seventh man. “Why should he get £10 back, when I
    got only £2? The wealthy get all the breaks!”

    “Wait
    a minute,” yelled the first four men in unison, “we didn’t get
    anything at all. This new tax system exploits the poor!”

    The
    nine men surrounded the tenth and beat him up.

    The
    next night the tenth man didn’t show up for drinks, so the nine sat down and
    had their beers without him. But when it came time to pay the bill, they
    discovered something important. They didn’t have enough money between all of
    them for even half of the bill!

    And
    that, boys and girls, journalists and government ministers, is how our tax
    system works.

    The
    people who already pay the highest taxes will naturally get the most benefit
    from a tax reduction.

    Tax
    them too much, attack them for being wealthy, and they just may not show up
    anymore.

    In
    fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

  4. JC

    If inequality is so important, why don’t we just get rid of the rich. We’d all be more equal, but overall less wealthy.

  5. Selohesra

    Which is a more succinct way of putting my beer drinkers anecdote below

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