CREATE HUGE MIDDLECLASS TO PAY MORE TAXES THAN THE FEW RICH
It is ironic how the highest income earners get so occupied trying to cut their taxes by campaigning for regressive measures that cut the number of middleclass. Actually, they are campaigning against their own pockets by limiting middleclass earners that can shoulder more of the taxes they detest. Liberals and conservatives agree that: not enough high income earners to pay for all the taxes needed for social and health cares.
Africans leaders and policy makers need to learn from the recent economic realities in Europe, America and China. Most of the European countries that slashed taxes for the high income earners while reducing social services like Britain are worse off than United States that championed economic stimulus, though inadequate. The usual comparisons are Ireland austerity measures which Iceland refused to copy and came out ahead.
United States saved the world financial crisis and its auto industries from depression by stimulating its economy with little cooperation from the conservatives. In fact, United States could have been better off if it had spent more in repairing and rebuilding its infrastructure and less on big financial institutions that were too big to fail. They made bigger profit on Government low interest loan and refused to lend to small businesses.
Big businesses and the very rich got into this vicious circle that they cannot hire because there was no demand for goods and services. They are totally blind to the fact that those that create demand for goods and services are more middle income earners and the poor that spend most of their income on those goods and services for survival. The rich and the upper class already have more money than they can spend, they will not create immediate demand from the factories in large quantities to stimulate production.
This is the lesson African countries refused to understand by glorifying the very few connected politicians and their cronies that spend most of their income outside Africa. By killing the middle class in Africa, we have created a few stupendously rich folks while creating mostly poor people that have no means of creating local demands for the basic necessities of life. The income gap is wider in Africa than it is in the Western countries.
There is a pattern of a few, commanding most of the total income of the country. Using United States statistic, compared to that of Nigeria from one of El Rufai’s articles, since we are stingy with freely published accurate data. The highest fifth of US population got 45% of the income in 1982 and the top 5% made 17% of the income. By 2011 the highest fifth got 51.1% share of all income while the top 5% made 22.3% of the income.
You can imagine what that translates into in Africa where the people that cannot avoid most taxes are the poor, struggling small and medium businesses while the rich and big businesses like in all countries hire tax accountants and lawyers to pay disproportionally less either legally or by bribing politicians. Most transactions with a Ministry or agency cannot be concluded without evidence of tax clearance. Individuals, small and medium business owners must tender their tax clearance. Even then, Lagos State Government had to lock up some big businesses for not paying taxes.
Between 2004 and 2012 in Nigeria, the Federal Inland Revenue Service stated that 100 business owed N169 billion in tax arrears. Yet by PricewaterhouseCoopers Taxes 2012 report: medium size companies in Nigeria paid about a third of its commercial profit. Of course, it means of whatever was declared. They hardly pay their employees well.
Nigeria Personal Income Tax at an average graduating rate varies from 7% to 24% of the individual’s annual income graduated for those above N1.6Million and N3.2Million per annum, if they can get them to declare and pay like PAYE, pay as you earn. Nigeria was rated clumsy apart from Vietnam, Bolivia and Brazil that must be doing something right. Since American companies that legally paid no tax at home, would not pay in Africa.
So the usual cry of the conservatives in the Western world is that the upper 25% paid most of the income taxes while the lower 50% paid very little or nothing. In United States, the top 25% or 33,758,373 paid 15.22% average tax rate. Their group share of income taxes was 87.1% and share of total average income was 67.6% in 2010. While the lowest 50% group made very little or nothing. Who wants water out of stone?
Instead of complaining that the poor are not paying enough taxes, one would think that by moving them into higher income tax bracket when they do not have to work for starving wages, there would be increasing number of people paying more taxes to take care of their needs as they get older in need of medical and social services.
Indeed, majority of the people that could not afford to pay taxes in Africa or even in the western world are the senior citizens, students, the weak and children that are highly dependent on good schools and medical services so that they could become productive individuals in high income brackets paying their fair share of taxes. In order words, what we invest in children while growing up determines their status as high or low taxpayer.
By multiple flax taxes, the rich and powerful have neutralized and turned the meaning of divide and conquer against the middleclass and the working poor. African politicians accused one another of fueling ethnic animosities while their European and American counterparts accused the progressives of creating class envies. Nothing keeps the rich and powerful in their exalted positions more than the benefits of ethnic or class war.
Therefore, human rights have been divided into civil and women’s rights. Minority right has been divided into ethnic right and ethnic right has been divided into class right. The conflicts created by each of these have diluted the power of disadvantaged groups while the entrenched power remains powerful. We have to look at real situation in Africa, Europe and America to understand how the powerless were dislocated.
People of goodwill have come to realize that there is no society without inherent form of privilege enjoyed by certain groups. The privileged few keep themselves entrenched in position of power and without a revolution, they stay in privileged status forever. Concerned Liberals fear getting drawn into the bloody revolutionary war against the conservatives. So they fight for some relief for the underdogs in terms of fairness.
Written By Farouk Martins Aresa