Inequality and the narrowing tax base: Too reliant on the few

Föhrenbergkreis Finanzwirtschaft

Date: 18-09-2014
Source: The Economist

Taxes are best raised on a broad base, but in many countries it is worryingly narrow
Top 1% Earners“I LIKE to pay taxes,” said Oliver Wendell Holmes. “With them I buy civilisation.” Most people recognise that taxes pay for public services, but few are as keen to stump up for them as Justice Holmes was. High income taxes tend to discourage effort and entrepreneurship, while encouraging all manner of activity to avoid them. That is why a basic principle of good tax policy has long been to charge a low rate over a broad base.

It is a target which many countries miss, and the gap is growing. Income taxes—one of the main sources of tax revenue across the rich world—are increasingly paid by a small minority of the most affluent. In Britain, employment has risen by 1.3m in the past five years, but the number of…

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