When to tax the Rich and when not to

There was a time when some humans developed the notion that all humans are created equal and that it is unjust for some to amass huge amounts of wealth while others grind their butts out. This notion gave birth to the idea of communism. However, the communists forgot that trees in a nearby forest are not all of equal height and that many humans are inherently lazy. Sans incentives and the need to grind their butts out, many humans would rather sit and fatten that area of their anatomy. The result was that bread lines became longer and longer until they became longer than the communist manifesto. The idea was therefore soon discarded into the trash can. Some political parties still call themselves communist but that is simply out of nostalgia. They neither mean it nor live by the philosophy any longer.

Capitalism thus marched across the world gloriously with the fond notion that if some individuals are allowed to grow exceptionally rich, it is good for business, and eventually prosperity for all would trickle down, bit by bit, as water does from a leaky jug. This gave birth to the notion of trickle down capitalism.

But, alas, humans, at least those blinded by greed, can be extremely exploitative, given the opportunity. Some have now invented a trickle up version of capitalism. They have invented systems so that it is not the case of water leaking down a jug but rather a case of a vampire sucking up the blood of the poor until they are snuffed out on homeless-street.

How does one distinguish a trickle down version of capitalism from a trickle up version? It is not all that difficult, if the average income of top one percent or ten percent (depending on choice of criterion) of population is rising while that of the bottom one or ten percent falls in real terms (adjusted for inflation) then it is a case of a trickle up economy. It happens when the income of those at the top keeps rising while average incomes do not. How can a trickle up economy come about? It is quite simple really when the taxation system, salary structure and printing of currency are in the hands of a few. It happens when share holders of a company have little say in deciding the pay packages of senior executives or when they have little say in how a public representative behaves soon after he is elected to office.

How does one know if a government is printing more money than necessary? Well, is there inflation of more than one or two percent around in your area? If it is then be sure that is what is happening although the guy controller up there called it something exotic like quantitative easing; and if a free floating currency is devaluing with respect to other countries.

Taxation: Whenever the issue of raising taxes on rich is considered in any country, arguments emerge that are for and against it. The fact of the matter is that there are times and countries where it is a good idea to do it as well as times and countries where it is detrimental. How does one determine which is which?

In order to ascertain if increasing or decreasing taxes of rich is called for, one needs to understand the trickle-up and trickle-down phenomenon. If it is found that the average income of top five percent in society has been increasing or decreasing over the past seven years (a reasonable time period to rule out temporary fluctuations) at the same rate as the overall average income in society, then the tax structure need not be changed. In case the income of top earners is falling at a faster rate than the average then a reduction in taxes of the rich may be called for rather than an increase. However, in case the income of top earners is rising at a rate that is faster than average income then an increase in taxes of the rich seems just, appropriate and useful for overall economic stability of a nation.

Welfare: Welfare measures including subsidies that help the poor are directed at the bottom earners of society, the bottom ten percent or at least the bottom five percent such as creation of shelters for the homeless. Here too, whenever the question of increasing welfare spending in any country is considered arguments emerge for and against it. Increasing such spending could cause an increase of debt or fiscal deficits and thus hurt the economy in both the short and long term. In order to understand when increasing or decreasing welfare spending is called for, one need only look at change of income of the bottom five percent over the past few years and compare it to change in average income across the entire spectrum over the same period. Incase income of the poor (adjusted for inflation of goods that matter to the poor such as food) is decreasing at a rate faster than overall average there is a desperate need to increase welfare spending. However, if income of the poor is increasing then perhaps a decrease in welfare spending may be considered.

If the income of poorer sections of society has been reducing over the past years while that of richer sections rising, this could be because of one of two reasons. Either the poor are becoming stupider and lazier than before while the rich cleverer and more hardworking or, the system is becoming more exploitative of the poor. It does not require more than common sense to realize that the reason for this imbalance can only be the latter. The exploitation and imbalance needs to be addressed on an urgent basis because whereas it may mean choice of home furnishing or size of the home for the rich, it implies the very life and death of poor and their children who are just as sweet as children of others or the choice of which homeless street to sleep on. The quickest way to address this imbalance and injustice is to increase taxes on richer sections of society and then using this revenue to assist the poor.

The world does not need communism but it does need justice and a move away from unfair inequalities, because it is the latter that has led to such extreme responses through human history as communism or severing the head of the queen from her torso when she suggested that people could eat cake when they ran out of bread.

The difference between working towards one’s self interest and greed are as clear as the differences between eating a meal for living or gluttony or even the difference between an enjoyable sexual intercourse and gruesome rape, especially when it involves immoral behavior such as exploiting the vulnerable. Both self-interest and greed are qualitative phenomenon as indeed all emotional experiences are but rational humans can distinguish easily between which is which. Those who try to confuse between the two are merely trying to hide their shame and guilt that greed provokes in the ensuing confusion. Whereas working for ones living leads to well being, greed leads to misery just as gluttony does. When practiced on a wide scale in a nation, it leads to a collapse of national economy

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