Tax the rich

The Socialist Party's message in the parliamentary elections on September 25, 2021: Fourth offer presented to voters around Pentecost:

SOCIALIST TAX POLICY PART I:Tax the rich

The breakdown of the tax system during the neoliberal years was a counter-revolution of the rich, aimed against the post-war idea of the welfare state. This revolution not only transferred enormous funds from public coffers to the wealthy, but also greatly increased the tax burden on the majority of the public and multiplied fees for public services. The very wealthiest escaped taxes and became much richer. And the public paid the bill.

Tax cuts for the wealthy were justified by arguing that lower taxes on capital and business owners would stimulate the economy so much that everyone would benefit. This is the so-called trickle-down theory, a nonsensical theory that has long since failed. In addition, it was argued that with low taxes, tax revenues would increase as tax evasion would decrease. The experience was the opposite; capital in tax havens increased significantly during the neoliberal years. Lower levies on the rich did nothing but increase the wealth of the rich. The consequence was a weaker position for public funds. This situation was then met with the sale of public assets, privatization, outsourcing of public services, increased fees, and tax increases on wage earners and the public, especially those with middle and lower incomes.

It is the nature of a capitalist economy to relentlessly transfer money from those who have little or nothing to those who have much and always want to acquire more. The post-war tax system was intended to counteract this unnatural tendency, to protect society from the tyranny of capital. The tools were progressive taxes; to specifically tax wealth, super-incomes, and market size and scope. Neoliberalism dismantled this system and unleashed capital on society, amplifying the wealth and power of the rich and eroding the power of the public.

But now neoliberalism has fallen as an ideology, and no one unblushingly advocates the trickle-down theory. There is therefore no reason to maintain a tax system based on neoliberalism. A fundamental prerequisite for a just society, built on the interests of the public, is to abolish the tax policy of the cruel economy of the few and build a tax policy suitable for the caring economy of the many. The first goal of this policy is to counteract wealth accumulation and tax the rich.

I. Tax the rich: Wealth tax

To counteract the injustice of capitalism, which constantly transfers wealth from the many to the few, it is necessary to impose a wealth tax. A wealth tax is a property tax levied on assets exceeding what can be considered the normal assets of well-off middle-class people at the end of their working lives. The wealth tax must be progressive, from 2% on net assets exceeding 200 million ISK for couples up to 9% for couples owning more than 10 billion ISK. It is estimated that less than 1% of taxpayers will pay a wealth tax; over 99% of the population will not pay any such tax.

Property taxes are the oldest taxes in Iceland. The tithe of the Commonwealth era was a property tax. Property taxes were levied here for over 900 years, until the extremist ideology of neoliberalism declared them unjust. A wealth tax was temporarily imposed here after the Collapse, partly to retroactively tax a portion of the enormous profits of the boom years.

The purpose of a wealth tax today would be to tax the wealth that the rich have accumulated due to the tax revolution of the neoliberal years, to reclaim a portion of the wealth they extracted from public funds. This is therefore a taxation of abnormal wealth accumulation under unusual circumstances. The plans of the neoliberal years for massive tax cuts for capital and business owners were never put before the nation, as voters would have rejected them. Now is the time to put that will into action.

I. Tax the rich: Capital income and high-income brackets

During the neoliberal years, capital income was separated from other income, and taxes on it were lowered. Today, the marginal tax on earned income is 46.25%, while the marginal tax on capital income is more than half lower, at 22%. The lowest-paid people in the labor market pay almost the same proportion of their income in tax as the wealthiest capital owners. Earned income is subject to municipal tax, but capital income is not. The poor disabled person and the retired woman pay municipal tax to their municipality, but the wealthiest capital owner pays not a single króna.

This is an injustice that must be corrected. Capital income should bear the same tax as earned income, and the tax scale should be progressive and steep. A high-income tax is primarily relevant when capital income and earned income have been brought under the same tax system and are taxed together. With joint taxation of all income, the public with low capital income would benefit from tax reductions due to the personal allowance of current capital income tax rules.

In the post-war years, a period of significant economic growth, marginal taxes on these incomes were around and over 90% in our part of the world. In the first steps, a 60% tax can be introduced on incomes exceeding 5 million ISK per month, a 75% bracket on incomes exceeding 20 million ISK per month, and a 90% bracket on incomes exceeding 50 million ISK per month.

I. Tax the rich: Inheritance tax

Inheritance tax is fundamentally an income tax. Those who inherit receive assets and funds, and these should be taxed like other income. This is the basic rule. However, there is a societal consensus that normal inheritance from one generation to the next should be exempt from taxation, to respect family support systems. This is in the spirit of the post-war tax system. At that time, the marginal inheritance tax, the highest tax bracket, was comparable to the highest brackets of individual and corporate income tax.

The reduction of inheritance tax during the neoliberal years has primarily benefited the super-rich, creating an inherited class of wealthy individuals who inherit not only great riches but also the power and social status that come with them. An increase in inheritance tax is therefore a natural defensive reaction of the public's democratic system, a defense against our society reverting to a feudal system of inherited class.

Inheritance tax brackets should be the same as income tax. However, tax-free limits should be based on a good apartment price. If you inherit 75 million ISK, then 60 million ISK would be tax-free, and 15 million ISK would be subject to regular income tax. You would then pay 4.8 million ISK in inheritance tax and keep 70.2 million ISK. However, someone inheriting 20 billion ISK would pay, according to the same rules and tax brackets mentioned above, 17.8 billion ISK in inheritance tax and keep 2.2 billion ISK. Today, you would pay 7 million ISK in inheritance tax and keep 68 million ISK, while the one who inherited the wealth would pay just under 2 billion ISK but keep just over 18 billion ISK, paying only about 10% tax.

I. Tax the rich: Socialists' offer

The socialists' fourth offer to voters for the autumn elections regarding the restoration of taxation on the rich involves imposing a wealth tax to reclaim what the wealthiest people extracted from common funds during the neoliberal years, to tax capital income in the same way as earned income, to introduce high-income brackets, and to tax inheritance in the same way as other income if it exceeds the price of a good apartment.

The purpose of this is not only revenue generation for the state treasury and municipal funds but also to increase justice and decentralization of power within society. Unrestrained capitalism, which the tax system does not counteract, creates the tyranny of capital, a society of injustice and cruelty. The tax system is therefore a tool to implement more compassion, harmony, and justice.

But this is not enough. The wealthy have countless ways to avoid tax payments, both within loophole-ridden laws and by hiding assets, falsifying income, and evading tax payments in other ways. Low taxes on the wealthiest are only one arm of the cruel economy's tax policy. The other is a myriad of exemptions and poor tax oversight.

Another goal of the socialist tax system's tax policy is therefore to close the loopholes in the tax system and greatly strengthen tax oversight of large corporations and the wealthy.

Here you can read Part II of the offer:Stop tax evasionApproved at a joint meeting of the executive and policy boards of the Socialist Party of Iceland on the Saturday before Pentecost, May 22, 2021