One law for the rich

depardieuI’m a huge fan of the French actor Gerard Depardieu. Jean de Florette is one of my all-time favourite films. But the recent wealth tax introduced in France has led Depardieu to leave the country and hand back his French passport.

If I had to pay 75% of my income in tax for the privilege of living in France, I’d probably think twice too.

One law for the rich and another for the poor was the principle that led to the French Revolution, so it’s strange to see it being reintroduced 200 years later under a socialist government. Anyway, Depardieu has now left the country and pays little or no French tax at all, so who has won this particular class war?

In Britain, the billionaire businessman Philip Green is often criticized for living in Monaco. But if he and his wife returned to the UK they would have to pay hundreds of millions of pounds in tax every year. That’s a lot of money to pay to live in Britain, especially since many people get to live here for free.

You can criticize people like Depardieu and Green all you like, but the real question that needs to be asked is, should a government impose a reasonable rate of taxation on its wealthiest citizens, or not? And if it chooses not to, then it shouldn’t be surprised if they leave the country instead of staying and paying.

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41 responses to “One law for the rich

  1. This is really interesting to me since we have the exact opposite problem in America…the rich pay way lower rates of taxes than the middle class and the poor. I wonder if a flat rate across the board wouldn’t serve all countries well?

  2. That’s really something interesting to think about.

  3. Remember too that Americans pay that 39.6% ONLY on income over $400,000. On their first $90,000 of income, Oprah Winfrey, Bill Gates and I all pay tax at the same rate. On the next band of income, again, we all pay the same rate. Etc .This is why back in the 1950s under Republican President Eisenhower, the upper tax bracket was over 90% but the rich could still take home an outsized piece of the pie – because they paid the same low rate as others on most of their income and only paid the 91% on the uppermost band of their income. (And overall, the U.S. economy did quite well in the 1950s.

  4. “People say exactly the same thing in the UK, and yet: The richest 1% in America earn 19% of all income but pay 35% of all taxes.” Your comment here, Steve, shows just how enormous the wealth gap is in the U.S. After loopholes, the rich pay a lower rate than the middle class (I think the conclusion on Mitt Romney was that he paid 11% on his millions), and yet they still pay 35% of the total; i.e., they are doing enormously well compared to the rest of the population.

  5. I do not think it should be unreasonable, but I also know that there is a small minority among them who find every way they can to get out of paying even the most reasonable taxes. They do not realize that it makes the tax burden of those who HAVE to pay a lot heavier.

  6. nerdinthebrain, yes the article you posted here reveals that the popular perception that the rich pay less than the middle classes is entirely false. The top 10% pay 68% of all taxes.

  7. Daedalus Lex, your comments seem to imply that successful people like Oprah Winfrey and Bill Gates are a menace to society. Can you really think that? Do you think that forcibly removing their wealth would make the world a better place?

    The figures on Mitt Romney are erroneous. They do not account for corporation tax, etc. I can do the math for you here if you don’t believe me.

  8. Hi Steve. According to the Washington Post, Romney claimed to have “paid at least 13% in income taxes in each of the past ten years.” Washington Post ran the numbers and concluded that “Romney had an effective federal tax rate of 14.1%.” (http://www.washingtonpost.com/blogs/wonkblog/wp/2012/09/21/mitt-romney-is-paying-too-much-in-taxes/). I think the idea was to compare average income tax to high-end income tax. If Mitt Romney also owns corporations, good for him, but that’s outside the scope of our income tax comparison. I don’t know how you get from “Oprah rightly pays the same as me on her income to $400,000 and on income above that level she can afford to chip in an extra 2 or 3%” to “Oprah is a menace to society.” (I know how and why the 24/7 right-wing scream machine in the U.S. does so, but I don’t know how the normally rational, amicable, and all-round good guy, Steve Morris, does so .)

    • All-round good guy is going to become my new tagline 🙂

      OK, here’s my analysis. To be a one percenter you have to earn $400k+ per year (Source: http://www.cnbc.com/id/101025377). To earn that much you probably don’t have a regular job working for someone else. You are probably self-employed or run a company, most likely employing other people in turn.

      A one percenter pays a lot of tax (well over $100k) and for every extra dollar they earn they pay 40 cents. A rational economic policy would encourage these people to earn as much as possible, since nearly half of it is being taken as tax. Increasing the tax rate would discourage them from earning more.

      As already remarked, this person is probably running a company. And they are obviously running it very successfully indeed. They are providing a valuable service or making a useful product and they need to be encouraged to sell more of their service or product for the benefit of society. Secondly, they are almost certainly providing employment. Job creation is obviously to be encouraged.

      So a rational economic system would do everything it could to encourage one percenters to achieve even greater success. We should be rooting for them, because every time they earn a dollar more, they:
      1. Pay 40% of it in tax.
      2. Provide valuable services and/or products that benefit us all.
      3. Potentially hire more staff, reducing the burden to the state and providing life enhancing career opportunities to individuals.

      The one percenters are, in general, the lifeblood of the economy and the motor that drives our entire world.

      The idea that they can “afford” to pay more tax is nonsensical. They could equally “afford” to take it easy and play safe, avoiding the risk of hiring additional staff or re-investing their profits. That would be a disastrous outcome for all of us.

  9. I have always been a fan of a flat tax, which doesn’t exactly ingratiate me with my liberal brothers and sisters. Get rid of all tax loopholes and have people pay flat percentage of all income — including salary, short-term earnings, long-term earnings, and capital gains (i.e., all income and earnings). Easy peasy.

  10. The tax rate of the wealthy is always a contentious issue. The idea of the progressive income tax is that wealthier people have a higher proportion of disposable income. So, a 15% income tax on someone who only has about 10% disposable income affects them like a 91.5% income tax does for someone whose income is so high that they have 99+% disposable income. (10% disposable income X 15% + 90% cost of living)

    Is this a fair way to look at it? It depends on your theory of how someone becomes wealthy. If you think it’s solely based on their hard work, you’ll feel it’s profoundly unfair to tax them at a higher rate. If you think they just won the lottery of birth or circumstances, you’ll likely be fine with it.

    Personally, I think reality is probably somewhere in between. Wealth often does involve very hard work, but being extraordinarily rich usually involves having been extraordinarily lucky as well. I know some people who work insanely hard and have achieved upper middle class status, at best, and others who have stumbled around in life but lucked into wealth.

    • I don’t believe that in general people get rich either because of hard work or because of their birth. I believe that entrepreneurs create wealth by providing exactly what society needs at the right time and the right price.

      Fairness has been discussed quite a bit on this blog already. I feel that a consensus emerged that fairness should be regarded in utilitarian terms – that it should be judged by its outcome. If the outcome of “progressive” taxation is that those who create wealth, supply products and services, and provide employment do less of those things, then “progressive” taxation benefits nobody.

      As for the idea of “disposable” wealth, the idea that someone with millions of dollars uses this money in any disposable way is not the case. While they may live in a bigger house and drive a more expensive car than most people, the bulk of their assets gets invested in economically productive ways.

  11. Dear John Galt – sorry, I mean Steve. No one doubts that the 1% do a lot for the economy (and get a lot from the economy). One could argue, though, that the “the lifeblood of the economy and the motor that drives our entire world” is the middle class, whose productivity generates the profits for the 1%. I’m pulling for the 1% as well as the other 99%, but we have our policy differences.

    I guess it comes down to whether it’s best to set (trickle-down) policies that start by making the rich richer or policies that start by giving the middle class a little extra support and leverage. The trickle-down theory (which you’ve nicely articulated) says that if you put enough money at the top, they will create jobs, and the money will trickle down through the classes. The logic makes sense, but we’ve tried that in the U.S. for 30 years. Tax rates on the highest tiers plummeted in the early 1980s and have stayed at historic lows. The result is that wealth has steadily flowed upward and continues to stay there after three decades. The total wealth controlled by that top tier has gone from 21% to 36%. On the other hand, my side argues that the best way to create jobs is to create policies that directly strengthen the middle class and thereby create demand. CEOs may well deserve 38 times what the average worker makes (per 1980) but when it gets to be 354 times (2012) and rising, inequality becomes worthy of some policy consideration. (These are U.S. numbers, so it may not be as bad in the UK.) Now if you and I ruled the world, I’m sure we could work out a compromise with a few pints of that good English bitter.

    • Well, you already know that I don’t support Ayn Rand’s ideas, so I don’t know why you mentioned John Galt.

      I do not advocate any policy designed to make the rich richer at the expense of anyone else. I advocate a policy that encourages successful people to reinvest their wealth and work harder. Everyone benefits as a result.

      Forget trickle down – we benefit directly from more tax revenue, better services and products, and better employment prospects. Nobody is “putting money at the top” – precisely the opposite is taking place.

      My thoughts on inequality – in the United States, car ownership has increased significantly since the 1980s. People now own technology that simply didn’t exist in the 1980s – computers, smartphones, microwave ovens, digital cameras, large screen TVs. This is how to measure real wealth of ordinary people.

      Look beyond the US. Extreme poverty in the developing world has fallen by 40% since 1990. Source: http://www.newscientist.com/data/images/archive/2725/27250901.jpg

      Inequality is a red herring.

      • It is true there’s more stuff to buy now, but median income has actually fallen slightly since 1998. I’m not saying the world is ending, but clearly something is not trickling down from the investing classes to the productive classes. I know you don’t like Ayn Rand. That was the whole point of my joke, bantering you for sounding like her. I trust you suffered the barb with typical aplomb.

  12. Boys, boys, boys. Money always gets people’s backs up.

  13. Look I am no expert in matters like this but the problem I see with your proposition is that if the rich pay most of the taxes to keep us from going bankrupt then how would we be able to avoid bankruptcy without overtaxing the rich ?

    I don’t think it is completely unfair to ask the rich to pay slightly higher taxes because I think it affects them less than it would to any other group of people. However if as you claim around 75% of their income is taken by taxes then that’s not fair. I am okay with Socialism as long as it doesn’t overly stifle productivity.

    • Stefan, my point is that overtaxing the rich may generate less tax revenue. It certainly has the effect of discouraging innovation and investment.

      I don’t disagree with a progressive tax system in principle. What what should the highest tax rate be? 75% is clearly wrong. 50% feels way too high. What is the correct percentage? I don’t know, but people should be allowed to keep most of what they earn.

      • “my point is that overtaxing the rich may generate less tax revenue.”

        Steve,
        Where the peak of the Laffer curve is, the point where charging a higher tax rate leads to lower revenue, has been debated by economists for decades. Historically, here in the US, John F Kennedy in the early 1960s cut the highest bracket from 91% down to 77% and saw an increase in revenue. But every cut since then has resulted in lower revenue. (Many US conservatives claim the Reagan and W Bush cuts raised revenue, but they conveniently overlook or ignore the effects of inflation.)

        Most economists seem to think the peak of the Laffer curve is around 70%.
        http://en.wikipedia.org/wiki/Laffer_curve#Tax_rate_at_which_revenue_is_maximized
        75% may be over that peak. I’m sure economists are tracking the effects of that rate on France’s tax revenue. However, rates like 50%, whether fair or unfair, appear to be safely under it.

        • Mike, thanks for taking the time to comment. The idea that there is a rate of tax that maximizes tax revenue is clear – that is of course what I am arguing. It is clear from the article you quote that there is absolutely no consensus over what rate that is. The idea that “most economists think … it is 70%” isn’t what the article states.

          But what about the other effects of high taxation? Tax revenue is just one of the downsides. The reason the Laffer curve exists is because high rates of tax reduce economic activity. High rates of tax stop companies investing, introducing risky or speculative products, and taking on more employees.

        • Steve, I’d say that that’s all true, but any rate of tax against anyone reduces their economic activity. That cost has to be balanced against whatever the public sector does with the funds which, unless the government just sits on it, adds economic activity. Indeed, anytime you have to pay rent or a mortgage, it reduces your economic activity in favor of your landlord’s or the bank’s economic activity.

          Government has to be paid for, so whose economic activity should be impinged? Many conservatives insist that impinging on the rich’s economic activity is more harmful than impinging on the middle or lower classes. Economists are all over the map on this with concepts like economic multipliers and propensity to consume and propensity to save thrown around.

          For me, the question is who can we directly observe to be more personally effected by the tax and who can we directly observe to be less personally effected? When I think in those terms, I don’t have a problem with the rich paying a higher rate, particularly since I think there is a strong element of luck in them being in their position, although as I acknowledged earlier, for many of them hard work and vision was involved.

          I know you disagree on this. As far as I can tell, this is simply a difference in philosophy.

  14. Enjoyed the great discussion generated by your post, Steve. Now back to my day job. Gary

    • Yes, I have work to do too, otherwise how are we going to pay our taxes? Thanks for your input, Gary. I was aware that this post would generate lots of comments and few likes. Only hardcore fans would dare to like this one 🙂

  15. Aside from tax issues, this evil man, but we have to admit that quite popular actor, proved to be very vile man showing unprecedented enthusiasm for reviving the evil empire (vPutin + Russia). But what is surprising, as the great French philosopher Rousseau, sold his soul to Russia (creating a positive image in Europe for the cruel empire of Russian tsars), of course, for big quantities of gold coins.

  16. Actually I think in the uk they are not taxed enough. Especially property tax for wealthy people who choose to live overseas most of the year. There is not enough London housing for us Londoners so yes- I think they should be taxed more, not less. If they choose to leave – more space for the rest of us. It’s a very crowded city.

  17. Mike, our philosophies may be slightly different, even though I know our values and aims are very similar. For me, it feels fair to take some of a person’s wealth away from them in order to lift others out of poverty and provide for collective services such as defence. To take more from the wealthy is justifiable. But to make most of their money from them, feels more than unfair – it feels immoral.

    But putting that to one side, we have plenty of examples of what happens when a state dominates the economy of a country. This is what happened throughout Russia, China and Eastern Europe during much of the 20th century. The state may have maximized its share of the wealth, but the wealth of those countries was very much less than in the West.

    Communism wasn’t the answer to poverty. I know that you’re not a communist by any stretch of the imagination, but state control of the economy seems to be the wrong direction to head in if the goal is to improve the lives of ordinary people.

    For me, true wealth emerges from innovation, and that comes largely from private enterprise.

    • Our personal philosophies are shaped very much by our own experiences. In the 1970s, Britain was bankrupted by big government and high taxes, leading to record unemployment in 1979. In the 1980s and 1990s, Margaret Thatcher brought in smaller government and lowered taxes – the economy boomed. In 2 decades, 5 million more jobs were created. Not many new jobs were created in the next decade when the Labour Party returned to power and raised taxes. But in the past few years, with a policy of cutting public spending and reducing the huge public deficit, record numbers of jobs have one again been created.

      So you see, I am conditioned to associate high taxation with poverty and unemployment. It would be hard to persuade me that one does not directly cause the other.

    • Steve, I agree with most of that. I firmly believe in capitalism (regulated and with a social safety net), so no argument from me on the communism front. Generally, I’d agree that societies can get by without upper tax rates above 50%, and that when they do institute them, it’s often more a statement about how that society feels about wealth than any revenue measure. Although, from what I understand, France’s highest rate only kicks in for income above 1 million euros per year. In other words, Depardieu got to keep most of his first million each year.

      I suspect the fact that this triggers your moral outrage is due to the curtailment of freedom for people like Depardieu. It doesn’t trigger mine so much because I can’t perceive that Depardieu actually suffered in any visceral way from it, although I’ll admit that being motivated to move to Russia (of all places) certainly implied he felt wronged by it.

  18. Depardieu seems to have lots of fun in Russia 🙂
    http://en.ria.ru/trend/depardieu_gets_russian_citizenship_2013/

    This debate around taxes does not have an answer. I once had a long conversation about this on TED

    http://www.ted.com/conversations/17703/would_you_prefer_sales_tax_to.html

    The arguments on both sides are very solid and make sense.

    Flat income tax and sales tax are considered to hit the poor more than the rich. The truth is that the rich have more possibilities than the poor (by definition) and they can always shift the tax burden to someone else. Tax luxury yachts as Bush did in the 1990’s, and the rich will stop buying luxury yachts or buy them in foreign countries – and that would hit the working people and businesses making and servicing these yachts. Tax large incomes, and the rich would hide them, move them offshore, or change citizenship.

    I personally like this idea:

    http://fairtax.org/

  19. Certainly I agree that the tax system needs simplification. I am open to new ideas. I guess my point is that there is a limit to how much a government can reasonably expect to tax its citizens. Governments must stick within that limit, and not simply regard its citizens as a source of income to be milked.

    There isn’t a pot of money out there that needs to be shared out equally – tax involves taking money away from people who have earned it.

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