The newly-formed Finnish parliament has released their preliminary agenda and I found the tax increases and decreases interesting. Essentially, they are going to lower income taxes and to offset it, increase consumer taxes. This means that "user pays" and a lot of people think this is a good thing, as if you don't consume, you save.
However....
That isn't quite the case, is it? Because it depends on what you are buying now and whether it is a necessity or not. In general, the poorest side who are struggling to make ends meet, are buying what they need to buy, not what they want to buy. Whilst they could make savings still in some areas probably, as I mentioned, saving doesn't make you wealthy.
But, lets dive a little deeper with an example to illustrate the problems and how it increases the wealth gap even further. I am going to use round numbers to make things easier for me to explain, but they are just representative of the conditions.
Poor end earning €2500 today and (12%) in tax will pay €300, will have €2200 to spend. There are also other compulsory deductions for unemployment fees and the like - sot hey will likely get around 1800 to spend. The things they spend them on is rent food, utilities, phone etc. There isn't a lot (if anything) left over. They have to be very careful with their expenditures.
If we imagine that there taxes are instead 10%, they will be paying €250 in tax and after the other compulsory deductions, have 1850 to spend. An increase of €50. But if there is an average increase of 4% on goods and services, they will be spending €74 more a month on what they consume, leaving them 24€ worse off.
If we look at someone at the other end of the scale who earns 10,000 and pays 27%, they are paying €2700 in tax. If that drops to 25% - they will be paying €2500 in tax. An extra 200 in their pocket. After the deductions, they probably have around €6000 in their pocket. However, are they spending 6000 a month? It is unlikely. So, they are probably saving or investing some percentage of it anyway. Let's say 1000 a month - spending 5000.
However, what they consume is different too, because even though they might have more expensive tastes compared to the poorer person, they aren't going to be consuming a huge amount more just to survive. They have more "extras" in their monthly shopping basket. These are things that can be cut out, and increasing the taxes makes it more likely they will be. This means that someone at the high end of the scale, might get the extra 200, plus change their buying habits to consume less, leaving more for them to invest with.
Interestingly, they are also increasing the personal investing account from 50K to 100K in size, which doesn't affect the lower end of the earners at all. This is still a good move however, as it might encourage more people to take control of more of their trading wealth.
Most wealthy people don't actually spend that much and likely, are able to put an increasing amount of their wealth into generative investments the longer they live. At some point, they have enough stuff meaning that all they are really covering is their day to day lifestyle, that when you own your own home, car and all the rest, is not much more than the person earning the 2500 a month. This means that they can keep expanding their wealth, even while they are taking a decent holiday every year.
Income tax cuts favor the people who are earning the most, because they are well, earning the most. It is like if someone was going to give someone in my family their weight in gold, it would be me, not Smallsteps, because I weigh about 5x as much as she does. Income tax cuts are going to benefit the wealthy more, while consumer tax increases are going to have a far greater impact on the poor, even though they aren't consuming extravagantly.
Tax is interesting, because it is one of the few mechanisms that a government has to affect the economy and it has a very real impact on people. However, if instead of jigging these "end user" taxes they instead chased down the taxes of the corporations. The Corporate income tax in Finland is 20%, yet none of the companies pay that amount, with most likely coming in at around half that. Claw back that tax, and there would be far less need for taking individuals more. And interestingly, the profits of the companies would go down significantly, meaning that they wouldn't be as lucrative and there would be more risk for investors.
Like it or not, for now at least, we likely have to pay our taxes. However, we should all realize that unless we are in the wealthiest sectors of the economy, very few government decisions are made to favor us. Instead, they are made to extract as much as they can until we have nothing left at all.
"You'll own nothing and be happy"
We'll own nothing - and be slaves.
At least we won't have to worry about taxes on what we earn.
Taraz
[ Gen1: Hive ]
