The illusions of a "wealth" tax

 Last week, the largest trade union organization in Bulgaria, the Confederation of Bulgarian Trade Unions (KITUB), publicly presented a proposal for a comprehensive tax reform. Among the many points put forward by the union, two measures stood out as the main pillars of the reform – the introduction of a non-taxable minimum for income tax and the creation of a new "wealth" tax to be imposed on people who own additional homes, expensive cars and other luxury goods.

What is the logic of a "wealth" tax?

The very moral logic of the idea of a wealth tax is quite questionable. It is extremely false and manipulative to claim that the rich should pay more taxes...because it implies that they almost certainly don't. But in fact they do. The income tax in Bulgaria is not very correct to call it "flat". Because it is rather proportional. How much leva a person pays in the form of income tax depends on how high his income is.

For example, a person with a gross salary of 1,000 leva will pay 100 leva in tax. But a person with a gross salary of 10,000 leva will pay 1,000 leva. Here, the rich pay more. How much more? Well, exactly as much as is proportional to their income. If they are 5 times richer – 5 times more. If they are 10 times richer – 10 times more. Isn't this the justice that the unions talk about? What is unfair about this system? What more could be asked for? This system treats everyone equally, with the only variable being the level of income, if you earn more – you pay more. This is the fairest possible form of taxation, even according to the logic of the unions themselves.

Another problem with this tax is that it can actually hit many people who are not particularly wealthy, but simply have additional properties. In Bulgaria, many people own their own homes. Owning a home is a much higher priority in our country than in many Western countries. There are also many Bulgarians who own more than one property, whether by inheritance or because they saved money to buy an apartment for their children to live in. I'm sure that each of you can think of acquaintances who don't have particularly high incomes, but have more than one property. Is it fair to punish them for this through a new tax?

The illusion of redistribution

This does not exhaust the problems with the proposal. The main problem is that it promotes an extremely false myth. Namely, that raising taxes on the rich does not mean redistribution from the rich to the poor. No. It means redistribution of money from some rich people (rich entrepreneurs and the like) to other rich people - politicians. This is raising taxes on the rich. Only after that, these second rich people decide what to do with this money. And yes, they can give it to the poor. Or they can give it to rich people again, but this time from those beloved family "businessmen" who are either their cousins, or their father-in-laws, or their political campaign donors. Which do you think is more likely to happen? This is

Here we are faced with perhaps the greatest illusion of taxation. Especially when you are told that it will only be for the rich. Yes, it may be for the rich, but it will still go into the pockets of other rich people. And it is precisely these rich people who are responsible for the bad reputation of the rich in Bulgaria. There is hardly a person who hates someone simply because they are rich. No, this is an extremely base way of thinking that can only be inherent in someone who is blinded by envy. Everyone will agree that rich people who have earned their wealth through work and providing goods that are highly valued by society have nothing to be punished for.

Think about it, who will really pay this tax?

On the other hand, there are those rich people who have not earned their wealth through hard work, discipline, and the provision of goods that are highly valued by consumers in the market. These are precisely people like politicians and their close businessmen who benefit materially from their political connections. These are the "harmful" rich, if we may put it that way. Because their wealth is accumulated from taxes, which are a forced seizure of money, not a voluntary exchange. Their profit is our loss. Compare this to entrepreneurs in the free market, who can only profit if people voluntarily buy their products. That is, only if people find benefit for themselves from these products.

Here, someone might object that politicians and all the crony businessmen connected to them will also be subject to this new wealth tax. Yes, on paper. However, we all know how things actually happen. Those in power always find loopholes in the laws, always find a way to avoid complying with the rules they want to impose on everyone else. Why? Because they can, precisely because they have power. You can be sure that the very ones you think should be punished with a wealth tax because they did not make this wealth in an honest and respectable way will pay this tax at the very least, if they pay it at all.

The focus of any tax reform should be...

In this vein, I have a proposal for our dear unions. It is obvious that they are on some kind of moral crusade against the "bad" rich people. This is evident from their rhetoric in the media in recent days. And since we briefly and clearly defined above which rich people we could call "bad" and which ones not, the proposal is very simple. If the unions want less money to go into the pockets of the "bad" rich, then they should only ask for a tax cut, not an increase.

Redistributing more money from some rich to other rich people will not help the poor. Especially when the rich who receive the money are our politicians. They will use this money only to make the poor more dependent on them - through more "social" benefits and similar instruments, the sole function of which is to make the poor dependent on politicians and thus ensure support for the expansion of their power.

What about the non-taxable minimum?

In this vein, the other key pillar of the unions' proposal – the introduction of a tax-free minimum – is a reform in precisely this, better, direction. The tax-free minimum would allow all people to keep a larger portion of their income for themselves. And indeed, as the unions themselves say, it is an extremely favorable tax measure precisely for the poor, who, having lower incomes, will be able to keep a proportionally larger portion of them than people with higher incomes.

The only thing to be careful about is that the introduction of a non-taxable minimum does not lead to a complete distortion of the tax system in Bulgaria. By distortion, I mean attempts to turn the proportional, transparent and fair system we currently have into a "progressive" one, with higher tax rates for the rich. Only other rich people will benefit from this. And completely undeservedly.

Do not be misled by the rhetoric of envy and class hatred. If tax reform is to be sought, it should be in only one direction – towards lower and simpler taxes. The reform proposed by the unions is rather the opposite. Increasing the tax burden and complicating the system, but disguised behind the introduction of a non-taxable minimum.

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