Why Do the Poor Demand the Rich Pay More Tax, Rather Than They Pay Less?


by Stewart Cowen
http://www.realstreet.co.uk/2014/04/why-do-the-poor-demand-the-rich-pay-more-tax-rather-than-they-pay-less
Why Do the Poor Demand the Rich Pay More Tax, Rather Than They Pay Less?

The answer might seem obvious, that the more the rich pay the less the poor have to pay.

Let’s get one myth out of the way. The one which says that taxing the rich ever higher amounts leads to greater and greater tax being collected. When you keep increasing tax on the ‘rich’ your total tax take falls, because the seriously rich will live in another country or find another solution to escape the robbery.

The theory behind this surprising set of effects [i.e. lower
tax receipts from taxing the rich too much] is now associated with the name of US economist Arthur Laffer. The ‘Laffer Curve’ suggests that when governments initially start to raise tax revenues, they pull in greater and greater receipts. But as rates continue to climb, receipts start to level off until, eventually, further tax rises produce falling receipts. This is because there comes a time when, facing large tax bills, people simply stop bothering to work, or move into the black economy, or go abroad, or lie about their income, or employ expensive accountants to help them avoid the tax.

What the poor and their supposed representatives in, for example, the Labour Party call for is punitive taxes on those they perceive to be rich, which would have the effect of increasing the tax burden on the poor.

Consider how much tax the poor actually pay. Those on very low wages and benefits won’t have to pay income tax, but depending on what they buy, they could be paying a very high tax rate.

In the days long ago when I was a very heavy drinker on benefits, I paid an enormous tax rate, as do drinkers today.

Both Westminster and Edinburgh governments want to impose a minimum price per unit for alcohol, citing ‘health’ as the concern. NHS Scotland states in its defence:

Research shows that people on a low income or who are living in deprived areas are more likely to suffer from a long term illness as a result of drinking too much . People who live in the most deprived areas of Scotland are six times more likely to die an alcohol-related death than those in the least deprived areas.

The poor drink more. Or if you weren’t poor to begin with, you will be eventually if you cannot stop drinking.

But to reiterate, the poor are encouraged to complain about the tax rates of the rich while conveniently being unaware of their own tax burden.

Just picking some of my old favourites and working out the total tax, these are the results (retail prices correct at time of writing):

Kronenbourg 1664: 20 x 275ml bottles – cheapest price £12.

Working out the total tax:

Alcohol duty is £18.74 per hectolitre (100 litres) for each percent of alcohol in the beer and Kronenbourg is 5% ABV:

£18.74 x 5 = £93.70 per 100 litres

20 x 275ml = 5.5 litres

So duty is 5.5% of £93.70 which is £5.15

There’s also the 20% VAT to take into account. You just divide the total by 6 to get £2.00

So the total tax on this lager is £7.15, or 59.6% of the retail price.

I was a whisky lover too. The total tax on a 70cl bottle of Whyte & Mackay is £9.90 and by coincidence is also as low as £12. That’s a tax rate of 82.5%!

When times were really hard, I ended up on the strong white cider. I cannot find a price for the brands I used to drink, like “White Lightning”, but another choice of the serious drinker, though I rarely touched it, is the super-strength lagers. Perhaps the best known is Tennent’s Super. The tax on the price of £7.50 for 4 x 440ml cans works out at 57.5%.

Tennent's SuperIt is interesting that there is a large warning on these cans. People who buy this product aren’t, generally, ‘responsible’ drinkers. It appeals because it’s very strong lager and they have a disease called alcoholism. Can we expect alcohol packaging to go the same way as tobacco and have graphic pictures of diseased livers, hopeless drunks, young women throwing up, teenagers on life support and images of violence, such as a ‘glassed’ face stitched up?

The poor are most likely to drink to excess and consequently pay huge amounts of tax, but aren’t encouraged to complain. For a few years, I probably spent almost my entire benefit money on booze. Other expenses were supplemented by borrowing a few thousand from my parents while also making savings, such as practically freezing some winters. Of course, minimum pricing will plunge problem drinkers into even deeper poverty.

The poor are also more likely to smoke. According to Audit Scotland’s “Health Inequalities in Scotland” (pdf) report from December 2012,

Prevalence is around four times higher in the most deprived areas than in the least deprived areas. Around one in ten people in the least deprived areas smokes, compared with four in ten people in the most deprived areas.

Yet the total tax on cigarettes is 77% of the retail price; a figure which ASH agrees with exactly (pdf).

Without tax, cigarettes would cost around £2.00 for 20.

Then there’s the price of petrol and diesel,

British drivers pay a higher rate of tax on fuel than any other motorists in the European Union, according to a new study.

For every litre of unleaded petrol bought in the UK, 61 per cent of the pump price goes to the government as fuel duty and VAT along with 59 per cent of every litre of diesel.

Yet again, this disproportionately affects the poor. Even people without cars who rely on buses and taxis pay more because of this. Groceries cost more due to the high cost of deliveries.

The small town I live in has lost so many jobs that more and more people seem to commute to the region’s ‘capital’, Dumfries, every day, which is 70 miles away.

But if you hadn’t already worked it out, don’t expect the MPG you actually get with the manufacturer’s figure.

Fed up with relentlessly rising fuel prices, you’ve traded in that large, thirsty car for something smaller and more economical. However, the 60mpg suggested by the sticker in the showroom is turning out to be closer to 45mpg in the real world. Welcome to the Disgruntled Club – a growing body of people angered by what they see as misrepresentation of cars’ fuel economy.

The blame for inaccurate fuel figures largely rests with the European Union test that produces them.

Official fuel figures are obtained from a series of tests known as the New European Driving Cycle (NEDC). This is supposed to represent typical usage, though in reality it does nothing of the sort (see below for details of the NEDC test). It is conducted under laboratory conditions, and power-sapping electrical features which would increase fuel consumption remain switched off.

While the EU slams us with ‘green’ legislation and taxes, they mess up on such a simple environmental issue. Useless, aren’t they?

At £1.30 a litre for petrol (£5.91 per gallon), those 700 miles a week to and from work at, say, 50 MPG cost £82.74 of which £50.47 is tax. People are paying fifty pounds extra tax on already-taxed income just to get to work and back home.

Then there’s council tax, which isn’t related to income and the 20% VAT on almost everything you buy except for food, but you pay it on takeaways, so loved by the poor.

So the poor are being hammered left, right and centre with tax, but as if under hypnosis are oblivious to it, just as they probably don’t appreciate just how much of everybody’s taxes are frittered away unnecessarily.

They’re concentrating on the hypnotist’s watch….despise the rich….they’re the source of your poverty….carry on paying massive amounts of tax on your meagre income without noticing…

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21 responses to “Why Do the Poor Demand the Rich Pay More Tax, Rather Than They Pay Less?

  1. Indirect taxation is fairer.You choose whether or not to pay in that no one is compelled to drink alcohol,smoke,or drive.

    • True, but what about pensions, health care and education? I know the argument is that we should not be compelled to pay for things we do not use or want to use. Personally no tax and we should be free to save, insure, or not, for those three things. However, since we do pay taxes I agree with the post and the sentiments it purports.

    • They’re only “fairer” if you’re a housebound puritan.

  2. There is no evidence that high taxes on the rich lead to lower taxes on the poor. Indeed those areas of (for example) the United States that tax rich highly also tend to tax the poor highly.

    If one wants lower taxes on the poor then one should push for LOWER GOVERMENT SPENDING.

    Saying “the rich will pay” is just a dishonest distraction.

  3. Government schools have a very bad record in the U.K. and the United States.

    And (contrary to what is often claimed) the United States does NOT have free market heath care – the vast level of government intervention (for many decades – in both subsidies and regulations) is the primary reason for the explosion of health care costs.

    As for pensions – government pensions are not insurance schemes (there are no investments for the general population), they are more like chain letters or pyramid schemes.

    Ian……

    The one advantage I can think of general sales taxes over income taxes is that it is harder to pretend “we are only taxing the rich” (as if all taxes are not “passed on” – which they are).

    If there must be a tax it should be a general sales tax (not included in prices on the shelf) – so that everyone can see how much government costs, and voters can not be played off against each other.

    • The problem with sales taxes is that they are hidden.

      A personal income tax, billed annually (rather than deducted at source) is a good way of letting people know how much they’re paying the government to ruin their lives.

      • One of the problems with any income tax is that it involves an inquisition of our affairs. Customs duties and land taxes are much less intrusive.

        • True Sean. It depends on whether a libertarian is more interested in a tax which is minimally intrusive, or one which is maximally intrusive and thus annoys people into disliking taxation. Personal income tax fulfills the latter category; if someone is forced to write a hefty cheque, after giving the State numerous private details, that may make them resent the State more than a tax which is silently deducted on every purchase (for instance).

          If one is interested in the former (minimal intrusion) a land tax seems to me to be a good option. Although I don’t accept the Georgist economics, I must admit to being increasingly persuaded that, in a real world situation of governments which tax, it may be one of the “least worst” options in terms of liberty. The only information the State needs is a land registry, which it has always maintained anyway.

  4. Ian – they are not that hidden, and I did say “NOT included in the price on the shelf” – i.e. the American practice of charging the sales tax at the till (to remind you of the level of it). Sales taxes in States such as South Dakota have not really increased over the last 70 or 80 years, although the Texas Sales tax has gone from zero (in 1960) to 8% today.

    Sean – true, but import taxes run into the problem that Ian mentions (people do not know why prices are higher in the shops).

    A land tax can work well enough – as long as only land owners (indeed only substantial land owners) have the vote. If everyone has the vote – the dishonest tap dance of “we can spend on X – the landowners will pay” is tried.

    All taxes eventually hit everyone (they work their way through the economy) – but this is hidden from people.

    I agree that the income tax is the worst tax – for the reason Sean gives, i.e. the opportunities for petty tyranny (and not so petty tyranny) that it brings.

    The IRS has been used as a political weapon (against enemies of the Progressives) even since the day it was established.

    Although every new generation of people thinks they are the first people it was used on.

    The history books in their schools (and the television shows) do not tell them of the antics of previous Presidents.

    Any more than British history books and television programmes tell people much about the antics of British government against people of property.

    Although I would argue that the American IRS is more corrupt (and tyrannical) than the British Inland Revenue – but it is like trying to work out the order of precedence between a louse and a flea.

  5. Paul, I think as libertarians it’s fairly obvious from the history that, particularly in the USA, the “progressive income tax” was always intended primarily as a political weapon.

  6. So the Classical Liberals warned Ian.

    But according to the Hollywood view of history (do not laugh – that is the view of history that children are taught – and university students also) the “Progressive” income tax is a noble way of making “the rich pay their fair share”.

  7. Julie near Chicago

    Paul … My turn to disagree with you…. :( :

    You want a say in govt? Then you help to fund govt. (We’ll pretend for the sake of the argument that this requires taxation, even though it doesn’t.)

    So when only the substantial landowners pay taxes, only the substantial landowners will have (legitimate*) political power. I don’t know about you Brits, but I have no great wish to be ruled by a consortium composed of the Kennedy’s, the Heinz-Kerry’s**, and suchlike landed riffraff.

    *Messrs. L. Farrakhan and J. Jackson, for instance, have political power, but it ain’t what you’d call “legit.”

    **It’s perfectly true that I don’t know how much land (if any) T. Ketchup and her hubby own. But just for the sake of the argument, let’s pretend it’s as much as it probably is. :>)

  8. I used to smoke and drink. But that’s more than 30 years ago.Today it would cost me nearly £200 a week at my old rate of consumption.

    God knows how I’d manage it today, but then, I would almost certainly have died 20 years ago.

  9. Pingback: Why Do the Poor Demand the Rich Pay More Tax, Rather Than They Pay Less? | Gradegood

  10. Julie – did I say I was in favour of a land tax? I am not.

    However, do not reject the idea too quickly – back when American voting (in some States) was tired to payment of the land tax, some women had the vote.

    Of course it has gone down the “memory hole” – but before the Democratic changes in places such as New Jersey (led by the followers of Jefferson) any land owner could vote – including female land owners.

    Indeed it was one of the complaints of the democrats (or Democratic Republicans as they were then) that “any land owner can vote” allowed (horror of horrors) even some women (and even some blacks) to vote.

    As for modern New Jersey – I believe it has the highest property taxes in the United States.

    If everyone has the vote then everyone (not just land owners) must pay tax.

    And a general sales tax – NOT reflected on the shelf, but paid at the checkout (as separate sum) is the most obvious way of getting everyone to pay, and allowing them to know how much they are paying.

    Still all the above is of secondary importance.

    What is of Primary importance is the reduction of government SPENDING.

  11. Julie near Chicago

    Paul, of COURSE you don’t advocate a land tax. I know that! (And I surely didn’t mean to attack you in any way. When I wrote “You want a say in govt.?” I was addressing Mr. & Mrs. Citizen, not You-Paul-Marks, and I apologize for not making that clearer.)

    But you did write this:

    “A land tax can work well enough – as long as only land owners (indeed only substantial land owners) have the vote.”

    .

    And that can only work if the owners of substantial amounts of land are bright as heck, extremely knowledgeable about history, moral and political philosophy, and the art of politics. Otherwise we get the same old same-old corruption; and alas, as has been pointed out by persons smarter than I, “if men [including landowners] were angels, no govt. would be necessary.”

    Really, there’s no way to square the circle of taxation. But while a landowners’ tax might have been best when the land was owned by Messrs. Washington and Jefferson, I just don’t think it’s the best way with Mr. Ketchup & the K’s in the mix. Prof. Epstein likes the Sales Tax best, but even if it were possible to abolish all forms of income tax and capital gains taxes first, the idea gives me hives because it’s going to come down to a VAT, unless there are all sorts of intrusions to see that people who are buying stuff in order to re-sell it (either as wholesalers or after “adding value” by processing it somehow in manufacturing) really do use what they buy that way. As it is, when I was trying to pose as an artist, briefly (ha ha ha, that worked out well!) I discovered that if I made a beaded objet d’art and put it out for sale, I didn’t have to pay tax on the beads, frame, etc., but if instead I kept the sucker for myself I was supposed to pay sales tax on it at whatever it would have been priced at if it had been for sale to somebody else. This comes up in tailoring,, too–did you really make the whole bolt into dresses to sell in the shop, or did you cut a hunk off to make yourself a skirt? Or in the baking business. You SURE you used all that salt in the peanut-butter cookies? NONE of it found its way into your table salt-shaker?

    So, Prof. Epstein, being a fairly intelligent guy, thinks the Sales Tax won’t fly politically, and is therefore in favor of a so-called (because of course it isn’t) Flat Tax, where everybody pays the same percentage of income. I don’t remember if he specified it, but I too think it ought to be collected once per year, and directly from the payee. Of course you (by “you” I mean the IRS) will still be collecting payroll figures from all employers, and the bureaucracy to ensure that neither the employers nor the employees are cheating, keeping double books, issuing kickbacks, etc…. :(

  12. A flat (percentage – not poll) tax would be vastly superior to what the United States (and Britain) have now Julie.

    However, even a flat rate income tax can be used for political purposes – Mr Putin has a flat tax, but it just so happens that his enemies have never paid the correct amount……..

    By “substantial” land what I meant (and should have said) is “enough to pay real tax on”.

    Also I was showing my age……

    As my old mate Aristotle (we use to go the tavern together – although Sean had to do the translating for me) used to say – democracy (although he never used the word “democracy” in this context – reserving it for mob rule) can work, if most voters are farmers (not the city mob out for benefits from the public treasury).

    In these days of massive farming subsidies what Aristotle was saying sounds a bit weird – but before the modern era owner farmers (Yeomen as well as Gentry – knights of the shires) were known for their sturdy independence.

    As (I believe) farmers are still known in New Zealand.

    By the way – the time of American farmers will come again.

    The soil (and the growing season) in places such as Alabama is still basically O.K. and the land tax is not high (the government being contained by one of the longest and most detailed Constitutions on Earth – the work of truly paranoid minds. paranoia being the correct frame of mind to compose a Constitution).

    The time may come again (as it did in the 1930s) when local academics teach Greek in return for food.

    Let us hope that Alabama farmers still want to learn Classical Greek.

  13. Julie near Chicago

    Well, at least some of our farmers used to be independent. (I don’t think Grandpa signed up for Soil Bank.) And you probably won’t believe this, but when there was something that needed doing that affected neighbouring farms, the farmers would sometimes get together and handle it themselves. Like putting in drainage systems to help with the wet spots they all had to contend with.

    I mean, they did it themselves! Can you imagine! Didn’t even get help from the county! Next thing you know people will be saying you don’t need the Gov to build a barn….

    The next time you and Ari go out for — come to think of it, for what? Mead or perhaps ale for you, ouzo or retsina for Mr. Stotle? (I have no idea what Sean would like. Perhaps some porter?) Anyway, then no one will mind if I have hot hot hot dark smoky tarry coffee. Eclecticism is all the rage nowadays, no? Anyway, I want to come too. :>)

  14. Julie near Chicago

    Not to lower the tone of this cheerful badinage, but yes, there was a time when (some) women had the vote (in the more enlightened jurisdictions anyway), and also owned and ran farms (yes, landowners, just as you say) and other businesses. Also, I believe that in the late 1800’s and early 1900’s there were more female than male doctors.

    I wish the historians and the feminists would get their history straight.

  15. Julie it is hard (very hard) to turn down subsidies when everyone around you is accepting them. Especially when all the government regulations apply to you – whether you take the money or not.

    This does not just destroy the independence of farmers.

  16. Julie near Chicago

    Oh, and as you know, I do absolutely agree with you. He (or she ) who would vote must pay the tax.