Super taxes on the West’s wealthiest may destroy recovery from the Euro-crisis, writes Clem Chambers, the CEO of global investors’ site ADVFN.com and author of the Amazon best-seller, ‘101 Ways to Pick Stock Market Winners’.
If a government doesn’t like something, it will tax it. Tobacco and CO2 emissions, for instance.
CO2 carbon taxes are clever because the tax that’s collected can then be used to subsidise what we do want, which is sustainable energy.
So a tax on coal could become a subsidy on windmills, resulting in less coal and more wind power.
That’s the symmetry of the idea.
The flip-side is a government subsidises what it wants more of.
If you want more sugar, you subsidise farmers to grow more sugar. If the subsidies are large enough pretty soon you get a sugar mountain.
Europe was the master of farming subsidies and created many a mountain of food by subsidising its production.
It’s a simple dynamic and universal economic tool – tax what you want less of, subsidise what you want more of. You can have more butter and more art whilst reducing CO2 emissions and tobacco-related deaths.
It’s up to each government to apply the correct incentive or disincentive and fund accordingly.
Yet here in the West we now find ourselves in an awkward bind. There is not enough money to fund governments.
According to those in power (on both sides of the Atlantic) one of the keys to the solution is to tax the rich, whilst continuing to subsidise the poor. Meanwhile, governments are struggling, nowhere near to balancing budgets. Recovery remains out of sight.
President Hollande’s new 75% tax regime on France’s wealthy citizens is most likely the beginning of a new wave in the West. It’s an attempt to continue to subsidise the poor at current levels whilst punishing the wealthy at levels tantamount to confiscation.
Confiscation of gains, when they are considered above the socially acceptable level is, of course, nothing new. Even within the last 50 years or so it was common practice.
The 70s were packed out with ‘super-taxes’. The wealth destruction they inflicted on Europe was colossal and poorly remembered. Confiscation has never been good tax policy. If a person smart enough to make such money can’t flee or avoid confiscation, they simply stop bothering. Who would blame them?
The sad thing is, the West has seen this all before. It signals there is still a further road of dislocation and recession ahead.
Unless Europe plans to erect barriers to exit, those most capable of rebuilding the developed world’s economies will simply head to Asia, where the barriers and penalties of success are so much lower.
The question governments need to ask is, do they want a shot at recovery and the return of the good times of the last 20 years? Or do they want to slog into a brave new world of a global realignment where the old ‘West’ seems as ossified and archaic as the Eastern bloc was before the fall of its bloated, all-consuming and outmoded state system.
It is a choice : either celebrate success or tax it into oblivion. If you subsidise equality and tax overachievement, essentially forbidding individuals to excel, then the median result is a sullen and grey, an environment which still lingers in countries like Russia today.
The West is not yet doing the equivalent of subsidising vodka, but at this rate, that day may come.