Middle classes are subsidizing the rich

THE current financial crisis has brought to the surface the inequality between rich and poor which has grown to unsustainable levels.

Even some of the world’s wealthiest entrepreneurs like Warren Buffet have admitted the present system is unfair and damaging to society, yet Governments continue to ignore the problem.

Despite the Arab Spring, Los Indignados, social unrest, increased poverty and an increasing number of suicides, political leaders have failed to see the writing on the wall, or if they have, choose to ignore it, bowing to pressure and lobbying from an ever more powerful financial sector that operates on a global scale without regulation.

The too often, close ties between politicians, bankers and businessmen has also led to a huge increase in corruption, which is destroying the fabric of our societies.

While the banks are being bailed out and the super rich 1 per cent of the population continues to increase earnings and bonuses, the austerity measures imposed by European Governments are directed at the middle and poorer classes reducing their ability to spend.

Leading economists criticise the moves which they say can only lead to economic suicide.

But whenever Governments propose to increase taxes on top earners, bankers and corporate bosses threaten to move to greener pastures and take jobs with them. It is time for Europe’s leaders to call their bluff and introduce measures to harmonize taxes.

As the present attempts to introduce the Tobin Tax on financial transactions have demonstrated it will not be an easy task. The fact is that the middle and poorer classes cannot continue to subsidize the rich.

No democratic society can prosper when a tiny percentage of the population grows increasingly wealthy at the expense of the majority.

And the recession has demonstrated that much of the wealth comes not from talent, hard work or performance, but through tax avoidance (legal), tax evasion (illegal) and cronyism.

Boardrooms of major quoted corporations act like private clubs where members award each other oversized remuneration packages out of shareholders’ funds that bear no relation to their jobs or performance and too often receive stock options, bonuses, pensions and severance pay for failure.

Taxation has usually been the method used to create a more equal society. But as banking, corporate, sport and entertainment earnings have escalated out of all proportion, so have the means to avoid paying taxes. The more people earn the more they want to protect their wealth.

Wealth management – code name for tax avoidance – has become a major industry thanks to Governments granting special treatment for the privileged elite by allowing the financial services industry to invent all kinds of tax avoidance schemes. The time has come to level the tax playing field.

A simple way to reform the tax regimes is to abolish the avoidance schemes. The crisis has already forced several European Governments to remove many of the tax breaks, which are illogical and unjust.

What is the point of Governments bringing in tax laws aimed at higher earners when they allow them to avoid paying by granting so many tax favours? But the greatest obstacle to reforming the tax systems is the use of tax havens. It needs the support of European and American Governments to clamp down on offshore banks and companies to recover the billions of untaxed corporate and private funds as well as the proceeds of organised crime.

Oxfam has estimated that poor countries lose as much as $50 billion dollars each year to the tax havens and according to the Tax Justice Network Organisation they hold over $11 trillion and handle 60 per cent of global trade, more than enough to end the world’s economic and social problems.

Under European tax rules discriminatory measures are not supposed to be allowed but somehow the rich manage to get away with special treatment. One of the worst abuses of tax subsidies is the Common Agricultural Policy (CAP) which rewards Europe’s wealthiest landowners with millions of Euros each year.

Wealth Tax and inheritance taxes are anything but a tax on wealth. In the countries which implement these taxes the wealthy do not pay anywhere near the full amount due thanks to Governments granting them exemptions on their principal assets or allowing the use of offshore based companies to hide their assets.

The burden of tax thus falls on the property owning middle class leading to an increasingly divided society. In order to bring about a more equitable redistribution of wealth European Governments, most of which fix a minimum wage, should place a cap on excessive and unmerited earnings and level the tax playing field.

This is not only a moral requirement but an economic necessity because no economy can function without the spending power of the middle and poorer classes.

Over 2,500 years ago Confucius advised the rulers to cut taxation and limit their expenses in order to make the people more prosperous first. 

Today this advice is more relevant than ever when the future of our democratic societies is at stake.