Wealth Inequality and Taxes — It’s about raising the bottom

March 8, 2012 — Leave a comment

One of the things I love about my work is that I get to meet many different people. Different in many regards and political and philosophical beliefs are part of the difference. I like interacting with people who share similar beliefs, who give me interesting articles to read or broaden my understanding of the liberal ideas that I hold. But I also enjoy talking to more conservative people, who challenge my beliefs and cause me to reevaluate and refine my way of thinking. Today I had one of such encounters.

An American student told me of how the United States is on the verge of implementing the highest corporate tax rate in the world. I couldn’t help but think that even if the United States succeeds in taking down a few more Swiss banks, if the banks do not cooperate in handing over client information regarding taxation, Switzerland could still come out on top. If the new tax rates come into effect in America, companies will move from the USA to Switzerland and seek tax refuge.

Taxes are always a tricky topic, because, as John Stewart pointed out on Monday night, they always go to fund things that some tax payers will not agree with. This is the genesis behind Henry David Thoreau’s essay on “Civil Disobedience” and his work Walden. He opposed his tax dollars going to fund the Mexican-American War. Taxes fund wars and taxes fund bridges. Sometimes we reap the benefits of what taxes produce and sometimes we suffer the consequences. That’s why those living in a democracy have a duty to call on their governments to be accountable for the actions they take in the name of the people and with the people’s money.

In most societies everyone can benefit from tax dollars. It is the coming together of individuals to fund projects larger than themselves. However, like all things they can be abused.

Recently I have been talking with Finnish and Danish students about taxes. In Finland and Denmark the people pay very high taxes and my students want to know, how it is that we in Switzerland can have services that are equally good as in their countries with fewer taxes. My answer is quite simple: what you don’t pay in taxes comes out of your own pocket when you go to use a service.

An example is healthcare, which in Switzerland is also not perfect, as our healthcare costs increase steadily every year. However, the service is good. In comparison to a completely paid for system, people are asked to take out their own insurance and choose their deductibles for the healthcare they wish to have. Everyone living in Switzerland has to have health insurance. But because individuals need to pay out of their own pocket, they are more likely to reconsider unnecessary visits to the doctor or hospital. This saves the system money. Furthermore, there are insurance bonuses for doing things to stay healthy like going to a gym.

My student today asked me how it is that the Swiss can afford to live here. He said that he finds Switzerland very expensive. I told him that it is expensive, but that in general people are still paid fair wages. As a general economy that means there are little to no low0-level manufacturing jobs in Switzerland and that the country’s industries need to constantly innovate to stay on the forefront of technology and business practices.

Though next to the USA, Switzerland too has a large wealth divide. This is what a recent study by the Credit Suisse has to say about the USA:

“The United States has by far the greatest number of members of the top 1% global wealth group, accounting for 41% of those with wealth exceeding USD 10 million and 32% of the world’s billionaires.”

And here about Switzerland:

“Switzerland has displayed only a small decrease in wealth inequality over the past century. As a consequence, a large proportion of the Swiss population is found in the upper echelons of the world distribution. Fully 1.8% of the global top 1% is Swiss, remarkable for a country with just 0.1% of world population. More than 95% of Swiss adults have assets above USD 10,000 and 50% of the population is worth more than USD 100,000.”

Despite the highest earners in Switzerland being lightyears in front of the middle class, the middle class in Switzerland is much better situated than the middle class in the USA.

The wealth divide in the USA is what is causing its biggest problems. The government and industry in the USA needs to look at ways of increasing the position of the middle class. People need to be able to work and earn enough to live a good life. According to OECD statistics Switzerland with its low taxation rate brings in more percentage wise in taxes than the USA. The reason is two pronged. First there are so many loopholes in the American tax code that some big players are not paying anything (GE for instance). But equally bad is that almost 50% of Americans don’t make enough money to be taxed.

Conservatives think that everyone should pay taxes, but forcing the poorest people to pay taxes will only cause them and the economy to suffer more. Liberal views of increasing taxes on the highest earners will only scare them away. The idea approach is to get the working poor to be working and middle class tax payers and to eliminate the tax loops so that the already implemented taxes are paid and not subverted. If that’s correctly done, there could even be drops in taxes, as more people would be contributing.

Interestingly enough Walmart is a great example for illustrating good and bad economic policies.

Bad:

Walmart economic principles in the work force are what is ailing America. People work at Walmart and are not paid enough to afford all of their amenities. This is in a drive to cut costs and prices for people. When people start working at Walmart in the US they are told that they will also need to collect some sort of social benefit such as food stamps. The tax payer while looking for the cheapest product is essentially subsidizing Walmart employees with his or her tax dollars. This is a vicious circle to the bottom and everyone is losing. This is the current state of the USA.

Good:

Walmart does understand that it is better to sell 100 items at 10 dollars each ($1000) than 30 items at 30 dollars each ($900). The same is true for taxes. It would be better to tax 250 million people at 25% than 30 million at 35%.

Simplified Income trends in Switzerland and USA

The American government and its industry need to find out what do people need to earn to afford to live in modern America and have access to everything they need to be productive citizens: housing, food, transportation, communication, healthcare etc. Once that number is established they need to make sure that the working class makes at least that amount, and better yet slightly more so that these people can also pay taxes.

This is hard to do with the current GDP restrictions, and will mean that some of the highest earners will make less. That’s math, everything else is number games with catastrophic endings.

Now the wealthiest will claim that they earned that money on their own virtues. While I do not advocate wealth redistribution, it must be said that the money has been unjustly and immorally falsely distributed. Look at the Walmart example. Bad math. The wealthiest should technically be subsidizing the employees through taxes, but rather they have found loopholes to avoid taxation and are not paying for it. The remaining middle class are paying for it. And those of the highest earners that are subsidizing it, should look at the math again and say, “I’d rather give this money directly to the employees for their work, than to the government to run a program to support these people.”

In conclusion, you can only have everyone paying taxes when a certain level of existence has been reached. In modern society and in the modern economy existence includes more than it ever has. It does include things like phones, internet, access to transportation. Without those things, people cannot partake in the modern economy. Lastly, it is the duty of members in a democracy to hold their governments accountable for tax spending.

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