How ways to make money legally tax can reduce inequality – oecd observer

The rapid growth of emerging economies in the past decade ways to make money legally or so has lifted hundreds of millions of people out ways to make money legally of absolute poverty and reduced income disparities across the world ways to make money legally as a whole. At the same time, until the financial and economic crisis of 2008, most other economies were expanding too. However, within the OECD and emerging economies not all regions or ways to make money legally people benefitted equally from the growth years. On the contrary, the distribution of income tended to become more unequal.

Unsurprisingly, particularly since the onset of the crisis, these trends have increased the salience of “fairness” in political debate in many countries, in terms of both equality of opportunity and of outcomes ways to make money legally for household incomes and consumption. While few doubt that fairness is important, interpretations of what is fair differ and may in part ways to make money legally reflect historical norms for the distribution of income, which can differ widely between countries (see chart). That said, over the longer term too much inequality may be inimical ways to make money legally to growth.

Inequality tends to be less pronounced in OECD countries than ways to make money legally elsewhere in the world, though in recent decades the distribution of disposable incomes has ways to make money legally tended to become more unequal. In the mid-1980s the gini coefficient, whereby 0 is perfectly equal (and the higher the coefficient, the more unequal is a distribution) stood at 0.28 among the working-age population, on average, in OECD countries. By the mid-2000s it had become more unequal, increasing to 0.31.

What then are the implications for tax policy? Work by the OECD experts and many others on tax ways to make money legally reform and economic growth stress the need to weigh up ways to make money legally the extent to which high marginal tax rates on income ways to make money legally can act as a disincentive, for instance, for investment in human capital or discourage entrepreneurship, and the fact that progressive taxation of income is one ways to make money legally of the main ways for governments to redistribute incomes. For many countries the potential trade-offs between economic growth objectives and equity are particularly critical ways to make money legally at present.

The effects of taxation on income distribution needs to be ways to make money legally seen in the context of the trade-offs between growth and equity, and this means looking at the overall effects of any ways to make money legally reform on the fiscal regime as a whole, and not just at whether individual taxes are progressive or ways to make money legally regressive. This is because the distribution of disposable incomes depends on ways to make money legally both taxes and benefits. Raising indirect taxes, for instance, is often regressive where these taxes fall on the consumption ways to make money legally of goods and services that make up a larger share ways to make money legally of the budgets of poorer than richer households. But the overall impact of a fiscal reform can still ways to make money legally be progressive, if these effects are offset by other tax and benefit ways to make money legally changes. Income-related benefits, for example, are a much more efficient way of increasing the disposable ways to make money legally income of poorer households than reduced rates of VAT.

Nor is VAT necessarily bad for redistribution. This is clear in the case of developing countries, where the relatively greater reliance on indirect taxes may make ways to make money legally their tax systems more regressive. On the other hand, consumption taxes such as VAT may be the only way ways to make money legally to finance (more) strongly progressive spending. However, as some countries lack the administrative capacity to make welfare ways to make money legally transfers to households, there may be a case for differentiating VAT rate structures ways to make money legally to tax “necessities” at a lower rate, if at all.

Most developed countries already have well-developed tax regimes that raise, on average, tax revenues equivalent to some 35% of GDP. The scale of tax revenues is capable of achieving a ways to make money legally significant amount of redistribution. However, it is also capable, if structural tax policies are poorly designed, of becoming detrimental to economic performance.

During the 1980s a number of countries became concerned that ways to make money legally high marginal tax rates were one of the factors that ways to make money legally had contributed to the slowdown in economic growth in many ways to make money legally countries in the 1970s. Moreover, high tax rates were encouraging the development of selective tax ways to make money legally reliefs, which distorted investment decisions, and extensive (even aggressive) tax planning through the exploitation of loopholes that narrowed the ways to make money legally tax base. Reformers decided to adopt a “broad base-low rate” approach instead, which meant pushing down statutory rates of both corporate and ways to make money legally personal income taxes, and recovering potentially lost revenue by applying these tax rates ways to make money legally to a broader base.

The apparent success of such reforms encouraged others to emulate ways to make money legally them. Moreover, competitive pressures arising from the effects of liberalising trade and ways to make money legally financial flows (notably growing international integration and globalisation) also put downward pressures on tax rates. Top marginal statutory rates of personal tax, in particular, have been cut quite substantially in many cases, from an OECD average of 66.8% in 1981 to 41.7% in 2010.

Faced with the challenge of how to restore sustainable public ways to make money legally finances and the growth of output and employment following the ways to make money legally post-2008 recession, what tax policies should OECD countries pursue now? Can tax policies be devised that will be perceived to ways to make money legally be “fair” and help maintain the social cohesion, while supporting growth too? Where additional tax revenues have to be raised as part ways to make money legally of fiscal consolidation plans, can this be achieved by broadening tax bases to make ways to make money legally more of the income of better-off individuals taxable, or should marginal statutory tax rates be raised too?

Simply raising marginal personal income tax rates on high earners ways to make money legally will not necessarily bring in much additional revenue, because of effects on work intensity, career decisions, tax avoidance and other behavioural responses. Where tax increases are necessary, the most growth-friendly approach would be to reduce tax-induced distortions that harm growth, including closing loopholes, and to raise more revenues from recurrent taxes on residential ways to make money legally property, while setting taxes to reduce environmental damage and correct other ways to make money legally externalities.

There is also scope to raise taxation of residential property ways to make money legally which is relatively lightly taxed in many countries. However, while the better off tend to own the most expensive ways to make money legally residential property, there are many middle class owners too, so reform has to be approached cautiously, especially given the bruising many home-owners took from the housing bubble. Nevertheless, out-of-date values for tax purposes often distort the efficiency of ways to make money legally property markets (by discouraging individuals from moving home, thus reducing labour mobility) and many existing property taxes tend to be regressive, i.E. Take proportionally more of the income of poorer households. Reform and revaluation could make property taxes both fairer and ways to make money legally less distortive.

Good tax administration also matters. New IT systems in use in revenue administrations increasingly include ways to make money legally tools such as sophisticated risk engines to identify potential missing ways to make money legally revenues. Efforts to curb offshore non-compliance by making the exchange of information among tax authorities ways to make money legally more effective have been given a new impetus. Tax evaders, who are often wealthy, have fewer places to hide their money. These initiatives also bolster international efforts by the IMF, OECD, UN and world bank to help low-income countries to develop more effective tax systems.

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