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Sweden's 70% top tax rate comes into play after c. $98,000 dollars, yet it remains one of the most successful high-income countries in the world.
The Panama Papers and Paradise Papers revealed that some 400 Swedish companies and people had been keeping money in tax havens to avoid paying tax.
Some progressive tax structures incur greater total losses to tax evasion and avoidance and its associated costs than regressive tax structures. Tax evasion costs the US roughly $450 billion a year. Russia, which has a flat tax rate, loses roughly $40 billion dollars a year.
Latvia, Estonia's neighbour, also adopted a flat tax and emerged as a strong economy after leaving the Soviet Union. But it was one of the worst-hit countries of the global financial crisis, with its economy falling by 10.5% in the last quarter of 2008 alone.
Having emerged from the Soviet Union in 1991 and adopted a flat tax policy in 1994, Estonia grew by an annual average of 9% between 2001 and 2007—during which time it was also able to gradually reduce its tax rate.
21.1% of the population of Estonia (276,000 people) live in poverty. The country desperately needs progressive taxation policies.
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Tax revenues were 7.7% of GDP in1951-63. But by the end of Reagan's second term as president of the USA, tax revenues were 8.1% of GDP with a top tax rate of 28%. In the 1950s, the rich had plenty of options for avoding tax.
The 1950s was a period of economic growth in the USA, where the economy saw an average real GDP growth rate of 4.2% year on year. The top tax bracket was 90%.
The growth rate of real income for non-financial C-levels in the top 0.1% was 7 times higher even than those in the top 1% to 0.5%. Progressive tax does little to account for the huge disparities that exist right through to the top of the ladder.
In their study, economists Denvil Duncan and Klara Sabirianova Peter found that an increase in the top personal income tax rate by 1% is related to a decrease in GINI by 0.95 points.
From 2007 to 2017, the average GINI coefficient in states with progressive tax rose from 0.453 to 0.468, which is the same increase as was seen in states without a progressive tax (0.445 to 0.460).
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Vittana reports that the Internal Revenue Service (IRS) estimates it could cost up to $200 billion to run a progressive taxation system across the United States. That money could be better spent on a range of other means of helping the poor.
With flat tax, someone who nets $41,000 ($50,000 after 18% tax) has a worse ratio of income to the dollar than someone netting $820,000 ($1 million after 18% tax). Conversely, progressive tax would increase the former's spending power, freeing up capital for big fiscal decisions.
Plotting data of 54 countries, researchers at the University of Virginia showed that the more progressive a country's taxation system, the more it can invest in public goods such as education and publication transportation, i.e. the more economically and socially healthy it is.
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Using a model of the US economy, Giménez and Pijoan-Mas find that less progressive tax reform results in a 2.4% increase in economic output, and more progressive reform results in a 2.6% decrease in economic output.
An Economy.com study shows that a $1 food stamp creates a value of $1.73 in terms of demand, whereas tax breaks for the rich only have a value of $1.33 in terms of demand.
Heathcote, Storesletten and Violante find that progressive tax can mean fewer people seek further education as the return on investment is taxed more and hence the value of further education is worth less. This can mean increases in welfare spending.
In 2012, Peter Diamon (MIT) and Emmanuel Saez (Berkeley) made the case for 73% top rate. In line with developments in optimal tax theory, 73% would maximize tax revenue from top taxpayers whilst taking into account the variables that affect the tax elasticity of top incomes.
As Bill Gates argued against Alexandria Ocasio-Cortez, raising the top tax rate to 70% is a "misfocus". The wealthy are wealthy because of the value of their stock and assets; the incomes of the ultra-rich don't always reflect how much they're worth.
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Hospital visits made by the uninsured cost $10 billion/year and 46% of hospital visits are made by people who can't afford preventative health care. Obamacare, a form of progressive tax levied on those who earn over $200,000/year, reduces the cost of health care for everyone.
In the UK progressive tax is found to be largely fair and has a net-zero effect on worsening income inequality. Once you factor in tax and benefits, those in the richest 20% have on average only five times more market spending power than those in the poorest 20%.
Finland's birth rate is declining and the country has a progressive tax, which includes marginal rates like 57% from €33,000 and 65% from €127,000. Per capita savings are very low for a wealthy country, which FT argues is why fewer young couples are inclined to have children.
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An OECD survey found that two-thirds of people in economically rich countries want higher taxes on the wealthy. Those from high-income households perceived their countries less fair than those with broad social infrastructure (like Denmark, Norway, and the Netherlands).
Ultra-wealthy Warren Buffet, worth $84 billion, pays himself $100,000/year. But the presidential candidate Elizabeth Warren's plan is to tax people with wealth above $50 million 2%/year and then 1%/year on wealth over $1 billion. This will generate more in tax revenue.
For example, the cost of becoming a dentist in the USA averages $215,000. But in Sweden, where tax is more progressive, education is free; students are given $340/month, and can borrow an additional $700/month. The max a 5-year dental programme can cost you is only $42,000.