Taxes. An unpopular opinion.

I think this post might be controversial because I have an unpopular view on taxes in today’s world. Let me briefly explain my position.

First, I am convinced that a progressive tax scale is harmful both for higher earners and for the economy as a whole. Let’s look at an example: Nick and Mike (yes, that reference).

Nick is a worker earning 24,000 euros a year, and Mike is a highly qualified specialist earning 132,000 euros a year. Under the current progressive tax system (for example, in Germany), Nick pays about 2,762 euros in income tax every year, while Mike pays about 48,822 euros. At first glance, that seems fair.

But what if we take into account the following:

1. Mike spent about five years and 110,000 euros on higher education.

2. Mike’s work makes a far more significant contribution to GDP growth.

The question is: why should Mike pay a higher percentage of his income in taxes? What if instead we had a flat tax? Let’s imagine a flat tax rate of 25% (which is high) with a 15,000 euro tax-free threshold (to take care of lower-income citizens). In that case, Nick would pay 2,250 euros in income tax, and Mike would pay 29,250 euros. You might think: 'That’s nonsense, the country will become poor.'

But I don’t think that would happen, because:

1. With a flat tax, wealthy people (not Mike, but those much richer) are more likely to pay their taxes, because it simplifies their financial planning and makes their cash flow more predictable.

2. A flat tax would stimulate economic activity, especially among small businesses and entrepreneurs, who are vital for our society.

3. Estonia. This small country has had a flat tax rate for many years, and over time it has become increasingly prosperous (I am talking about the hard numbers).

To be continued ⬇️