(7k) Possible tax system reforms that benefits everyone
In Belgium, attempts to form a government stalled (partly) due to disagreements over tax reforms as these should be more balanced. While these reforms are essential, they should not disproportionately benefit the wealthy, as this would place a greater burden on middle and lower-income citizens. When the majority can no longer afford to spend, businesses will suffer as consumer demand will decline, leading to a decrease in profits. Initially, probably local companies are more affected, but eventually, even larger corporations will feel the impact as well.
In the UK in 2022, Prime Minister Liz Truss’s government also found it essential to reform the tax system, but her government collapsed shortly after introducing a plan as it was considered too extreme and bad for the economy. PM Truss argued that British taxes were among the highest globally, a claim that seemed exaggerated — especially compared to Belgium’s system which imposes much higher taxes at lower income thresholds. While some countries do have lower tax rates, these often come at the cost of reduced worker protections and benefits. The West should not forget that wealth for everyone came to our countries because of better worker rights, they didn't end wealth creation, although certain people think that only a few should benefit from extremely high incomes.
Comparing Tax Systems: The UK vs. Belgium
This article has been brewing in my head since PM Truss's government proposed the reforms that ended her government, even earlier, hence the older data below from around that period.
The tax structures in the UK and Belgium differ significantly. In Belgium, taxpayers face a 40% tax rate once they earn over €13,540, whereas in the UK, this rate of 40% only applies to incomes above £50,271. In Belgium, tax-free earnings generally apply up to €10,160, and depends upon the number of children. However, elsewhere I find that rate 1 in Belgium is 25% and applies from €0.01 to €13,540. The system seems more transparent in the UK, where there are no taxes up to £12,570, and income is taxed progressively within broader income bands, starting at a basic rate of 20%. The figure with printscreens from the websites of the respective governments show more details.
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| Tax systems in UK and Belgium as on the official websites in September 2022 |
This narrow tax scale in Belgium creates an issue for Belgian taxpayers moving up the income ladder, so Belgians often complain after a rise in income. Indeed, a small raise can result in higher tax rates that cancel out the benefit of the increased earnings. Only at higher income levels do taxes stabilize, allowing individuals to fully benefit from pay increases and take advantage of tax deductions for expenses like charity donations or mortgage interest. In the UK, the wider tax bands allow for incremental increases in net income, with a higher tax rate applying only when income reaches a sufficiently high threshold. Further, the highest tax rate of 45% on income above £150,000 in the UK is lower than the highest in Belgium where this higher tax rate of 50% already applies for much lower incomes of over €41,360. For extra legal payments, tax rates can be even higher.
As a result, the Belgian tax system disproportionately favors those with higher incomes, and only lowering the highest tax rate to maximum 50% as some suggest will not benefit those on lower incomes. For those already in the top tax bracket, any raise in income translates into a net increase, while the wealthy can further reduce their tax burden through deductions such as when they buy a house, have an extra legal pension, and other possibilities such as giving to charities which they can include in their tax return for tax reductions, often inaccessible to low-income earners. Thus, larger income brackets before going into a higher tax rate whereby only the income above a threshold is taxed at a higher rate while below that threshold remains taxed at the previous rate would especially benefit lower and middle-income taxpayers as any increase in wages will be felt more, and thus people who work will benefit from doing so while they can spend more. Still, it is not necessarily bad when lower incomes move a little faster to a higher tax rate, such as in case they want to buy a house so they can benefit larger tax returns, while those who don't pay taxes (such as PhD students on a grant) can't have any tax return, not even when they buy a house.
A larger income bracket is also beneficial for companies because, when they continue to pay their employees the same net income so employees don't lose money, the company will pay less as taxes are lower and thus also the gross wages they pay. Companies can also reward their employees by increasing wages that can still remain in the same tax rate, and thus for a certain net increase, companies don't need to increase wages too much, even when the income reaches the threshold of the next higher tax rate as this indicates a large increase in wages.
Addressing Budgetary Balance
Expanding tax brackets as described above, however, would reduce government revenue, necessitating offsetting measures to prevent further increases in national debts, which in turn could lead to further wealth concentration among the rich because less money would be available for low-income individuals. One potential solution is to close certain loopholes for the rich by reducing certain tax deductions, which could stabilize government revenue to some extend without eliminating all deductions. For example, rather than removing incentives entirely for everyone - such as homebuyers - tax deductions could be limited to properties below a certain value, with no deductions for secondary homes. This would allow lower- and middle-income individuals to continue benefiting when they buy a house, while ensuring the wealthy bear nearly the full costs of more expensive or extra properties. Another example, pension funds could be stimulated by maintaining or expanding tax deductions up to a certain limited amount that is within the reach of everyone, as is currently the case in Belgium. In the USA, also President Biden suggested in this second presidential election campaign to close certain loopholes so the rich would have to pay about the same taxes as ordinary people; people decided to vote for the rich who will act against them to balance the budgets. Indeed, people think they are not affected when civil servants are fired, but later complain public services are bad while the private sector that may take over certain service are mainly for those who can pay for them.
Moreover, a modest tax increase on very high incomes could be introduced, such as an additional 1% on earnings between €1 million and €5 million, and higher rates for even higher incomes. This would not impoverish the wealthy but could help ensure a more balanced fiscal structure. For the UK, it has been calculated that a wealth tax of 1% above an individual’s net wealth of £10m would raise about £43bn from 22,000 wealthy people; of course, this is likely less for Belgium with a smaller population. Such an extra 1% tax on top of the normal tax rate for someone earning €1 million per year would generate approximately €10,000 in additional tax, a manageable sum for high earners. By contrast, applying the same 1% increase on top of the normal tax on a more modest income, such as €1,500 per month, would amount to only about €15 per month or €180 per year for that person, a small amount that could nonetheless significantly affect the individual’s discretionary spending, particular when they already struggle to meet basic expenses. Of course, politicians may claim that many small amounts benefits the budget. While such minor increases in taxes for the wealthiest might be more easily absorbed by them to help maintain balance, if they refuse it could become necessary to impose larger taxes in the future if societies demand a larger contribution by the wealthy to reduce the burden for ordinary people to reduce national debts, and to make that reduction achievable.
Additionally, it is worth questioning the fairness of allowing the wealthy to deduct expenses like business dinners from their taxes, while ordinary people must pay these costs out of pocket. Similarly, company car benefits - including fuel - are often enjoyed by higher earners, who may discourage employees from requesting raises by claiming the company cannot afford it. A notable example is Amazon, where former CEO Jeff Bezos became one of the wealthiest individuals in history, while many of his employees receive low pay, and even limited breaks as these are considered damaging for the company's profits, and thus its workers are angry. And while those large multinationals pay little corporation taxes, smaller local companies often pay more to compensate for the loss of revenue due to those lower taxes for big business, and thus there is increasingly the request that large companies pay at least a minimum tax.
Inheritance taxes can also be an effective tool for raising government revenue to fund essential services like affordable healthcare. They can be structured with lower rates for smaller inheritances and progressively higher rates for larger amounts. This approach discourages excessive wealth accumulation that remains unused, addressing concerns that too much wealth sits idle in bank accounts rather than circulating in the economy to drive growth. While some wealthy individuals argue that ordinary people save excessively, these savings often serve a purpose, such as preparing for retirement when income will be lower, covering healthcare costs, or funding long-term care in later years. Still, it is a difficult issue as the UK where inheritance reforms are made show. Indeed, farmers complain the inheritance tax may destroy their business, something undesirable as farmers are essential to provide us with food. A possible solution may be that farms are listed as companies so no inheritance tax needs to be paid, but instead the farmer's children, or other people can buy the business so the persons who sell have money for their retirement. Not sure what is the best way forward, but too much wealth not spend is not good for societies.
Supporting Lower-Income Households
At the same time, certain benefits should benefit those in need. Subsidies could be awarded based on income and not one-for-all, for instance to ensure that children from low-income families can attend university. Schools and universities should also be encouraged to reserve places for students from less advantaged backgrounds, promoting social mobility and opportunity for all. Indeed, studies show that children from less advanced backgrounds need more help to be able to study what they which as they start with a disadvantage.
Also the use of certain basic volumes of water and energy for each individual should be free from charge as these are basic rights, while the use of higher volumes should be at a cost, first a moderate cost as most people use more than only basic needs, such as to clean the house, but also a high cost for extreme high user such as those who fill private swimming pools. This way, each individual can drink and shower, thus basic hygiene while use energy for cooking, but equally, people will understand that these commodities are not free and should be used wisely or their use becomes expensive.
Further, to avoid poverty, although unemployment benefits must exist, they should be sufficiently low to force people to search for work. But, in case people can't work, such as because of illness, extra financial support should be available. Still, when people own private houses they rent out, this should be considered as self-employment, and thus those owners don't need to receive unemployment benefits when their income from houses they let is above a certain level.
Final thoughts
This approach is not about targeting wealthier individuals unfairly but about encouraging a more balanced and equitable society. An excessively unequal world is ultimately unsustainable, impacting everyone’s well-being, including that of the wealthy. In the context of today's world and climate change, a meaningful step could be for wealthier individuals to contribute to climate funds that help others reduce their carbon emissions by improving home insulation and transitioning away from fossil fuels. This contribution may be taken into account for their taxes without it benefiting them more than their contribution, such as a reduction in their income with the amount they invest in others so they may reach a lower tax scale without receiving tax reductions on what they contribute, or the majority will pay again. Solidarity in times of crisis is crucial, as we’ve seen from the widespread impacts of recent climate disasters — no one is immune when disasters strike. Yet, human nature often leans toward self-interest, even when ultimately it is against self-interest when the transition towards a better world is impossible. In times of crisis, wealthier individuals may naturally expect priority in aid while this may be refused when people are angry. This reinforces the importance of building a more resilient, inclusive approach now, so that when emergencies arise, everyone’s needs are considered. Otherwise, societies become dangerously angry when the rich may blame the poor that they contribute too little and cost too much, while in reality the wealthy receive most benefits via tax deductions.
And thus, contrary to what the Tory party is now claiming that we need one tax system for everyone, I argue in favour for gradations so the strongest shoulders pay most. My post on Facebook explains why:
The Tories are already preparing to win the next elections with their proposal for a flat tax system, thus one tax rate for everyone. People will applaud this. Still, those in lower tax rates will likely pay more while the rich in higher tax rates will pay less. Thus, government revenue may go down, and as such reduced benefits and likely less money for healthcare while people may have to pay the private sector for good services.
With a "thank you" to ChatGPT that helped with the improvement of most of the text, although I couldn't resist to make so charges myself, such as to add certain examples.
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