Why Are Taxes So High?
Summary
TLDRIn this episode of Gary’s Economics, the discussion centers around the paradox of historically high tax burdens alongside deteriorating government services. The script delves into reasons behind this phenomenon, highlighting the significant loss of government wealth and assets over time, demonstrated through a graph by economist Thomas Piketty. It suggests that this wealth transfer from governments and ordinary families to the very rich has exacerbated inequality, making it difficult to provide essential services like housing, healthcare, and education. The narrative advocates for higher taxation on the wealthy as a solution to redistribute wealth, reduce the tax burden on the middle class, and improve public services.
Takeaways
- 📊 The tax burden is at a historical high, despite government services appearing to be at their worst in decades.
- 💰 The paradox of high taxes and poor government services is often attributed to government corruption, but the issue is more complex.
- 💻 A significant factor often overlooked is the drastic decrease in government wealth, affecting its ability to provide services.
- 🛠️ Governments, like individuals, face higher expenses (rent, interest on debt) when they do not own assets, leading to increased tax demands.
- 💳 The transfer of assets from governments to the very rich, rather than to ordinary families, exacerbates wealth inequality.
- 💸 Ordinary families and the government are both poorer now, making it harder to access basic needs like housing, healthcare, and education.
- 🔥 The solution proposed involves taxing the very rich to redistribute wealth and reduce the tax burden on middle and working-class families.
- 💴 Taxation of the rich is seen not as a means to enlarge government but to protect ordinary families and improve their access to assets.
- 🛡️ Wealth inequality is framed not just as a social issue but as a fundamental problem affecting the distribution of resources necessary for basic needs.
- 💵 Highlighting the importance of understanding tax policies and their impact on wealth distribution to address and reverse the trend of growing inequality.
Q & A
Why is the tax burden considered to be at an all-time high?
-The tax burden is considered to be at an all-time high due to significant rises in taxes like council tax, while government services appear to be declining in quality.
How does the speaker relate the concept of owning a house to government wealth?
-The speaker compares owning a house to government ownership of assets, explaining that just as a homeowner has lower living costs, a government with more assets can provide better services without increasing taxes.
What significant change in government wealth holdings is highlighted by the speaker?
-The speaker highlights that the wealth holdings of Western governments have significantly decreased over time, with some, like the UK and US, having negative wealth, meaning their debts exceed their assets.
How does the speaker link the concept of wealth transfer to the increasing tax burden?
-The speaker suggests that as government and ordinary families lose wealth, which increasingly concentrates among the very rich, governments are forced to raise taxes to maintain services, despite not having sufficient assets.
What does the speaker propose as a solution to the tax burden and declining government services?
-The speaker proposes higher taxes on the very rich as a solution, arguing that this could enable wealth redistribution, reduce the tax burden on middle and working-class families, and improve government services.
How does the speaker illustrate the effect of wealth concentration among the rich on society?
-The speaker argues that as wealth concentrates among the rich, ordinary families and the government lose the ability to afford essential services like housing, healthcare, and education.
What is the speaker's perspective on government corruption and its impact on taxes and services?
-While acknowledging some level of government corruption, the speaker argues that corruption alone does not fully explain the high tax burden and poor government services, emphasizing the role of lost government wealth instead.
How does the speaker suggest the transfer of wealth back to the middle and working classes could be achieved?
-The speaker suggests that taxing the rich more heavily could force them to sell assets, which could then be acquired by middle and working-class families, thereby redistributing wealth.
What historical example does the speaker use to explain the shift in asset ownership?
-The speaker refers to the sale of council housing in the 80s and 90s, where assets owned by the government were transferred to ordinary people, initially benefiting them but eventually contributing to a broader loss of wealth among ordinary families.
How does the speaker view the relationship between tax and government size?
-The speaker clarifies that advocating for higher taxes on the rich is not about increasing government size but about redistributing wealth to reduce inequality and improve services for ordinary families.
Outlines
📈 The Paradox of High Taxes and Failing Services
The video begins by addressing the common perception that the tax burden is at an all-time high, which is likely true. The speaker expresses initial confusion over the fact that despite high taxes, government services like healthcare, education, and local services are in crisis. The speaker suggests that while government corruption might be a factor, there is another, often overlooked, reason for this situation.
🏠 The Analogy of Government Wealth and Personal Housing
The speaker uses the analogy of personal housing to explain the government's financial situation. Just as owning a house reduces personal expenses, governments that own assets like hospitals and schools can provide services more affordably. However, over time, Western governments have lost their wealth, leading to increased costs for services as they now have to pay rent or interest on assets they no longer own. This has resulted in higher taxes to maintain the same level of service.
📉 The Decline of Government and Personal Wealth
The speaker discusses the significant loss of wealth by both governments and ordinary families over the past few decades. This loss has been most visible in decreased home ownership rates for young people and increased debt levels. The speaker points out that while government assets were initially transferred to ordinary families, over time, these assets have accumulated in the hands of the very rich, leaving both governments and ordinary families with little wealth.
💰 The Consequences of Wealth Inequality
The speaker emphasizes the dire consequences of wealth inequality. With both governments and ordinary families poor, essential services like housing, healthcare, and education become increasingly unaffordable. The super-rich, who have seen their wealth grow significantly, are unlikely to sell their assets, making it nearly impossible for the government or ordinary families to regain wealth. The speaker argues for higher taxes on the rich as the only viable solution to reverse this trend.
🚨 The Call for Higher Taxes on the Rich
In conclusion, the speaker calls for higher taxes on the wealthy to reduce the tax burden on ordinary families. This, they argue, would force the rich to sell assets to pay taxes, allowing ordinary families to buy back these assets and accumulate wealth. The speaker sees this as a defense against the growing power of the rich and a way to improve or at least stabilize the living conditions of ordinary people.
Mindmap
Keywords
💡Tax Burden
💡Government Services
💡Government Corruption
💡Wealth Inequality
💡Government Wealth
💡Passive Income
💡Asset Transfer
💡Taxation Policy
💡Economic Growth
💡Ordinary Families
Highlights
The tax burden is at an all-time historic high, with government services like the NHS, education, and local services in crisis.
The paradox of high taxes and failing government services may initially suggest government corruption as a primary cause.
Significant increases in inequality of wealth, with ordinary working families and the government losing wealth over time.
Governments' wealth holdings have decreased significantly, impacting their ability to provide services without additional taxation.
Western governments, including the UK and US, now have negative wealth due to debts exceeding assets.
The loss of government-owned wealth and the increased need for governments to rent or pay interest, leading to higher taxes.
The decrease in government and ordinary family wealth has led to an increase in the wealth of the very rich.
The shift of wealth from the government and middle class to the very rich has significant societal impacts.
The mechanism by which wealth has shifted from ordinary families to the very rich, exacerbating wealth inequality.
The inability of governments and ordinary families to recover lost assets, further entrenching wealth with the very rich.
Proposed solutions involve higher taxation on the very rich to facilitate wealth redistribution and asset recovery.
The importance of taxing the very rich not only to fund government services but to enable ordinary families to regain lost wealth.
Addressing wealth inequality is crucial for ensuring access to basic needs like housing, healthcare, and education.
The potential of taxing the rich to reduce the tax burden on ordinary families and to prevent further loss of their assets.
Taxation is framed not as a means to expand government size but as a strategy to protect ordinary families from the wealth and power of the very rich.
Transcripts
Welcome back to Gary’s Economics.
Today we're going to talk about the tax burden.
So this is an economic story
which comes up a lot
in the news, which is the idea
that at the moment
the tax burden is at an all time historic high.
Now, I'm pretty sure this is
a basically a factual truth.
And it's something that
when it first started to get mentioned, it
kind of confused me a little bit.
And I think it will have
confused a lot of people.
The reason it confused me is because
we have two things happening simultaneously,
which kind of appear to be like
paradoxically impossible, which is, number one,
you have the tax burden at an all time high.
And that's true.
You guys will see that, especially things
like council tax rising really significantly.
And at the same time, we have this situation
where basically all government services
seem to be collapsing simultaneously.
Everything seems to be constantly
in crisis, NHS is in crisis.
Education is in crisis,
especially things like local
services are in crisis.
So how can it be possible that on the one hand
taxes are the highest they've ever been
and on the other hand,
government services are like
the worst they've ever been, or
they've been in decades.
Taxes pay for government
services, so if taxes are super high,
how can government services be
super terrible? And
the reason which is often
given for this
and I think it's really
increased the popularity of the idea,
is basically that government is corrupt.
Government is corrupt,
so we’re paying loads of taxes.
Government p*sses the taxes up the wall.
You know, let's get rid of taxes,
let's get rid of government services.
And I think,
you know, there probably some truth to this.
I think there's probably always been
some degree of government corruption.
Government corruption
may well be higher now
than it has been historically.
If you look at some of
the things that happened during COVID,
some of the sort of Conservative Party
scandals, it does look like
corruption is increasing.
But I'm not an expert on
the levels of government corruption.
I don't work in government.
But I've been sitting and
thinking about this for a while.
I don't think it's enough to say that
corruption has suddenly increased massively.
And the more I thought about this,
the more I realised
there is another really obvious factor,
which basically never gets discussed,
which I want to explain to you today,
which explains really well
basically why the tax burden
has increased
and probably
will continue to increase
despite the fact that
government services are collapsing.
I think the best way to explain this
is to use an example.
Imagine you own completely
your own house.
No mortgage, no rent, you own your own house.
Some of you will be in that position.
Most of you won't be in that position.
Now, imagine you are in that position.
How expensive will your life be?
Well, for most people,
their housing cost
is their single biggest expense in their life.
Be that through paying rent or paying mortgage,
if you own your own house
outright,
you don't need to pay rent,
you don't need to pay mortgage.
And basically your costs in life are
very low compared to somebody else.
Now, let's imagine
situation changes and suddenly
you lose that house,
you completely lose that house, and now you
still need to leave,
but you don't own your house.
Your costs
will massively increase
because you have to pay
rent for a whole house, or you have to pay
a mortgage on a whole house.
So if you own your house,
your expenditures in life are much lower
than if you don't own your own house.
Now, keep this example
in mind and we're going to start
thinking about the government.
So I talk a lot on this
channel about increases in inequality of wealth
and what I say
very often is
that there are two groups in society
who are losing their wealth.
That is ordinary working families
like you, unless you’re very rich
and the government.
And both of these groups
have lost their wealth significantly.
Now, of course,
if you're an ordinary family,
especially if you're a young person from
from an ordinary family,
it would be very visible to you
that ordinary families are losing their wealth
because you'll be probably
struggling to buy a home.
Or you may be in a situation
where you think
you can never buy a home compared
to older generations, who could buy property.
But the loss of government
wealth is often
a lot less visible because we don't,
you know, we are not the government,
we don't think about what the government owns.
So I went to a talk by famous French
inequality economist Thomas
Piketty, of whom I'm quite a big fan,
a few years ago when I was at Oxford
and he showed us a graph
which I still remember today,
and we're going to show you that graph now,
which basically shows you
government wealth holding.
So what you can see in this graph is that
all of the countries in this graph,
the wealth holding of governments
has decreased significantly over time.
So that one line at the top is China.
You won't be surprised, the Chinese government
is essentially a communist country.
The government owns
a lot of the wealth in the country.
The other countries on the graph
are all Western countries.
So you've got the USA on there, UK in there,
Germany, Japan, I think France is on there.
And the story of the
rest of these countries
is basically all the same.
They’ve all the...
the wealth holding of the government
has decreasing significantly over time.
And I want you to notice that in the case of both
the UK and the US, that number went below
0% in the early 2010s.
So the aftermath of the 2008 financial crisis.
So what that means is the total wealth of
the UK government, the US government and
basically every other
Western government is in a pretty similar
situation, is now below zero.
So that means these guys have debts
bigger than their assets.
Note that that graph ends in 2014.
The situation during COVID
got significantly worse,
so now these graphs will drop down significantly
and what you will see is significant
negative wealth holding
for the British government,
for the American government,
basically every Western government.
Now, I want you to remember
the story I told you about you and your house,
because Western governments,
including the British and American governments,
are basically in this situation.
Back sort of 50 years ago,
Western governments had a lot of wealth.
They essentially own their own house.
Now, of course, when we talk about governments,
it's not just housing.
We're talking about governments
owning things like hospitals, like schools.
But of course, in the case of the UK,
the UK government did own also
a significant amount
of housing back in the seventies.
Governments have lost this wealth now.
So governments are in the same situation
basically as you would be if you lost your home.
So governments,
you know, they provide, in the West
a lot of services, education, health care.
They used to provide housing
for the poorest people in the countries
and they were able to do this
because they owned the wealth,
they owned hospitals, they owned schools,
they owned housing.
And what we learned
from that Piketty graph that I showed you
is that basically Western governments do not own
any wealth anymore.
And the fact that the number has dropped
below zero,
means that not only do
they not own wealth, they're actually
in a significant amount of debt.
So what does that mean?
Governments
still need to provide you with health care,
but they don't own the hospital.
Governments still need to provide you
with education,
but they don't own the school.
Governments still need to provide
the poorest people in society with housing,
but they don't own the homes.
Now, things like health care and education
are never very cheap to provide anyway.
You need
to pay for doctors, you need to pay for teachers.
But they're a
lot cheaper to provide
when you own the buildings.
If you don't own the building,
then you need to pay rent on the building.
If you have a massive
amount of debt,
then you need to pay interest on that debt.
So now governments are in situations,
just as you are in,
previously they didn't need to pay that rent,
they didn't need to pay that debt interest,
and now they've got to pay it.
What that means is
if they want to provide you
with the same level of service
that they used
to provide you with 30, 40, 50 years ago,
they simply need more tax money
because they no longer
own the assets
and they need to pay rent or interest
on those assets.
So I think this is a really important thing
for you to understand,
and it really completely explains the situation
that we are in.
The reason that governments
are having to charge much higher levels of tax
to provide much worse levels of service
is quite simply
because governments are much, much poorer now.
Governments are really poor.
And when governments are rich,
they have what you could call in
modern lingo passive income,
you know,
they own the property,
they don't need to pay for the property
and they can use those passive incomes
to provide you with government services.
Governments are no longer rich.
Governments are now very poor.
They need to rent everything they use,
they need
to pay interest.
And that means
they've taken that money from you.
And despite
taking more money from you, they can't
provide services.
That is what happens when you go
from being rich to being poor.
Now, this wouldn't necessarily be a problem
if the assets which the government
has lost, the wealth
which the government has lost,
were held by ordinary families.
So, you know, one thing I want you to realise is
this loss in government
wealth, you know,
these assets,
these hospitals, these schools,
they have not disappeared.
They're all still here.
These assets must have gone to somebody.
And if those assets had
gone to ordinary people, it wouldn't necessarily
be a problem.
I think the best example to illustrate
that is the council housing, right?
So when council housing was sold off in sort of
the ‘80s and the ’90s,
the people who benefited from that initially
were the people who lived in the council houses.
Council houses
were given to poorer people, so it benefited
the poor people.
Now the government didn't have the homes,
but the people who needed
the housing owned their own homes.
So it wasn't initially
a problem
if it was just a transfer of wealth
from the government to the people,
then it wouldn't necessarily matter
because the people would be richer now.
They could pay more taxes
or the government wouldn't
need to provide so many services
because you directly would own things
like your own homes.
The problem that we have is that actually
in the last,
you know, 30, 40 year
period
in which you have seen governments
have massively lost their wealth.
We have also seen a significant
loss of wealth in ordinary families.
And I think this is
something I talk about a lot on the channel,
but it is most visible in two things.
Number one, the massively decreased
home ownership rates for young people.
You know, here in this country
and in the US, ordinary families,
their wealth tends to be in housing.
So if younger people
are not getting housing, it's a sign
that families are losing their wealth.
And number two,
the massively increased debt levels
for ordinary families, especially families
who manage to get a mortgage.
So I think this creates a kind of
interesting and confusing paradox, right.
Which is
how can it be possible
that government has lost its wealth
and ordinary families who lost their wealth?
Now the government
gave, for example, the council housing
to ordinary families.
Now you have a situation where
both ordinary families and governments
are struggling to get housing.
And I think this reveals
the core of the problem, which is something
I talk about a lot on this channel,
which is that wealth, which transferred
initially from the government
to ordinary families,
has over time
ended up being held by the very rich.
And you know, this happens to...
If you want to understand the mechanism of this,
you should watch the video
we put a couple of weeks
ago called
How You Lose Your House, which is ordinary people
got this wealth from the government.
They use that wealth to support their lives,
to support their retirements,
to pay for end of life care.
And they ended up selling that wealth
to the rich.
The end situation is
we end up in a place where both the government
and ordinary families have very little wealth.
Now, this is.
it’s kind of a disastrous situation, right.
Because we've already learned
the government is
struggling to provide basic services
now because government is poor.
What does it mean if on top of that, ordinary
families are poor?
Well, that means
ordinary families can't afford housing,
which means they really need housing.
But the government who used to have housing
doesn't have housing either,
so they can't provide you with housing.
It also means that
people are living lives of greater poverty.
They will live in worse conditions,
they will even worse housing.
They will eat worse diets,
they will have more stress.
They will probably face more crime,
which means they'll need more health care.
But the government can't provide more health care
because the government has no assets.
So I think this
really realises, makes real the problem
that I talk about on this channel.
So people who’ve
watched for a long time will know
I'm very, very worried
about growing inequality of wealth.
And I think
people have become
used to the idea
that inequality is a social problem.
They’re used to, kind of, people on the left
arguing that we need less
inequality because it's unfair.
It's not good for society.
My worry is deeper than that.
My worry is that when you have
very high levels of inequality,
what it means is you can't get
basic essential needs like
housing and health care and education.
You know,
in our economy we have a distribution
of resources.
If both governments and ordinary families are
losing their wealth,
that wealth is going to the super rich.
And we've seen a ton of statistics
which show us that
the super rich have enormously
increased their wealth in the last three years,
we had the biggest ever one year rise of wealth
by superrich in the first year of COVID.
If we give all of the resources to the rich,
if we bankrupt both ordinary families
and the government, the consequence is
your family can't get a house,
your family can't get
health care, your family can't get
education, and the government
won't be able to provide them
because they are also poor.
So I think
once you recognise that that is the problem,
that governments have lost their wealth
and therefore they can't provide services,
the only option that they appear to feel
they have is to tax the middle class
who are also losing their assets.
You realise that
the fundamental question here
and the only real way to solve this problem
is to get the assets back, basically.
And that doesn't necessarily mean
increasing the size of government.
It could mean transferring assets back
from the very rich
to the middle class, to the working classes.
And the fundamental question is
how do you get those assets back?
And I think if you want to address that question,
how do you get the assets back?
It is very helpful to consider yourself
from the position of a wealthy person.
So consider you all like,
a rich person, but not a super rich person.
So say you've got a net worth of £5 million,
which is of course a lot, but the very rich
have much, much more than that.
If you have a net worth of £5 million,
lets assume you’re able
to make 5% a year on that £5 million,
you might make a bit less.
5% of £5 million is £250,000 a year.
Lets assume you make a bit less. £200,000 a year.
This is passive
income, you
get this on top of your work,
you don't do any work to get it.
You're making £200,000 a year.
How much money would you spend?
Imagine you suddenly had a
passive income of £200,000 a year.
You know,
the ordinary person
probably spends £20,000 to £30,000 a year.
I suspect you probably raised your spending
to £60,000 a year, maybe £70,000 a year,
which would massively improve your lifestyle.
And you still have another £130,000 a year
passive income,
which you could use to buy more assets.
Now, in a strong economy that is growing rapidly,
you might be able to use
this money to create more assets.
But we don't live in a strong economy
that's growing rapidly, we haven't for some time.
You're probably going to use this money to buy
existing assets,
probably from the middle class,
probably from the government.
But the big problem you have here,
you will never sell your assets, will you?
If you have £5 million in assets,
you've got £160,000 a year passive income,
which you use to grow your assets.
You will never, ever sell your assets.
So if we exist in an economy
which is not really growing,
the rich will never sell their assets.
Not only that, they will continue
to buy more assets.
You can see that it is already
and will become increasingly impossible
for the government
or for you as an ordinary family
to ever get any of your assets back.
So, you know, this is the situation we are in.
Government is taxing you a lot
to pay for sh*tty services
because government's bankrupt
and you can't afford to pay those taxes
because ordinary families are bankrupt
and all of that wealth
is gone to the rich who are going to use it
to buy the rest of the wealth,
making you even more bankrupt.
And this essentially is the reason why
what I always campaign
for is significantly higher taxes
on the very rich, because I don't see
any other way of you getting your assets back.
And I want to talk a little bit
about how this could work, how we could make
this society better.
I think the only way
you get wealth flowing in the other direction,
you tax very rich people much, much more.
You use that money
to significantly reduce taxes on working people.
Your taxes are less.
So you start to be able
to accumulate a bit of money.
Rich people's taxes are much, much more
so they need to sell their assets
in order to pay for the taxes.
You've got more money.
The rich need to sell assets.
You ordinary working families can start to buy
those assets back from the rich.
So the reason I support higher
taxation on the rich is because, number one,
it's the only way to reduce your taxes.
And number two, it's the only way for you,
ordinary families, to get your assets back.
The point I want to make here is,
you know, when I talk about taxes,
we're in an interesting
place here in society where,
you know, understandably, the middle class
is getting quite heavily taxed, largely
because the rich pay very low taxes.
And if you haven't watched,
I would encourage you to watch our video
Who Pays Tax?
Because the very rich often pay
very, very low rates of tax.
And that has led to a situation
where ordinary people
and particularly slightly higher earning
people, middle class people
are very opposed to tax.
And yet tax
is essentially
the only way that they will ever get richer.
So ordinary people have been
put in a situation where for very
understandable reasons,
they oppose the only possible
policy measure which could
save them from poverty.
And I think, you know, this is supported
by ideas like tax is wasted,
like tax is corrupt,
like tax goes to a corrupt government.
Taxing the rich can be used to lower your taxes
and that is the only way
that you can get your assets
back from wealthy people.
If we don't tax them,
they will continue to never sell any assets
have enormous amounts of passive income
which they and their kids will use to outcompete
you and your kids for the assets
which you currently own and in the end
your family will own nothing.
So listen, tax for me is...
it's not about increasing the size of government.
It's not about more
levels of government spending.
Tax for me is about defending
ordinary families
from the growing power and wealth of the rich.
It's about getting wealth
back into the hands of ordinary people,
and it's about making
life better, or at the very least
stopping life from getting worse.
So to conclude,
I would like to make the clear point
that the only way
to reduce the tax burden
for you, for ordinary families like you,
is to increase taxes.
But to increase taxes on the rich.
We're going to campaign for it.
We're here every week. Tell your friends.
Tell your mum. Thank you.
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