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Should the weatlhy be taxed more?

by Richard Denniss

Richard Dennis is the Director of the Australia Institute.

The wealthiest one per cent of Australians receives more than 35 per cent of all dividend income and more than 38 per cent of all capital gains according to the ATO. Luckily for them, both company profits and capital gains are taxed concessionally, ensuring that the tax system helps to exacerbate the gap between high- and low-income earners.

At the other end of the spectrum, the bottom 20 per cent of income earners receive just 3.2 per cent of all dividends paid and only 4.2 per cent of all capital gains.

â€˜Capital gainâ€™ refers to any profits associated with an increase in the price of an asset; for example, shares rising from $1 to $3 or the value of an investment property rising from $200,000 to $400,000.

The fact that capital gains on the family home are tax-free is widely known, but there has been virtually no public debate about the 50 per cent tax discount that applies to all capital gains. That is, if the value of shares held by a stockbroker rise by $1 million, tax is payable on only $500,000 of the gain.

This 50 per cent capital gains concession costs the Commonwealth more than $7.8 billion per year in lost revenue and, because of the very uneven distribution of income described above, more than $3 billion of that benefit goes straight to the wealthiest one per cent of the population.

The Australia Institute has recently suggested that a new tax rate of 50 per cent be applied to incomes over $1 million per year. At present, the top tax rate of 45 per cent kicks in at $180,000 and, while there is no doubt that people living on more than three times the average income are doing well, there is also no doubt that people earning $1.8 million, or even $18 million as is the case with some CEOs, have a much greater capacity to pay than those on $180,000.

Tax rates for high income earners were 75 per cent in the 1950s, 65 per cent in the 1970s and 50 per cent in the late 1980s. Bill Clinton raised taxes on the wealthy as soon as he became President of the US, and Barrack Obama has already announced he will do the same, even if Joe the Plumber doesnâ€™t like it. Kevin Rudd has declared that it is â€˜game overâ€™ for corporate excess; the question is will he put their money where his mouth is?

phildeerhound

Posted by phildeerhound 10/24/2008

After the war, in England the highest income tax rate reached - I believe - somewhere in the region of 19shillings and sixpence in the pound.

The way to deal with excessive executive wages is to tax incomes over one million dollars a year at a similar rate. In addition I would make the Australian assets of persons banking personal amounts over one million dollars American overseas liable to confiscation to the tune of any provable overseas amount

You do not need more than twenty thousand dollars a week(sic) to live on. Most people get by on a tiny fraction of that amount. Very few meals cost more than a few hundred, even with cognac in the gravy as well as the glass. We do not need, and cannot afford socially, to support this kind of wealth. Frankly I don't care if such people pull out and live in places like Dubai - if they want to live in a kingdom of sand good luck/riddance to them. If they want to live here they should learn to share. Australia does not want to be a feudal kingdom run covertly by selfish rich tyrants

The fairest method of redistributing wealth is death duties. Long ago in England it was realised that is really wasn't socially necessary for Bridehead's family to inherit the stately home. I would put death duties of 70% or more on all individual personal inheritances over three million, including property value, granting spouses a right to lifetime occupation but transferring title, where necessary, to the government so that it can be used as a national asset

Much of the vast fortunes of the wealthy originally came from slavery and the repression of peoples. I think it is fair that after a few generations of holding their ill-gotten gains the rich families hand most of it back over the course of a decade or two.

The existence and operation of unacceptable levels of Wealth is the worlds biggest global problem. It mounts coups and destabilises government to protect minority privelege. It buys and corrupts elections and disempowers democracy. Remember Allende!

There is no trickle down effect - that is a lie as big as any religious myth. Reasonable prosperity is one thing, excessive wealth is another

Most people don't have the first idea of how much is being earned by quite a large group of people, such as senior doctors and some lawyers. in all this kerfuffle about executive wages, how many people realise that partners in massive law firms worldwide often have take home pays exceeding 800K per year, and that there are sometimes over a hundred in one firm? How can you have a "justice" system on foundations of inequality like these? Such firms frequently remunerate their juniors quite badly - demanding unreasonable working hours that are tantamount to wage slavery.

The key to the current economic crisis is the instability caused by a class system that is out of control. I am glad to see GetUp grasping this truly disruptive and dangerous nettle. Capitalism can function (better) without an accompanying class system. Democracy cannot function (at all) with one. A true capitalist democracy would be one without a class system - in which anomalies of wealth accumulation were dealt with firmly through taxation and regulation

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Rob Emanuel

Posted by Rob Emanuel 10/24/2008

I don't mind people who are worth it making an income commensurate with their productivity. Which statement puts me well and truly at odds with you, Richard.

But I will agree with the obscenity of many CEO/Chairman packages. We won't talk about Meredith Hellicar until the court case is over.

My solution would be that they are on a much smaller fixed income, with bonuses for certain defined outcomes, whcih would also include socially desirable outcomes.

However, not even Pangloss could get that accepted in today's world.

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Michael O\'Connor

Posted by Michael O\'Connor 10/24/2008

The packages that some CEOs receive is obscene. In country such as Australia that promotes fairness and equity no one should receive more than $1million in pay per year, plus shares, company cars etc.

The other 3, 4, or 5 million that they get could be used to hire more people expand the comoany and provide more services.

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Robin

Posted by Robin 10/24/2008

The truly wealthy do not have to actually DO anything to get richer - especially in the USA. The interest they receive on a daily basis is so huge it is like a snowball running down a slope - it just gets bigger and bigger - way beyond what one human being could possibly spend or even keep track of.

Except for the odd exceptional philanthropist, the wealthy do not contribute to society anywhere near to the extent that they could. Many take the attitude that "anyone who doesn't do as well as me, is lazy or undeserving". Charity collectors and debt-collectors know that the wealthy (as a group) are the hardest to get money out of - especially if they consider the amounts involved to be "trivial" - or if they will not receive public recognition for their generosity.

Many of the wealthy do not understand that some people are disadvantaged during their lives - by ill-health, mis-fortune, poor education, discrimination, family responsibilities, or by just having a lower IQ.

Some of the wealthy could be classed as "sociopaths" or "psychopaths" as they have no empathy or concern for anyone but themselves. They will accept the obscene payouts - and laugh at those who are foolish enough to pay them.

Our Governments need to support and encourage (in practical ways) those who are struggling. Those who are incapable of coping should be provided with the basics to live a reasonable life. Those who are capable (but lazy or anti-social) should be put into labour-camps where they work for their food and clothing.

Those who are successful and very wealthy should contribute to projects which benefit society e.g. health, roads, water etc. I do not like the idea of their money just dissapearing into tax revenue or to pay for politicians super. They should get recognition for their positive contributions to society. If they try to hide their wealth and avoid contributing, that should be made public.

If I ever (by some unforseen event) become very wealthy, I would like to make that wealth work to improve society as a whole.

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Soapy11

Posted by Soapy11 10/24/2008

I would have to agree with both phildeerhound and Robin. We are here to help each other, not to take advantage of each other. But then, we've got politicians where common sense is as rare as hens teeth and is why the world is in so much strife today.

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martin Zakharov

Posted by martin Zakharov 10/24/2008

Markets will always benefit the most powerful players, which is why the rich and powerful have had a concerted campaign for the last 30 years to try and convince us that we would benefit from markets controlling everything. They knew they would win out, and many people are only realizing now how much they were sucked in. Remember Adam Smith's words. "Never trust a businessman, as he will alway act out of self-interest." Let's return to progressive tax. The more you earn, the higher the tax. The share at the bottom of your income will stay at the same rate, so you will still be better off than the people under you.

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Lil

Posted by Lil 10/25/2008

The powerful have institutionalised greed and they try to (and do) drive fear into the people so they (the people) buy into their propaganda (goods and services etc) and maintain the status quo - i.e. rich get richer and poor get poorer. The rich are in on the game and laughing all the way to the bank. If you think about the looming recession those with obscene amounts of money will hardly feel a thing - their losses (if any) will be like small change to them while the rest of the population will hurt.

The complex thing is that with things the way they are in the world at large it's going to take the will of so many people to change the system. I'm not saying that it can't be done, I'm saying that there's an aweful lot of awareness raising to do and people - at least in my experience - are generally pretty damn apathetic, they may rail against the way things are but don't actually do anything because it's all too overwhelming - or - they have other things to worry about and don't care that they're being done over, that democracy is being eroded from under our feet, that every day of their lives by people in powerful private and public positions make decisions that affect their lives.

There's always hope that things will improve... thank goodness for Get Up!

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Philip

Posted by Philip 12/8/2008

Communism is a system where MAN exploits man
Socialism is a system where man exploits MAN

Capitalism gives us both.

To simply attribute wealth to class has implications for those who work hard, take risks, build their businesses.

Under your definition, as soon as they start making any money, they should be punished and their hard work has, because of their money, now somehow changed them into targets and moved them into a different class.

The class magically associated with unearned wealth and all manner of implied negatives and also clearly at the cost of “working families” or “the man in the street”

Let me make an alternate proposal.

Legislate for maximum and minimum wages.
Legislate to outlaw all class distinctions
Legislate for the maximum size of any one home.
Legislate the cars that may be sold
Legislate the clothes that may be bought.
Legislate that there be a ratio maintained between the lowest and highest income.
Legislate who can do what job.
Legislate to dumb down education - sorry that has been happening for a long time and what fantastic results have we achieved. – No doubt all the other legislation suggested above will have similar glorious results.

Bertrand Russel said – The greatest challenge to any thinker is stating the problem in a way that will allow a solution.

The rhetoric on this subject, so far, has not one original thought, is filled with envy and points to previous punitive laws and systems that failed to achieve any meaningful change, other than to steal from some.

Fairness and justice must apply to rich and poor and no punitive system will ever result in any meaningful change or improvement.

We must ask better questions if we expect to make real progress.

For example : The tax issue for the super wealthy is not where solutions will be found, rather examine the issues around company tax ( or lack thereof ), double taxation agreements that enables huge corporations to do business without paying tax in this country.

Socialism and Communism has proven that Rules and Regulations will always benefit the rulers / law makers, at the cost of everybody else.

It has also shown that if productivity is punished, the mediocre rise to the top, innovation, progress and the brains responsible for it will depart.

Now you will tell me that this is not what you have in mind, that your ideas to punish the wealthy is different, that fairness is important, that you are only advocating what will be in everybody’s interest.

Please, please, please read a bit of history, educate yourself, get rid of the myopic, envious, ignorant, fingerpointing and learnt to ask better questions.

I am not my brothers keeper and nor should you be.

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