Wealth destruction: Rich and poor are all taxed

There are many other ways in which the poor are adversely affected by soaring taxes.  Since the yield on government spending is negative or lower than private sector yields, the government is a net consumer of wealth.  High taxes, therefore, retard growth and prosperity.  That is why poor people risk and lose their lives to migrate to prosperous low-tax countries.  The famous Laffer curve explains the paradox that high tax rates yield diminishing returns — down to zero revenue at 100% tax rate.  Highly taxed countries stagnate and have less revenue for welfare.  Sweden, for instance, abandoned high taxes to end stagnation and declining welfare benefits.  High taxes are also “regressive”; they discriminate against poor people.  The same VAT rate on a R100 T-shirt, blanket or movie ticket consumes a bigger proportion of a poor person’s income than of a rich person’s.

Later Tax Freedom Day sounds a warning: Leon Louw’s latest column in BDlive published by Business Day [subscription required]

Further excerpts

Today, May 25, is Tax Freedom Day.  It represents the day of the year on which our money becomes ours rather than that of the government.  It is 43 days later this year than it was in 1994, when it came on April 12.  Later than ever before — the government is taking more and more of everyone’s wealth.  Nearly 40% on average.  If we divide the total income of all South Africans by the number of days of the year, government takes, in effect, the first 145 days of our income.

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More than 35% or a third of government revenue is from personal income tax.  Since few people earn “high” and many earn “low” incomes, the numerical effect is that middle-and low-income earners pay most personal tax.

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A late Tax Freedom Day is worse for poor than for rich people because rich people can afford it.  High net-worth people maintain high living standards regardless of tax rates.  A late Tax Freedom Day discriminates against poor people because the only way for them to become rich is through retained income.

There are many compelling reasons for the government to cut spending and reverse the trend towards an ever-later Tax Freedom Day.