Are high taxes good or bad?

Who likes paying taxes? Nobody particularly enjoys seeing part of their salary go to the taxman each month. After all, you worked hard for this money. So, why do we actually pay taxes? Taxes are the main source of income for the state. The state uses tax income, among other things, to pay for things that benefit the common good – such as the construction and maintenance of hospitals, schools, and infrastructure (such as roads), as well as the salaries of police, firefighters, soldiers, etc.

In many European countries, the principle of “progressive taxation” applies, which means that people with higher incomes have to give up a larger share than low-wage earners. But some people find that taxation is generally too high in Europe and even harms our economies. They argue high taxes discourage investment, innovation, and productivity. Is that correct?

Can high taxes also bring benefits? Scandinavian countries have some of the highest tax rates in the world (for comparison, while the maximum federal income tax rate in the USA is around 37%, in Sweden the highest personal income tax rate is 57%). However, despite high tax rates, the Scandinavian countries are also economically very successful. Why is that?

Supporters argue that high tax revenues enable the Nordic countries to offer comprehensive social benefits, e.g. to support the poor and the sick, as well as to finance high-quality education policy and promote scientific research. The high level of social security is also one reason why the quality of life in Scandinavian countries has been amongst the highest in the world for years – and despite high taxes, that can help attract companies and stimulate innovation.

What do our readers think? Clearly, we’re simplifying an incredibly complex issue and there are a range of different perspectives from our readers on this question: Carl, for example, thinks that high taxes are bad because they lead to a big state, while Franz thinks that high taxes are necessary to pay for public services.

To get a reaction, we spoke to Kira Marie Peter-Hansen. She is an MEP from the Danish People’s Socialist Party and Vice-Chair of the Subcommittee on Taxation in the European Parliament. What would she say?

Well, I don’t think you can say that high taxes either good or bad. I think it depends on what the taxes are used for. And in Denmark, where I’m from, we have a pretty high level of taxes and I think that’s a really great thing because we get free education, free healthcare, and we can invest in the green transition. But, of course, it doesn’t make sense if the high taxes are spent on something that is inefficient.

Next up, our reader Imogen is particularly bothered by the fact that large companies use tricks and loopholes to minimise their tax bill while taking advantage of the benefits of the Single Market (for example, headquartering in countries with lower corporate tax rates like Ireland and Luxembourg).

What does MEP Kira Marie Peter-Hansen think?

I think tax competition is one of the biggest threats to my generation. I think it is a big problem that we have a Single Market in the European Union, but then we have tax competition in all of these countries. Something we are working on [in the European Parliament] is the list of tax havens, but we can only have non-EU countries on the list – even though, for example, Luxembourg and Ireland also have lower taxes.

Next, our reader Joshua argues that the easiest way to prevent tax avoidance is to lower taxes for all businesses.

We put his suggestion to Sven Giegold. He is an economist and sits in the European Parliament for the Greens. He has been campaigning against tax evasion for years. What does he think of Joshua’s idea?

There is a lot of debate on whether you can get rid of tax fraud and aggressive tax avoidance by lowering taxation. The point is: you can’t lower it so far that people really stop tax fraud, and there’s a lot of evidence for this. Obviously, if you have a tax rate of zero, then there is no fraud anymore. But when you want to have a similar tax rate on corporate income as on private income – which is also needed for tax fairness – then you always have a level of taxation, which gives a lot of incentives to fraud. There are lots of studies and evidence backing this.

You can’t lower the taxes so far that the fraud stops. This means we have to fight fraud; we have to fight aggressive tax avoidance, in particular by the larger and more wealthy actors, which could well afford to pay their fair share.

Finally, in order to close tax loopholes, some advocate the introduction of a harmonised corporate tax rate across the European Union (or, at the very least, a common tax floor and ceiling). However, Christos is concerned that such harmonised tax rates would make it difficult for economically weaker Member States to remain competitive compared to richer states. So, is corporate tax harmonisation in the EU a bad idea?

For an answer to Christo’s question, we again asked MEP Sven Giegold to respond. What does he think?

Well, this is a very fair point. So I would argue, first we have to harmonise how to calculate the tax base. It has to be clear, in each country, which share of the profit has to be taxed. This important, because at the moment, most of the tax competition happens by manipulating where you actually pay your taxes. So, a company may work in Romania or in Germany but pay its taxes in Ireland or the Netherlands. This is not profiting the poorest countries, nor the richer ones. It’s only shifting the tax base in an illegitimate way. So, when we want to solve this, the question is: should we also harmonise the tax rate? And there I agree with Christos. A country which is providing higher public goods, because it’s richer, should also charge a higher tax rate and a country which is poor should charge a lower tax rate.

Europe could basically simply define a minimum tax rate according to economic development. There should be an absolute minimum. Beyond that, richer countries should be obliged to charge more; to charge more when they get rich, and increase that rate as they become richer. That would be the ideal tax system. Of course, now politics comes in. Still, I would argue, harmonising tax rates and the tax base would help both rich and poor countries in Europe and internationally. But in order to avoid overcharging in the poorer countries, we don’t need a one-size-fits-all solution but rather a minimum tax rate and binding higher tax rates as countries grow richer.

Are high taxes good or bad? Do high taxes have a negative impact on economic growth? Or can high taxes have positive consequences, such as a strong social system and high living standards? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!

Image Credits: Photo by Simon Moore on Unsplash. Portrait Credits: © European Union 2020. © Dominik Butzman.



47 comments Post a commentcomment

What do YOU think?

  1. avatar
    Simona

    Taxes are necessary to keep the flow of money moving around.

  2. avatar
    John

    Sure, if you’re taxing capital gains. The rich don’t really care about the income tax – that’s not where they’re getting most of their money from!

  3. avatar
    Kimmo

    The Nordic model works well. Although taxation is progressive, the propagandist highlights of over 50-percent tax rates are rare exceptions, most people pay around 20-30 percent. This buys free education, free healthcare, free daycare, social security, parental leave etc. A pretty good deal. Not to mention some of the lowest income and wealth disparities in the world, resulting in societies at the top of world happiness lists and remarkably little unrest on the streets.

  4. avatar
    Vivian

    Depends on whether you put society or (lucky) individuals first. Without taxes states have very little reason to exist.

  5. avatar
    Olivier

    Too much taxes kill the taxes. Rich shift elsewhere

  6. avatar
    Olivier

    Too much taxes kill the taxes. Rich shift elsewhere

    • avatar
      Jelle

      People keep saying that but do you really have any evidenced to back up that claim? some of the richest countries in the world have progressive tax-systems with high % of tax for higher incomes. Rich people also benifit greatly from their own tax money, great schools for their children, infrastructure & a highly educated workforce are great for companies too. Everybody profits from high taxes, if it is spent well.

    • avatar
      Vladislav

      Jelle Groen no that’s why China is becoming a world leader because of the high taxes and inflation businesses are running away there and this is destroying the worker and eventually the government will run out of other people’s money

    • avatar
      Olivier

      Vladislav Kiuldjiiski it is true only in Sweden and denmark

    • avatar
      Olivier

      Jelle Groen in France we have a high tax level..not so good public services à large debt and a declining economy because we are not competitive because of heavy tax and charges level

    • avatar
      Vladislav

      Olivier Dutreil no it is trying to be implemented everywhere

  7. avatar
    Vivian

    Depends on whether you put society or (lucky) individuals first. Without taxes states have very little reason to exist.

  8. avatar
    Kimmo

    The Nordic model works well. Although taxation is progressive, the propagandist highlights of over 50-percent tax rates are rare exceptions, most people pay around 20-30 percent. This buys free education, free healthcare, free daycare, social security, parental leave etc. A pretty good deal. Not to mention some of the lowest income and wealth disparities in the world, resulting in societies at the top of world happiness lists and remarkably little unrest on the streets.

    • avatar
      Tony

      Kimmo Linkama The problem is most EU countries don’t follow the Nordic political model. In Spain we are taxed to hell and corruption is rampant amongst political parties. I closed my business because between all taxes, the government was making more than I was with zero benefits on the other side. So much that when I closed I didn’t even have a right to unemployment benefits, child care benefits or anything. I wouldn’t mind paying if on the other side we had benefits. But seems our taxes go to corruption, lobbyist groups, migrants and other countries while we as citizens paying them have zero benefits.

    • avatar
      Borislav

      Tony Muñiz same BS here In Bulgaria.

    • avatar
      George

      Kimmo Linkama only the very rich should pay 50+ on top brackets…

    • avatar
      Kimmo

      Vladislav Kiuldjiiski, first, the Nordics are not socialist, at the most social democratic. Second, I have no experience from Sweden, but what I said is true for Finland where I’m from.

    • avatar
      Vladislav

      Kimmo Linkama No that is not good for development that is only good if you are a worker or retired but by destroying your manufacturing and small and medium busnesses are struggling sooner or later you will run out of the other people’s money and the country will go bust

    • avatar
      Vladislav

      Kimmo Linkama your countries live off debt at the moment how long do you think it will last

    • avatar
      Kimmo

      Vladislav Kiuldjiiski, most everyone lives off debt these exceptional days, and no, the Nordics won’t go bust.

    • avatar
      Vladislav

      Kimmo Linkama But it will democratic socialism IS socialism

  9. avatar
    John

    Sure, if you’re taxing capital gains. The rich don’t really care about the income tax – that’s not where they’re getting most of their money from!

  10. avatar
    Simona

    Taxes are necessary to keep the flow of money moving around.

  11. avatar
    EU Reform Proactive

    Why not look & study the best-balanced tax systems globally? It is in Europe! Estonia apparently has the “optimum” tax system worldwide.

    Is the EU deliberately dogging the tax haven issues? Or trying to invent (another) the wheel?

    https://investinestonia.com/tax-competitiveness/#:~:text=Chatbot-,Tax%20Competitiveness%20Index%202020%3A%20Estonia%20has%20the%20world's%20best%20tax,published%20Tax%20Competitiveness%20Index%202020.

    Compare the global tax competitive index- the answers are there!

    https://taxfoundation.org/publications/international-tax-competitiveness-index/

    Criminals, the rich, politicians & banks are in cahoots to maintain all global tax havens as long as possible to hide ill-gotten gains! Why maintain lies & fictions?

    A good start for 2021- please abolish all of them- speedily!

  12. avatar
    Vladislav

    No high taxes and inflation are the reason businesses are moving away from the USA and EU to China and we do not manufacture anything anymore and China will become a superpower while the EU and USA economy will collapse

    • avatar
      catherine benning

      Are high taxes good or bad?

      Taxes are not the issue. It is what is done with them that is the crux. How they throw our money away is what is in question and why we allow this to continue.

      The post above, by Vladislav, suggests manufacturing is moving to places like China because taxes are too high in the West! Tax has nothing to do with it… Slave labour, from a Western point of view, is the culprit. They sell poor Western substitutes at similar prices in shops and online as they do for products manufactured in Europe or the US.

      Tax paid by corporate backing from this is irrelevant. If taxes are raised corporate bodies pass the cost on to the consumer, as they do with any additional outlay. The idiocy lies in purchasing inferior goods from elsewhere in the world, allowing those who supply those goods, to fleece the buyer. Whether they be corporations, governments or what have you it boils down to manipulation of the worker. This is why they back Globalism under the pretence of assisting the developing world.

      Aiding the developing world is another pseudonym for impoverishing the West to enrich the few. Who have now relegated their work force to envelope the service industry away from all else. Which turns out to be another form of employment for third world workers in Europe. Again, a method to keep down manufacturing cost to the detriment of Europeans. In other words, impoverishing the European whist playing them at their own game.

      So, stop buying inferior goods brought in from slave driven countries. And, add to that, stop buying Football tickets from foreign owned franchise, as that too is impoverishing Europeans.

  13. avatar
    Kiriakos

    ΤΑΧES TO RICH PEOPLE AND MORE TAXES TO POLITICIANS

  14. avatar
    Kiriakos

    ΤΑΧES TO RICH PEOPLE AND MORE TAXES TO POLITICIANS

  15. avatar
    Yannick

    Of course. It’s a virtuous cycle: taxes for things we don’t want (eg traffic, cars are taxed 150% in Denmark) pays for the things we want (eg education, university students are paid 850eur per month). But there is one additional essential ingredient for this civilised approach to work: low corruption. It should not be possible to cheat, and for that, Scandinavia relies on highly automated bureaucracy. I didn’t do my taxes when I lived in Denmark, the state calculated everything, because banks and employers reported everything. It works very nicely.

  16. avatar
    Yannick

    Of course. It’s a virtuous cycle: taxes for things we don’t want (eg traffic, cars are taxed 150% in Denmark) pays for the things we want (eg education, university students are paid 850eur per month). But there is one additional essential ingredient for this civilised approach to work: low corruption. It should not be possible to cheat, and for that, Scandinavia relies on highly automated bureaucracy. I didn’t do my taxes when I lived in Denmark, the state calculated everything, because banks and employers reported everything. It works very nicely.

  17. avatar
    Róbert

    Except for safety and justice, I would prefer to buy services. I like to have diverse options. Taxes return “one size fits all” services.

  18. avatar
    Βασίλης

    Higher taxes generally results in more political waste and rot.

  19. avatar
    Крис

    High taxes for the rich and low taxes for the poor and the middle-class is definately good. Unfortunately in most if not all parts of the world it’s the opposite and that has to change.

    • avatar
      Kimmo

      agreed. We should also factor in what you get in return of paying taxes. In the Nordics, for example, taxes are fairly high, but then again, healthcare, childcare, education and social services are next to none in the world, and mostly free.

  20. avatar
    Tony

    Low taxes. After all, the money confiscated is just spent on garbage programs that do nothing for the benefit of EU citizens. I could see if there was a cost/benefit, but there is no benefit. So leave money in the pockets of the people, where it is put to good use.

    • avatar
      Kimmo

      as always, it depends. If, for example, your taxes provide you with good infrastructure, mostly free healthcare, childcare, education and social services, they are mostly for the common good instead of “garbage programs”.

  21. avatar
    Olivier

    Too much tax kills the tax. FRANCE is tax number too in the world. Enough is enough administration must diet…. And many Europeans should work more

    • avatar
      Kimmo

      that’s interesting because it’s impossible to determine the exact ranking due to tax laws differing wildly between countries. On top of that, you get varying figures depending on whether you look at average income tax, median income tax, lowest marginal rate, highest marginal rate, corporate tax, or tax revenue as % of GDP. What is that “number two in the world” based on?

    • avatar
      Olivier

      the real question is why are you unable to launch a common tax and social policy to avoid tax dumping among EU members

    • avatar
      Kimmo

      true that. On the other hand, we always need to take into account the varying economic situations and tax bases in different countries, but in broad terms, definitely yes.

  22. avatar
    Paul

    Don’t know why you picked out germany….136 countries agreed last Oct to oecd 15% minimum.
    Will hit those countries ( like Ireland) who have engaged in tax arbitrage to entice multi nationals to domicile there…but considering that the global average is currently 23.5%……unclear if will make major difference.

  23. avatar
    Nikolaos

    You mast bring low tax to 15% people in EU for all centres .

  24. avatar
    Olivier

    Multinational are low taxed but European companies and families very high taxed. Is Europe working for multinational sake or for European peoples?

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