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Tanrack
 
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Implications of wealth tax

23 August 2011, 15:01  - Tanrack

Let us examine the implications of a wealth tax. Let us first define what wealth means. The one definition of wealth that I like is the people who pay the salary of rich people. In the context of a wealth tax I am going to assume that the term is more liberal and includes salary earners as well as business owners and farmers, basically anybody with a turnover of X per year in taxable income.

Let us look at three taxable starting points, R290 001 and R525 001 and R1m. This represents lower to upper middle class salary points. The individual on R290 001 will pay R67 260 income tax, the individual on R525 001 will pay R152 960 and the individual on R1m will pay R342 959. First think to note that the jump in salary from the first to the second bracket is an 81% increase in income and a 127% increase in income tax. The second jump is an increase of 124% tax on a 90% Salary increase. From this it is clear that the “wealthy” already pay wealth tax by way of a bigger tax percentage on their earnings.

That leads me to the second effect of the new proposed taxes. Salary earners have a fixed income with which to cover expenses and luxuries. Expense will be anything from a bond or rent to utilities bill and groceries where the luxuries will include things like takeaways, restaurant s domestic workers, gardeners and away holidays. With an increased burden the first things to go will be luxuries from the more expensive to the least expensive, domestic workers, gardeners, away holidays etc.

That leads me to the third effect of the proposed tax. It will be taking from the previously disadvantaged and giving it to whom exactly? Some people may be able to keep these luxuries others won’t and the people who will get punished most out of this are the very people that they supposedly want to introduce the tax for.

Aside from the easily measurable contribution of salary earners the real rich and wealthy contribute in a much larger scale. Most if not all of them will have businesses that employs people. Every time they buy an expensive car they pay wealth tax, every time they drive it around they pay wealth tax, almost everything they do in luxuries contributes huge sums of cash in wealth tax. Depending on how important their lifestyle is a reshuffle in their financial affairs can have an impact on a lot more people than with salary earners.

Ultimately the net result is that most if not all additional tax will lead to taking money away from something expendable in the life of the taxed in order to apply it somewhere else. These people’s income won’t magically increase with the increased burden. Increase the burden enough and you will slowly destroy the taxed to the point where the income tax base will collapse.

I know some will rejoice in the destruction of the middle class, the rich and wealthy. This celebration will be short lived however when they realise that this will also be the death of free RDP houses, free electricity, free water, free healthcare, social grants, government pension and any other free service the government currently provides.

In closing, consider very carefully the possible impact of a white tax(how sensible is it to try and support 40 million on the contribution of two million), a wealth tax and a general increate in burden on the taxpayer. The taxpayer is a very important part of our economy and without “those who benefited from apartheid” those who currently benefit from current policies (also benefitting from apartheid) won’t have anything to benefit from.

I would suggest that those who want something better in life learn from those that have something better in life how they got that something. It is not as simple as apartheid gave it to them, cut through that and see what they did with what they had to get where they are now, adopt it, improve it and prosper from it as well.

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