The Flat Tax: Stealing from the middle class to give to the rich?

24.05.2018 - Rome, Italy - Gerardo Femina

This post is also available in: Spanish, Italian

The Flat Tax: Stealing from the middle class to give to the rich?

In most parts of the world and also in Italy there is a progressive tax system. Progressive because the rate increases with increasing income: if I earn 1000 I pay 10 but if I earn 10000 I don’t pay 100 but 120. This has a very clear logic and is based on the idea of social justice and redistribution of wealth. Those who earn less will use their income primarily to meet their needs and therefore it is only fair that they contribute to the community with very low taxes, if any. A different situation is that of the “rich”, who can meet their basic needs using only a small part of their income and can therefore pay a much higher tax without giving up a decent life. If we think about this in concrete terms, we see that a person with an income of, for example, EUR 30 000 per year for the purchase of a house must use all his money and this for many years. A person with an income of EUR 200 000 per year does not have these problems.

The main argument of those in favour of the flat tax is that this reduction and simplification of the tax system would on the one hand attract investors and, on the other hand, paradoxically bring more money into the state coffers, as everyone would rather pay’reasonable’ taxes than take the risks of tax evasion.

On the first point, we note that, in fact, many industries prefer to shift production to countries where taxes are lower and where laws protect investors more than workers. Countries often referred to as “third world” countries and sadly famous for their lack of respect for human rights and the absence of all the social achievements typical of great Western civilizations. There are also countries in a kind of middle ground’, such as those in Eastern Europe, which, while maintaining a certain amount of decent legislation, have inexorably sunk their roots in savage capitalism. Therefore, for those in favour of the flat tax, the solution is not an overall improvement in living conditions in the world, but to degrade Italy to a country where human rights and social justice fail miserably in the face of the laws of the market. A documentary from the RAI talks about the Czech Republic, showing it as an example where the flat tax has produced a great development. A poor documentary that wanted to show only a part of reality. Indeed, unemployment is at 2% and social services are at a good level. It is very easy to find work, especially in big cities like Prague. But it has not been said that this country’s economy is growing due to other factors, such as its link to the German economy. Above all, it has not been said that wages are low, that there is no Xmas Bonus, that there is no severance pay, that it is very easy to dismiss, to put it mildly. In addition, there are strong pressures to return to the progressive system, as Slovakia did after the failure of the single tax.

On the second point, everyone would pay their taxes’, we note that this is only a hypothesis and also biased. It is difficult to estimate the effects of the flat tax, also because it is not clear what the rate will actually be, but we will try to give some figures, even if they are only indicative.

Whoever has an annual income of 20,000 euros could save 1,000 euros, 50,000 euros would save 8,000 euros, 200,000 euros would save 50,000 euros, 1 million euros would save 270,000 euros and so on. A Berlusconi could earn a million euros. It should also be borne in mind that, in the case of low incomes, any savings would be nullified both by the abolition of tax advantages and by the likely reduction in social expenditure.

Seen in this way, in a very concrete and wordless way, it looks like an operation performed by the character Superciuk from Alan Ford’s comic strip. Superciuk, unlike Robin Hood, had a very clear mission: to steal from the poor and give to the rich!

The supporters of the flat tax, to support their proposal, sometimes make vague references to the United States, but forget that today the United States is a country in deep economic crisis, with a public debt that no economist is able to quantify now, but especially that in this country the flat tax is not in force.

We are at an historic moment when employers and workers can recognize that they have a common enemy: big finance capital. Often in the media, when it comes to government and reform, the phrase “how will the markets react?” appears sibilantly. “Markets”, a word that few understand as “Spread” (*) but which creates panic. These markets (which are only a few global financial institutions) must be heard before making a law, before making any reforms. These markets dictate the law and are above the states, the national sovereignty, the peoples and the real needs of the people. We are talking about these great financial capitals, that is to say, money that produces nothing concrete but other money, which can affect the economy of entire states and determine their political choices. Capitals that grow just when states’ economies are in crisis or as Mitterrand said they grow when everyone sleeps.

How many entrepreneurs today are suffocated by the strangulation of the banks! How many entrepreneurs are forced to treat workers like slaves in order to be competitive on the world market or to close their shops?

So let us not mock people, serious entrepreneurs and workers with false solutions, let us strike at the only truly dangerous enemy, the enemy of all: markets, big business and financial capital! This would be one of the first objectives of a government of real change.

The application of the flat tax, even if it is to bring immediate oxygen to companies in the North that wish to do so, in addition to hitting the poor and the middle class, does not go in the direction of combating the so-called strong powers, it is not a guarantee of real development or economic growth. On the contrary, it favours precisely those financial capitals that oblige States to adopt laws that are increasingly favourable to them.

Remaining at this level of analysis, without going into the subject of the profound and essential contradictions of capitalism, there are some proposals that the Humanist Party made in 1984. One is to drastically reduce taxes for all those companies that reinvest profits in the territory by improving the quality of production and creating more and more jobs. In other words, it favours investors who bring lasting prosperity and development to the real economy and not who make profits and migrate to tax havens. Instead, it strikes at those who use resources, exploit workers, take advantage of state facilities and then transfer capital and production elsewhere, leaving the desert behind.

Another proposal is to create an interest-free bank to support and encourage small and medium-sized enterprises.

These simple reforms, in addition to immediately encouraging investment by serious and productive companies, open up a new path in the opposite direction to the current one, namely the expansion of excessive power in the financial markets and the consequent destruction of the real economy.

(*) Spread is the difference between the purchase price and the sale price of a financial asset.

Categories: Economics, Europe, Opinions
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