Should the rich be taxed more?

2014-02-24 22:26

The fact that the majority of wealthy people in South Africa are white remains uncontested. Archbishop Desmond Tutu once slammed white South Africans who had unfairly benefited from Apartheid, and that its impact was muddled with the erosion of self-esteem and the installation of ‘self-hate’ among many black South Africans.

The redistributive impact of taxes has been unnerving. South African can almost be classified as a high tax country but yet income inequality remains the highest in the world and instances of poor service delivery, corruption and maladministration remains prevalent.

We cannot completely rule out the fact that higher income groups undoubtedly play an important role in the economic development of the South African economy, in terms of where the wealth, savings, investment and skills are concentrated. We cannot, too discredit the fact that the under-declaration and evasion of taxable labour income is a major problem that is prevalent among many wealthy people. Even though the tax receipts of the wealthy are significant, of the 45 000 people who earned more than R2.4 million a year, still only about 17 000 paid their dues in 2012. Surely a lot can be done to raise tax revenue by ways of improving tax collection, compliance, simplicity and administrative capacity, reducing tax expenditures and relief on capital gains, and eliminating tax loopholes and harmonizing tax rates on different forms of capital to prevent income shifting than to impose higher tax rates on the small base who do pay their dues.

But while taxing the wealthy is politically acceptable, one also has to be cautious because of their economic significance. It would be indeed better to “soak” instead of “squeeze” those wealthy people who generate positive externalities, like savings, investment, risk-taking, innovation and skills. A tax on accumulated savings can, however, be both beneficial and harmful to an economy. For one, any tax on saving translates into less incentive to accumulate capital and leads to a lower rate of investment and economic growth. On the other hand, as wealthy people become even more wealthy they would experience diminishing returns to capital and then have large, idle asset bases that are not productively deployed.

But raising taxes to a level that is unusually high for any emerging market economy and comparable to that of the developed world cannot be concomitant with the level of corruption, nepotism, unqualified appointments, maladministration, irregular procurement processes, irregular and wasteful expenditure, and poor service delivery. Creating social cohesion necessitates not higher tax rates on the wealthy but rather expenditure support and development programs that are targeted at the poor and various measures that increase income tax progressivity, for example, by reducing tax expenditures and relief that favour the wealthy but does not discourage saving and investment, eliminating tax loopholes for income shifting opportunities, and improving tax collection and administrative capacity.

A system of expropriation from the wealthy to the poor when there is an unacceptable level of corruption and poor service delivery, whether the objective is to reduce income inequality or to raise additional tax revenue, is disheartening and fruitless. Even though a relatively higher tax rate on wealthy people is politically and socially acceptable, we cannot expect to make the poor well off by making the rich worse off.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.
NEXT ON NEWS24X

AB praises selfless skipper

2010-11-21 18:15

Inside News24

 
/News
 

And the Paws24 and Hill's winners are ...

Find out who the winners of our Paws24 pet pics and Q&a competitions are...

 

Paws

Keep your family and pets safe from rabies
5 scientific benefits of owning a cat
Why we love cats
8 great natural remedies for your pet
Traffic Alerts
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.