How taxing the rich can help everyone

How taxing the rich can help everyone

These countries, like the UAE or Qatar, usually have another stable source of income, such as oil or other natural resources, from which they can cover the costs of development, education, healthcare, etc. They also rarely provide any social security except for their own citizens, who often do not need it .

This is the result of a mathematical modeling study carried out by a group of economists, including an American Nobel laureate. Joseph Stiglitz and was led by the Potsdam Institute for Climate Impact Research. “There is a lot of talk about taxing large individual wealth to reduce inequality. However, many policymakers remain skeptical that it might harm the economy,” says the lead author. Linus Mattauch from the Potsdam Institute for Climate Impact Research, Institute for New Economic Thought, University of Oxfordand the Technical University of Berlin.

“Capital invested in machines really serves productivity and thus general well-being. The rich could also transfer the tax burden to the poor by lowering wages. Taxing capital could therefore damage workers’ wealth. We therefore tested many assumptions, but our theoretical result holds true for all of them.”

According to a statement published by the Potsdam Institute for Climate Impact Research (PIK), revenues from taxing the rich must be invested in public infrastructure.

“Agriculture is complex, yes, but the results are pretty simple,” Mattauch says. “Interestingly, it turns out that actually taxing capital gains can serve social welfare as a whole, but only when done correctly.”

The most important thing is that the income from capital taxation must be invested in public infrastructure, which promotes general economic well-being. “When revenue from taxing the rich is used for better education or climate protection, the entire economy benefits,” says co-author and Nobel laureate Joseph Stiglitz of Columbia University in New York.

“However, if governments do not use the revenue for such investments, taxing capital can in the long run harm the economy and increase inequality,” Stiglitz noted.

The report further stated that governments should not be afraid to impose higher capital taxes on the very rich.

The tax rate must be adapted to the economy of each country. “In general, governments should not be afraid to impose higher capital taxes on the very rich,” says lead author Mattauch.

“The reason is that their saving behavior is very different from the middle class – they save for posterity, not for their own retirement. The saving behavior of the rich really drives wealth inequality.” Economists tested several realistic tax levels in their models.

“However, taxes that are too high would reduce too strongly the incentives to invest capital in factories, for example, if they are not easily replaceable with labor,” explains Mattauch. “Populist proposals to tax private capital would harm the economy and thus public welfare. It’s a delicate balance.” The research therefore shows a significant policy impact on reducing inequality, which has been mentioned but not confirmed Thomas Piketty‘s “Capital in the 21st Century”.

The views only apply in communities where people can generally fill machines. In developed economies, a self-service checkout in a supermarket can replace a human or a healthcare robot can sometimes partially replace a nurse. Automation is important because capital is invested in these machines. If these investments shrink due to capital taxation, productivity must be maintained with labor. This is an empirical uncertainty factor, especially as AI becomes more economically important and difficult to replace.

“The gap between the rich and the poor has grown significantly in large economies such as the US or China, recently also due to the COVID crisis,” says Ottmar Edenhoferco-author of the study and director of Global Commons and Climate Change at the Potsdam Institute and the Mercator Research Institute.

“This is mostly the enrichment of the rich, not the impoverishment of the poor. Yet in times of many crises, from the climate to the confrontations in Russia, to fluctuating energy and food prices, promoting social cohesion seems to be important. People need to stick together. , and in this regard, the growing wealth gap is a risk we may consider Worth the downsizing,” Edenhofer noted.

Source: The Nordic Page




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