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More progressive taxation needed for social progress – Global issues

  • Idea by Jomo Kwame Sundaram (k Kuala Lumpur, malaysia)
  • Joint press service

Fiscal policy is concerned with the extraction and deployment of resources by governments. But the modes of state funding and spending influence economic inequality. Monetary policy measures can help, but they cannot replace fiscal efforts.

However, an economic downturn requires more state spending, much of which is financed by government debt, i.e. government borrowing. This is certainly necessary in response to the pandemic, but fiscal policy must be consistent with the rules: expansionary to fight recession and prudent in good times.

Rich countries have generally been bolder financially by reducing their deficits to spend since the global financial crisis, but especially in response to the pandemic. Massive bailouts and economic recovery attempts to protect incomes and businesses failed, albeit unevenly.

Regressive tax
Harsh colonial taxes were levied on subjects, but taxation became more progressive after independence in most, though not all, postcolonial societies. Over the past four decades, most governments have reformed tax policies for the worse, reducing the share of tax revenue and shifting the tax burden from the well-to-do to the general population.

Policy advice from international financial institutions and political pressure from powerful elites and foreign investors have reduced the progressive aspects of the tax. With Trump, ridiculous arguments like Arthur Laffer’s curve – without any solid theoretical or empirical basis – are still being invoked to justify regressive tax reforms.

Wealthy corporations and individuals are paying less and less in direct taxes, while the general public is paying more and more in indirect taxes, especially on consumption. Most countries still levy income taxes, but tax rates on corporate income, high-income individuals, property and inheritance have decreased in most countries in recent decades.

The assets of the rich are mainly stocks, stocks and real estate. Their income is mainly from those assets rather than salary. Taxing excess profits and wealth can significantly increase revenues to fund development policies and measures, while bridging the gap between beneficiaries and others.

Instead, wealth is often taxed at a low rate, while large loopholes allow it to be stashed, typically overseas. Many trillions are hoarded in often secret accounts in tax havens, both at home and abroad. All of this has accelerated wealth concentration and economic inequality.

Make taxation more progressive
Governments mainly get their financing from tax collection or by borrowing. Taxes are undoubtedly the most sustainable, efficient and responsible means for states to raise funds. Progressive taxation and government spending can both reduce inequality, albeit in different ways.

Windfall’s income tax

Some individuals and businesses are reaping huge rewards from the pandemic while most are hurting. Many billionaires are said to have become much richer, with ten richest more than doubled their assets from $700 billion to $1500 billion as of March 2020!

The high wind tax can be easily justified. After all, most people who have achieved many newfound fortunes are in debt to circumstances largely not of their own making. Earnings or profits due to hurricanes during a pandemic can be determined by comparing recent returns with previous returns. Such profits should be heavily taxed for the same reason.

Wealth tax

Property taxes have fallen dramatically in recent decades due to successful lobbying by the wealthy. The adoption or re-introduction and expansion of a progressive wealth tax would raise revenues significantly if loopholes could be closed, not only domestically but also internationally.

Perhaps more than an income tax, a property tax is a progressive means of increasing revenue. They also have greater potential to address other inherited privileges and inequalities, including those related to culture, lineage, ethnicity, and gender.

Conditional support

Government spending – including subsidies and relief measures – will not benefit tax-paying businesses abroad or pay no taxes at all. Many companies use tax havens and other loopholes to pay less taxes where they operate and profit from.

More advanced system
The tax system will get more from those who are most responsible and able to pay. Specifically, this should include:

    • Impose or increase taxes on assets such as real estate, wealth, inheritance and investment income (‘capital gains’). • Increase tax rates and progressive levels of personal and corporate income taxes. • Shifting relative dependence from indirect taxes – for example, on value added or on sales or consumption – tends to recede to more progressive direct taxation. • Dramatically reduce tax avoidance and evasion – especially for the wealthy, despite political influence. • Strengthen international tax cooperation to increase and allocate tax revenues progressively.

Such systemic reforms are needed for progressive fiscal redistribution, for example, by financing sustainable development in the medium and long term. Of course, the immediate priority going forward is to finance future recovery from the pandemic and its aftermath.

Coordinating fiscal policy
Governments are expected to raise enough revenue to finance the services, goods, facilities and infrastructure they are supposed to provide, i.e., to meet public expectations about the rights of citizens. The prevailing assumption is that tax rates are not only increasing gradually but are becoming increasingly so, although the opposite is more likely to be true.

Many are expected to reduce taxes, if not fix inequality. If well designed for implementation and effectively enforced, the international record shows this can be achieved. In keeping with the public’s progressive redistributive expectations, the government is expected to be like Robin Hood, i.e. taking from the rich to give to the poor.

Of course, whether a tax is progressive or not depends on how it is collected and spent. Therefore, tax and spending policies need to be considered together. But it is clear that some of the pandemic relief packages have mainly benefited influential businesses, with the crumbs going to the most needy.

International cooperation is needed for appropriate tax reform in the current era of financial globalization, and to stem the growing capital outflow from developing countries. At present, the reduction of tax evasion depends on fair and effective international cooperation on conditions that are fair to all, rather than conditions imposed by rich countries, as has been the case. happen.


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© Inter Press Service (2022) – All rights reservedOrigin: Inter Press Service

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