Debunking the myths of left-wing economic theory

By Isaac H

"Money" by CJ Isherwood

“Tax the rich” - a statement the left constantly use when the question of how they intend on funding their extraordinary spending plans. Cutting tuition fees? Tax the rich. Increasing investment in public services such as the NHS? Tax the rich. The problems with modern day socialism stems from this fatally flawed ideology which has undoubtedly been responsible for the collapse and demise of left-wing states and the diminished standards that the populations of these countries have to tolerate as a result.

 

The fundamental flaw with this concept of taxing the rich of which socialists even today seem incapable of recognising can be observed with the 'Laffer Curve’:

As the graph displays, the increase of tax rate upon almost anything will create revenue, up to a point (at around 50%). After this point, the total revenue collected will start to decline. The principle is at the two extremes of 0% and 100% no tax - or at least a negligible amount - will be collected. The major impacts of a tax rate that is too high as a result of ‘taxing the rich’ would be:

  • Increased tax evasion: if the rate of tax is too high, people will be incentivised to find illegal methods of preventing said income of being taxed. Therefore, as opposed to the increased tax demand of around 50% or over, the Government will receive even less revenue that when the tax rate was lower.
  • The ‘Brain Drain’: as opposed to living in places of such high taxation, those on a high income and skill will be incentivised to leave the country and permanently relocate to seek better rates of tax abroad. Again, this results in even less tax being paid. However, in many cases, this hypothetical higher income individual will likely own a business within the country they are leaving and will be forced to liquidate before moving. This will have an immediate impact on the livelihoods of the lower income individuals working for them and their families which displays the impact ‘taxing the rich’ has on the working classes.
  • The impact on the working classes: depending on what is being taxed, the high rates of taxation result in hard working and highly skilled individuals no longer seeking employment as the welfare state offers better financial incentives than an industry with a ludicrously high rate of taxation.

 

One of the examples of this disastrous policy of high taxation of those on a higher level of income in the UK would be Labour Party ‘hero’ Harold Wilson. Under his management, the income tax on top earners reached 83%. Is it any wonder - factoring in the aforementioned problems of a high rate of tax - that during his tenure as Prime Minister, the unemployment rate became a major national issue reaching one million by 1975? It is from these vital lessons in history that we must support lower rates of tax to fuel industry and economic growth. High rates of tax do not ‘punish the rich’ or ‘make society fairer’ as those on the left would have you believe. Those truly hurt by high tax rates are the working classes, who need jobs and regular income to live, not to shamelessly persecute those on a higher level of income.

 

“Can people tax themselves into prosperity? Can a man stand in a bucket and lift himself up by the handle?” - Winston Churchill


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