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Commentary :: Social Welfare
Seven Good Reasons for a More Just Tax Policy
11 Nov 2013
In the US, the top tax rate was over 70% from 1938 to 1982 Reagan cut the top rate to 35% and changed taxation from corporate to individual leading to exploding inequality and generalized insecurity. Raising the tax on the super-rich would partially reduce the unjust inequality through redistribution.

By Patrick Schreiner

[This article published on September 13, 2013 is translated from the German on the Internet,]

For weeks and months, the propaganda machine of the neoliberal and conservative media has been obsessively intent on proving no higher taxes are needed. The Left Party (Die Linke), the Greens and the SPD who in their election platforms call on high profits, incomes and assets to finance the community more strongly in the future are openly criticized. In the following, the seven most important reasons for higher taxes on massive profits, incomes and assets will be briefly summarized.

Contrary to the propaganda, there are good reasons for higher taxes on mammoth incomes, profits and assets:

1. The public budgets have suffered under the tax cuts of the last years. Through the tax cuts after 1998, the public budgets of the country, states and communities in Germany have suffered a shortfall in revenue every year between 30 and 55 billion euros [1]. The tax cuts under the Kohl government (before 1998) are not even considered. All this has massively contributed to the financial misery in Germany.

2. The rich and super-rich profit especially from the tax cuts. Since the 1970s, there has been a clear tendency [2] to raise taxes on medium and low incomes while lowering taxes on high incomes, profits and assets. Comparing the years 1992 and 2005, the tax burden of the richest 0.0001 percent declined 27 percent. The tax burden of the richest 50 households in Germany even fell 34 percent. The tax strain on the richest ten percent on average has remained the same while the burden on the lower 90 percent has risen. This is very clear in the lower and medium brackets.

3. Tax policy must fight against inequality in income and assets. In Germany, the distribution of income and assets has become increasingly unequal in the last decades [3] – on account of the tax policy described under point 2. In addition employees have sustained drastic real wage losses since 2000 with the German low wage sector becoming one of the largest in Europe. On the other side, capital incomes and corporate profits have absolutely exploded since the 1970s [4]. This is similarly true with assets. In Germany, the lower 60 percent of the population had only 2.8 percent of the assets in 2007 while the top ten percent possessed 61 percent of the assets. The richest one percent of the population alone had 23 percent of the assets. Higher taxes on mammoth incomes, profits and assets could help partially reduce this unjust inequality through redistribution.

4. The public budgets hardly include excessive expenditures. The opposite is true. Germany employs fewer persons in public service than most other industrial states (only 14 percent of employees – while they are nearly 35 percent in Norway and still nearly 20 percent in Great Britain). In the last years before the crisis, Germany had the lowest spending increase of all industrial states (except for Japan). Corrected for inflation, public spending even declined in Germany. Low public expenditures endanger the efficiency of public institutions and the future of this society. They are jointly responsible for the following fifth point.

5. In Germany, an enormous investment need accumulated because too little was invested for decades [5]. Public transportation is one example. In 2011 the investment backlog amounted to 100 billion euros. This backlog will probably not be reduced in the future. According to their own statements, 76 percent of communities and 59 percent of districts cannot make the necessary investments. Education is another example. 56 billion euros of additional spending is necessary annually to raise expenditures for education (kindergartens, schools, universities, continuing education) to a level befitting an “education republic.” One-time expenditures of 45 billion euros could repair the investment backlog for the education infrastructure.

6. The debt brake forces balanced budgets. The debt brake is reality even if it is economically misguided and fatal [6] and should be abolished (together with the European Fiscal Pact). Without additional revenues, more spending cuts could be provoked – intensifying the crisis in Europe, social inequality and the investment backlog and limiting the capacities of public services.

7. In Germany, taxes on assets are comparatively very low. Massive assets and inheritances are hardly touched compared with other industrial countries and with earlier decades. In 1990, the share of property taxes in the total tax revenue in Germany was 3.5 percent and today is hardly more than two percent. In the US and Great Britain, it is more than twelve and eight percent in France and Switzerland.

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