Friday, April 17, 2020

Make the rich pay their fair share

The pandemic has meant the government having to borrow to provide financial life support to people and businesses. It is absolutely the right thing to do - taking care of us in bad times is what government is there for - but eventually we're going to have to pay that money back. And there's a growing understanding that this is going to mean higher taxes in the long term.

The question then is "who pays for it?" Writing on Newsroom, Simon Chapple suggests the easiest answer is "the rich", and that we should legislate for a far more progressive tax system:

The readiest tool in the box and the most equitably appealing solution here to share the burden of the virus is simply legislating for more temporary steps in the personal income tax system and a more progressive marginal income tax rate. We could have, for example, an income tax rate of 40 cents in the dollar from 70K (up seven cents in the dollar), 50 cents in the dollars from 100K (up 17 cents in the dollar) and 60 cents from 150K (up 27 cents in the dollar). The top rate of 60 cents would apply also to all trust income – if you’re well off enough to generate income from a trust, you’re well enough off to share 60 cents of that with the less fortunate. Company taxes could stay the same as they are currently, encouraging businesses to retain and reinvest profits.

The equality benefits from this are obvious. And as for the rich's usual cry that they'll leave for somewhere with lower tax rates, with borders closed and economies in recession around the world, they simply won't be able to. For people who think a marginal tax rate of 60% is too high, beneficiaries and middle-class people routinely face such rates, due to abatements on benefits or working for families payments (beneficiaries in fact face effective marginal tax rates of over 90% if they do "too much" part-time work, which incentivises doing none at all).

While I'd prefer such a change to be permanent, Chapple suggests that it should be temporary. But he links its expiry to things returning to "normal", defined as unemployment below 4% for a whole year. In other words, the rich would only get to stop paying when everyone has a proper job again. And based on past performance and policy, that's simply never going to happen under a National government.