February 1, 2023

Who Pays Wealth Tax: The Rich or the Poor?

Spain’s government is attempting to garnishment a wealth tax ostensibly to be “in solidarity with the poor. “

The Spanish government’s statement that it plans to expose a new “ solidarity tax” on the wealth of those exactly who possess over € 3 or more million has again brought to the fore the issue about taxes levied on wealth and capital.

The problem is not merely that the announcement is highly politicized in what is already, sobre facto, a preelection time period, nor that it could affect the fiscal autonomy associated with Madrid, Andalusia, and Galicia. (Let us recall these regions comprise eighteen million Spanish people; that is, nearly 38 percent of Spain’s total population. )

Neither must we all focus on the possible illegality or even unconstitutionality of the taxes due to its potentially confiscatory nature. Nor is the main question the fact that people have already paid taxes (for instance, private income tax) on their gathered wealth during the process of its development, and, at the time, in many cases, these types of taxes absorbed practically fifty percent the income of the current owners— the vast majority of whom are usually today older people and widows who, after a lifetime of work, saving, and sacrifice, are now “ rich” because they have got over € 3 mil.

Nor, to put it briefly, is the issue that our politicians have employed a certain demagogy rooted in the moral disease of envy and in antisocial and divisive class warfare and have then attempted to enhance and legitimize this demagogy semantically with the term “ solidarity tax. ” (Who could dare to not market solidarity? )

No . The main argument against any tax on the stock of accumulated wealth or capital is none of those people mentioned above, but the harm such a tax does to workers and, especially, the weakest, most vulnerable, and most disadvantaged among them. Employment, job high quality, and wage levels rely directly on the volume of prosperity and of capital wisely spent by its owners and provided to workers in the form of ever more sophisticated machinery, manufacturing plants, natural resources, personal computer equipment, etc .

In a market economy, wages tend to be determined by the efficiency of each worker, and a constant, sustainable rise in productivity may take place only if there is an progressively large and sophisticated set of capital goods available to every worker.

If an Indian farmer earns only three euros each day, and an American farmer earns a hundred times that quantity, the cause is not that the United states worker is smarter or even works more hours. It is merely that, on average, he or she loves the use of one hundred times as much capital equipment (for instance, a powerful, state-of-the-art tractor most abundant in modern accessories) as the Indian counterpart (who lacks this particular sophisticated equipment and is frequently obliged to go on plowing along with animals and harvesting virtually by hand). And the big difference in their wages derives from your fact that, with a cutting-edge tractor, the American farmer can plow an area one hundred occasions larger than the one the Indian farmer can plow with his or her rudimentary tools. But the cutting-edge tractor has been made possible only because many capitalists have accumulated prosperity and capital and produced them available to the American farmer in the form of tractors, that are simply sophisticated capital products that dramatically increase productivity and, thus, the income of the fortunate worker.

This reasoning amounts up one of the most important theories of economic science and illustrates the perennial part of great popular wisdom that poor people do not so much need to be given a fish, which would satisfy their immediate craving for food, but a fishing rod (that is, a capital good), which would solve their hunger problem once and for all. Here, once again, science proves the best antidote to partisan demagogy.

If, for example , who owns Zara, Amancio Ortega has a fortune of € 60 billion, it would do not good to expropriate the entire quantity and distribute it, state, among the two billion people who are, relatively speaking, the poorest in the world. Each person would receive a mere thirty euros, however the cost of this poverty-generating behave would be heavy, since it would require the disappearance, liquidation, and closing of this recognized capitalist’s countless factories, facilities, and buildings, which, quite fortunately for his thousands of employees and millions of customers, continue daily to generate wealth and well-being far and wide, and therefore to boost the productivity plus wages of many.

Therefore , if we wish to battle poverty and promote prosperity— particularly the prosperity of those along with lower wages— we must deal with all taxpayers with great care, especially the “ rich” ones, by supporting them in their accumulation of wealth and avoiding any persecution or even social condemnation.

In short, any tax levied on the accumulation of prosperity or capital, such as the existing wealth tax or the announced “ solidarity” tax, constantly ends up exerting a dangerous impact on workers, particularly the the majority of vulnerable in relative terms, who would benefit the most from an increase in their productivity when they had more and better funds equipment.

Moreover, it makes no difference whether or not capital or wealth is usually comprised, as is most common, associated with securities, investment funds, financial institution deposits, or real estate, since all of these represent an entire constellation of specific capital tools that invariably requires the collaboration of labor, raises employment and the quality associated with labor, and, above all, allows rises in workers’ efficiency and, as a result, in their wages.

And in comparison, a tax like the 1 announced— a 3. 5 percent tax on “ large fortunes” — would, in under ten years, and by simple arithmetic, result in a reduction of more than one-third of the capital that could have already been accumulated in the absence of this kind of wealth tax. And in turn, this reduction would generate the accompanying decrease in productivity and real wages with respect to their potential level. Hence, we have to conclude that wealth taxes are always ultimately paid— plus handsomely— by workers, and therefore are harmful and, above all, these are the antithesis of solidarity towards the poorest and most susceptible.

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