Monday, 19 November 2012

The rich and the rest

Well, nothing new has occurred over the last weekend. Just another round of the usual suspects: Greek debt, Italy and Spain struggling to make it through without a bail-out, Cyprus is negotiating for a loan, and the Portuguese are protesting. If you come to think about it, nothing has boosted solidarity in the South than the crisis. Reports of Portuguese, Spanish and Italian flags in the Greek protests last week are indicative of this. (hmm why not Cypriot flags as well guys?) 

The dire reality remains in the EU-periphery: out of the three social classes the top is constant, the second is shrinking and the third is expanding. While many have not have not really felt the crisis in a real way (i.e. inability to buy food or shelter or to cover their medical needs) others are struggling to survive with what little they have. For example, according to the independent Hellenic Statistical Authority (ELSTAT), the top 20 percent of Greeks earn six times as much as the bottom 20 percent. 

Upper Class in Harrods 1909. Source: Wikimedia Commons
So where does the problem lie? Is it the rich's fault that they are rich or are the poor to be blamed for their poverty? Unfortunately, easy solutions are out of the equation so we cannot directly blame anyone for this. You cannot blame someone for being rich as long as he/she made money legally. So, as long are we are not debating on drug dealers, thieves and other criminals it would be unfair to state that the rich are doing something bad; especially if they put 16 hours of work each day. Maybe they have gotten lucky but even the luck factor is zero in the long-run. Almost everyone can make some money, but being smart enough to keep and grow that money is another story.

Obviously, that does not mean that the rich are to receive special treatment due to their wealth. If a middle class person is obligated to pay taxes comprising of 30% of the income he receives then so should the rich. Here is where the problem lays: being rich, these people hold the fate of others' jobs in their hands. An article in Der Spiegel states that "Shipping ensures 400,000 jobs in Greek shipyards that could go elsewhere at any time". So if extreme measures are to be taken in order to impose taxes to the rich, those 400,000 people would remain unemployed. Even if that number is exaggerated, even a quarter of this is still very important especially in a country whose unemployment reached 25%. And this does not only hold in Greece: it is the same in all other Southern nations.

So what would the answer be? In my opinion, slash tax exemptions for people whose income is over some specific amount, e.g. 300,000 euros. Everything a rich person earns should be taxed, and most importantly, companies which employ large numbers of workers should not be allowed to function without becoming publicly traded in a stock exchange. A company who is ruled under a Securities and Exchange Commission (SEC) will find it much more difficult to move from one place to another, unless some real urgency presents. This of course holds provided that the SEC does its job properly. 

By doing this, it allows for the taxable income of all people over a threshold to increase, meaning increased taxation income for the state, while simultaneously it makes it harder for companies to shut down due to the owner's whims. Yet, as the super-rich have the opportunity to move around the globe in the blink of an eye, it is becoming harder and harder for countries to tax them. For example, I may reside in Spain, have business in France and state that I am a citizen of Switzerland. The case is that each country has its own comparative advantage and the rich tend to exploit that. (To be fair most of us would if we were faced with the same circumstances)

Nevertheless, although the rich move around as much as they want, they would be hesitant to leave a place where they have grown, have families and friends, and feel more secure than anywhere else. It may amaze you but the rich have feelings as well! Thus, if measures are to be taken, without reaching the extremities of Hollande's 75% income tax to those who earn more than a million a year, I do not think that the rich will protest as much as we think. 

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