Progressive Taxation Act (Failed)

[Antonio the Sixth]

Fellow Senators,

In the last years, the reduction of the public deficit has emerged one of the main priority of our economic policies. While already facing a recession, one we must fight agains, our government can't afford taking some action against our deficit : the more we wait, the harder it will be for us to repare the damages, the higher is the risk for us to suffer from the consequences of deficit. That's why we found ourselves in a double-bind situation. We must at the same time stimulate the economy and reduce our deficit.

How can we do ? Opinions differ in this regard. There is probably no miraculous solution that will solve all our problems, but there are several ways in which we could act. To put it simply : reducing a deficit requires either to cut spending or to raise taxes. Nowadays, the first solution seems the most trendy of the two. We are starting to see austerity plans everywhere in Europe, from Greece to Britain. Despite a tepid and uncertain recovery, governments massively cut their spending by reducing wages, limiting the number of civil servants, or abolishing mechanisms of social protections. That's what Atlasia could to either. But is it what we should do ?

I want to advocate for the second option. Sure I could sound "unusual", "heterodox" or even "crazy" if we base ourselves on the conventional wisdom. For about 30 years, economists and politicians have kept repeating that the only way to solve every problem was to limit government intervention. The economy is in bad shape ? Let's cut taxes ! We have a huge deficit ? Let's cut welfare programs ! "Down with government intervention" has become the economic creed of western countries. To the point that we are no convinced that "there is no alternative" to the reduction of spending/taxes. Well, it's time to stop blinding ourselves. There is an alternative, and this alternative needs to be discussed and debated. If my bill manages to at least cause a debate on this domain, I can consider it as a success.

I have the conviction that government is not the problem, but the solution to our economic problem. And this bill is a step forward this solution. So, why raising taxes instead of cutting spending ? First of all, because it's the less worst option for our economy. Atlasia still lacks a decent safety net to prevent extreme poverty, a major difference with European countries (my social security reform bill is aimed to correct that). If we cut the few welfare programs we have, the consequences for the population could be catastrophic. Poverty means losing buying power, thus consuming less, thus harming the economy. We know that very well since the Great Depression. Let's remind it each time some wise politician complains about "welfare queens". At the same time, what would be the consequences of adding a new tax bracket ? People who would be subject to the tax hike are those who are also the most likely to spare most of their income, and thus using it for unproductive activities. If we have to choose between penalizing savers or consumers, the first choice is undoubtedly the best one economically speaking.

Secondly, it is the best thing to do if we care about our citizens. If we have to take money away from someone, the best thing to do is taking it away from those who have a lot. As I've said, for milions of Atlasian, welfare aids are the difference between an acceptable poverty and total destitution. We must acknowledge this fact when we abstractly talk about "cutting spending". Compared to this solution, tax hikes have a far lesser impact. The tax bracket I wish to establish would only apply to an extremely reduced wealthy minority. First of all, the people who would be "hurt" (the word isn't really appropriate there, because I doubt anyone would actually suffer from that), are far less numerous than in the first case. And also, it is not the same for a wealthy person to become slightly less wealthy, than for a poor person to become slightly poorer. There is a lot of difference between gaining $500 or $1,000, but there is far less between gaining $10,500 and gaining $11,000. That simple fact should be taken in consideration.

The third argument is more personal, and anyone can disagree with me on that. It simply comes from the vision I have of the society. Inequalities are acceptable in a society, as long as they don't reach a certain level of decency. Since the 1980s, the economic inequalities have boomed in western countries, to the point that today someone can make in one month what another one would in one century. I, personally, can't find it legitimate. Even if anyone were rewarded proportionally to his merit (which is absolutely not the case), there must be some limits to richness. And who other than the government, could set that limit ? This bill won't suffice to make our society fair, but it's a clear improvement over the current situation. If you agree with me current inequalities are unacceptable and must be reduced, then you have one more reason to vote for this bill.

Once again, there are many valid concerns over this bill. I will be glad to hear them and adress them, so that we can finally have the debate I was waiting for. For example, I am fully aware that this bill could have negative consequences on investments, and I am therefore ready to consider ways to limitate this effect. For example, I think an effective counterpart could be to reduce corporate taxation, so that the government would still gain money, but at the same time partly compensating investors. I am ready to work closely with fellow Senators interested in building a compromise on this domain.

Hoping to stimulate your interest in a crucial policy issue, I'm now glad to start debating with my fellow Senators in order to do what is best for our economy, our constituents and our country.

[Antonio the Sixth]

Well, seems like my attempt to engage in a genuine debate on taxation, budget reduction, economic stimulus and social justice failed. I'd have apreciated critics other than "OMG that's insane !".

And I guess you guys know that some decades ago the maximum taxation rate was over 90%.

[Antonio the Sixth]

And I guess you guys know that some decades ago the maximum taxation rate was over 90%.

So? I hope you are not trying to justify this legalized theft with that. By that logic one could justify leaving the wealthy and the clergy tax exempt while taxing the middle class and poor  by saying  well it was the policy some time ago. Just because something happened in the past does not mean it was good. Even The Beatles wrote a song on how ridiculous it was, and during that stage of their career if the song had a meaning other than being a love song you know it was important

It's not meant to justify the legitimacy of my proposal, but it certainly shows how ridiculous it is to call it "insane". Just because the neoliberal dogma has imposed to western countries the idea that taxes are bad, it doesn't mean there is no place for another perspective on the issue. Looking back to history is a good way to adopt a less biased perspective.

[Antonio the Sixth]

Don't let my post make you think I'm against progressive income taxes... I am.  But the point of a progressive income tax in a modern capitalist society is not to punish the wealthy.  It is to make things fair.  Government services should benefit all and also serve to redistribute some of the wealth from top to bottom while paying for it in an equitable way that says "you've benefited the most from society's productiveness, so you will pay the most as well".

I really don't understand how one can even think a high marginal tax rate is a "punishment to to wealthy". Earning $1,000,000 is better than earning $250,000, for sure, but $25,000 is still, by far, better than $0. I have exposed the goal my bill pursues, and punishing anyone isn't among those goals.

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Well, I am not an economist and I don't really know how much impact this bill will have on tax revenues, but I really don't know what leads you to say it can't work. Raising taxes to fix our budget is a possibility that people seem to dismiss far too easily. I am not a taxation integrist but I don't see why tax hike wouldn't be as effective, if not more, than spending cuts.

[Antonio the Sixth]

Yet you are sure that passing this will help the deficit. Hypothetically speaking then, suppose this actually caused revenue to fall, would you still push it "to fix the deficit"? I mean if you don't know what impact on the deficit, then its possible that it could even make it worse, correct?

I fail to see how it could. People are attracted by tax evasion whatever the rates are, and raising them somewhat wouldn't certainly lead to a massive emigration movement.

I don't know how much revenue it will raise, but I know for sure it will.

[Antonio the Sixth]

Yet you are sure that passing this will help the deficit. Hypothetically speaking then, suppose this actually caused revenue to fall, would you still push it "to fix the deficit"? I mean if you don't know what impact on the deficit, then its possible that it could even make it worse, correct?

I fail to see how it could. People are attracted by tax evasion whatever the rates are, and raising them somewhat wouldn't certainly lead to a massive emigration movement.

I don't know how much revenue it will raise, but I know for sure it will.

But doesn't the incentive increase with the level of taxation? Each man has a threshold, that once pushed or exceeded could drive them to engaged in such illegal behavior. And plus, there are different forms of what is essentially tax evasion and what is tax avoidance. You could have people use legal means to avoid this tax rate, either by shifting income through some other means or what not to avoid it.

Okay. What if it doesn't raise that much? Suppose the benefit on the deficit is barely noticeable. Would the mal effects of such a high rate outweight such a tiny increase in revenue?

I don't beliveve fiscal evasion works that way. I think most people would either try to do whatever they can to reduce their taxes, and other people (a majority) would accept taxes as they are and enjoy their still considerable wealth. In France a formidable "fiscal shelter" bill was passed, aimed to reduce the taxes for the wealthier, and thus with the goal of limiting fiscal exile. And yet, fiscal exiles continued as they went year after years, and the State lost milions of euros for nothing.

Of course, if I thought the risks were lower than the benefits, I wouldn't support this bill. If this is you only concern, why not giving it a try and after a couple of months ask the GM if this has worked well or not ?

[Antonio the Sixth]

I think this issue mostly comes to personal standards. 75% looks draconian to most of you, while I personally think it's reasonable when it comes to so high incomes. Again, I believe that not so much people would see this as a valid reason to evade, and that those who would are likely to be already evading. But I guess here we can only agree to disagree.

I don't know the specifics of the bill in France to which you speak or when it was enacted. If it was enacted in say 2007, of course revenue would drop in the immediate aftermath of the bills passage and it would be because of the global recession, not the bill itself.

There have been cases, in which success has been hit by lowering and simplifying rates in terms of reducing tax sheltering etc. Of course there is more to tax avoidance then just sheltering.

The bill was aimed to stop fiscal exile, ie people who leave the country in order to pay less taxes. Each year, around 500 people do so. 500 per year before 2007, 500 people after 2007. At the same time, the State reimbursed milions of euros to the wealthiest people due to the shelter mechanism. That's why our dear President soon switched his position from the pragmatic one ("bla bla bla we'll stop fiscal exile and gain revenue") to the ideological one ("bla bla bla we have to stop punishing the wealthy"). Fortunately the french people don't buy into that, but the sad thing is that he seems to be sincere.

[Antonio the Sixth]

I've explained my view about tax evasion. I might be wrong, but since these theories can never be proved, I think we can, as I said, agree to disagree.

[Antonio the Sixth]

Wait.. Dividends and capital gain aren't taken into account as income for the sake of the tax ?

We must change that. There's no reason for which stockholders should be exonerated from contributing to the social redistribution.

[Antonio the Sixth]

There is a tax on capital gains, Antonio, its just lower than regular income tax.

So we basically take more money from people who actually earn their living by doing something, than from people who merely use their money to gain money ? Congratulation, Atlasia, you win the first prize for fiscal silliness !

[Antonio the Sixth]

Thanks for distorting again what I said.
I still can't understand what in the world justifies that the government rewards investment more than labor.

[Antonio the Sixth]

I can give up on the increase in the income tax if we agree to increase the capital gains tax. The latter is just too low compared to the first. Anybody willing to discuss that ?

[Antonio the Sixth]

I'd have liked the debate to last a bit more, but well.

Aye

[Antonio the Sixth]

I'll be working on a general fiscal reform bill for the Senate's next session.