Time to end the obsession with over-taxing the rich: Woode-Smith

Time to end the obsession with over-taxing the rich: Woode-Smith

The global obsession with taxing the super-rich distracts from practical solutions
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The global obsession with taxing the super-rich distracts from practical solutions to drive economic growth and uplift society. Nicholas Woode-Smith critiques the G20's push for standardized billionaire taxes, arguing these measures are ineffective and burden the middle class instead. True development lies in creating jobs, expanding the taxpayer base, and fostering free-market policies—not ideological pursuits of wealth redistribution. Woode-Smith challenges conventional tax policies with compelling economic reasoning.

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By Nicholas Woode-Smith*

The obsession with taxing the super-rich and raising taxes on the wealthy is a naïve and overly simplistic notion that holds back our ability to genuinely figure out ways to increase tax revenue and economic growth for the betterment of the majority of society.

The idea of trying to increase the tax compliance of the super-rich, and raise tax rates on the wealthy in general, has been incredibly popular for decades, with the G20 proposing a blueprint recently for a global coordinated effort to standardise tax on "ultra-high-net-worth individuals". But this proposal means very little in practicality.

If nations struggle to tax billionaires because they have the resources to avoid effective taxation, no amount of ideological pontificating about the tax obligations of the super-rich will make any difference. Rather, efforts to establish global taxation infrastructure will be used to exploit the growing middle-class, and stifle economic growth in mostly developing countries.

Even if capacity of enforcement agencies is increased and a concerted effort is made to attempt to enforce compliance, the wealth of these super-rich individuals enables them to escape the bulk of their tax obligations. This means that while the costs of building these tax enforcement agencies grows, their ability to extract revenue is limited. Their cost will be thrust upon the middle-class, who have the wealth to pay taxes, but not at such a level that they can avoid it effectively.

Increased taxation is not what countries like South Africa need. We need economic growth that will produce jobs and create more taxpayers. Taxing many individuals a low tax-rate is far more workable than chasing after well-resourced individuals and trying to take exorbitant amounts from them.

What is easier? Taxing a single, well-resourced individual a million Rand? An amount they will use anything at their disposal to avoid paying. Or: embracing policies that lead to a million South Africans being able to buy more products that provide VAT, and pay smaller individual tax, that all adds up at the end of the day.

Additionally, ensuring that more and more workers become eligible for tax means that more and more individuals are producing enough wealth to uplift their economic positions; an indicator that a country is truly developing. Their growing economic positions further enables them to support the growing economy that then produces more tax revenue.

As an aside, further demanding increases on taxes of the wealthy originates in the fact that many socialist-leaning pundits don't understand how percentages work. The wealthy already pay more tax by virtue of earning more money. A person who earns R10,000 a month and a person who earns R100,000 are paying drastically different taxes, even if they are both taxed at 10%. That's just how percentages work. It's basic mathematics that many ideologues on the left don't seem to understand.

On top of this, most democracies, including South Africa, already having a sliding scale where those who earn more pay a higher percentage in tax. So, not only are high-income earners already paying a larger amount by virtue of simple maths, but they also have to pay an even larger proportion of their hard-earned wealth. No wonder so many people try their utmost to avoid and evade tax. They are being punished for earning more money and this is unacceptable.

Ideologies of demanding tax on the wealthy in an effort to increase equality are, frankly, brain dead. Equality means nothing compared to practical economic growth, and uplifting people from poverty. We shouldn't care how many people are billionaires, so long as more and more people are being pulled out of poverty.

The G20 and many policy-makers obsession with inequality holds us back from working towards real solutions that fight against poverty and unemployment. Not only is the G20's tax proposal unworkable and rife with bureaucratic nightmares, but its entire ideological backing is also flawed.

We need to end this fairy tale of solving all the world's problems through chasing white whale taxpayers. Rather, we must work to implement free market policies that enable the creation of many taxpayers, and we will accomplish far more than further raising a tax rate on a stratum of people who have all the ability in the world to avoid payment.

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*Nicholas Woode-Smith is an economic historian, political analyst and author of over twenty books. He is a senior associate of the Free Market Foundation and writes in his personal capacity.

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