Cut taxes on ‘rich’ for creating jobs

OVER THE years, there have been many discussions about whether to increase the taxes on the “rich” – people with an income above a certain threshold.

This illustrates the limited grasp politicians (and others) have of what is required to make a country successful. It is a knee-jerk “fleece the rich” reaction. It is a mindset that is present in practically every country. Unfortunately this approach achieves little – if not actually the opposite effect.

The rich have always found a home in a country that does not want to take the major portion of their income. You may remember the brouhaha when actor Gerard Depardieu relocated to Belgium, and then changed his mind and went to Russia, to escape the high French taxes.

Another proponent of “taxing the rich” has appeared in South Africa. Thomas Piketty, an economics professor, has written a 700page book on the subject. He is talking about “inequality” and “lack of redistribution” to assist the poor. This just shows he is living in a high tower, much removed from reality.

“Redistribution” implies we should take away from the “haves” and give to the “havenots”. What should be done is not “redistribution” but “creation”. But politicians have only limited capacity to think beyond the simple and obvious.

The right way would be the exact opposite to “taxing the rich”. Anyone who is creating jobs for people should have his taxes reduced, depending on the number of jobs he creates, and by a limited, but useful, amount. That would be an incentive, would be beneficial to the country and would give opportunities to the poor for improving their situation.

The rich do not actually add that much to the fiscus. Let us say in South Africa we have 3 million taxpayers, of whom 100 000 are earning more than R1m a year. If one was to increase the tax rate on these individuals by 10 percent it would add only R10 billion – about 1.4 percent of taxes. Not worth the trouble.

But if one were to reduce taxes by a like amount, subject to job creation, only R10bn of revenue would be lost but a certain number of jobs would be created. This additional activity would not only give people a livelihood but would probably add more taxes than the “lost” amount from the “rich”. Simple, isn’t it? But just for the fun of it, take the current approach to its extreme. Increase taxes to 90 percent and most people will stop working, relying instead on state handouts. But the state won’t have any money to hand out, as there is hardly anything coming in, as people have stopped working, and do not pay taxes. A recipe for disaster.

Yet it seems our blinkered tax collectors are trying their best to come up with additional taxes that bring in very little but cost a lot to administer. They are simply unable to grasp that sometimes one needs to think laterally, that a reduction or simplification of taxes might lead to more activity and thus more money for the taxman.

Don’t hold your breath. It won’t happen because there is a huge taxation support industry out there creating ever more complicated taxes. It adds to their income. It does not add to the wealth of the country.

And just in case the thought crossed your mind – while some people call me “Rich”, I am not rich. Regrettably.

We need ‘creation’,

rather than ‘redistribution’

Edenglen, Edenvale