` Super Rich Taxation could Boost the Economic Growth according to IMF ‘

#AceFinanceNews says that the `IMF says `Taxing Super Rich’can boost Economic Growth in the long run’

Published time: : March 01, 2014 20:28
 
Reuters / Kim Kyung-Hoon Reuters / Kim Kyung-Hoon
A new International Monetary Fund study has found that taxing the super wealthy does not stunt the economic growth of a country, and that redistribution can actually spur gross domestic product.

The paper argues inequality is harmful to a country’s growth, and that redistributing wealth using taxes can reduce inequality and boost growth and the length of growth cycles.

“There is surprisingly little evidence that increases in tax rates impede medium-to-long-run economic growth,” the IMF paper says.

Redistribution is a win-win situation and overall has a “pro-growth effect”, and is not a job killer, as many other economists argue.

Growth inequality is more common in countries that redistribute less, and more equal societies have “faster and more durable growth”. The paper addresses extremes in the formula that sometimes suggest huge redistribution has a negative effect on growth.

America’s tax authority, the International Revenue Service, released a report in November 2013 that shows that the US’s richest 1 percent now owns 31 percent of its wealth, while the rest of the population experienced an income rise of only 1 percent.

A recent Oxfam study shows that up to 146 million Europeans are at risk of falling into poverty by 2025, and 50 million Americans are currently suffering from severe financial hardship.

“We find that higher inequality seems to lead to lower growth. Redistribution, in contrast, has a tiny and statistically insignificant (slightly negative) effect,” the IMF paper states.

However, the report admits that labor supply could be adversely affected by a top heavy tax scheme.

“Redistribution that takes from the rich and gives to the poor is likely to reduce the labor supply of both the rich (who are taxed more) and the poor (insofar as they receive means-tested benefits that reduce incentives to work),” the report said.

The IMF study, compiled by researchers Jonathan Ostry, Andrew Berg and Charalambos Tsangarides and published by Oliver Blancard, the institution’s chief economist and released on Wednesday, is meant to serve as a ‘discussion note’ and not an official stance of the Washington-based institution.

“Redistribution, Inequality, and Growth” stops short of declaring the paper economic gospel, as the authors admit the data, and discipline of economic theory, is complex and many different variables are at play.

‘Tax the rich’ has become the main mantra of Warren Buffet, America’s second richest man, who has urged Congress to raise taxes on millionaires to 30-35 percent.

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Fiscal Regeneration As Economy Slows

Federal Open Market Committee

Federal Open Market Committee (Photo credit: DonkeyHotey)

Members of the Federal Reserve’s policy-setting committee pared back their expectations for short-term U.S. economic growth as a result of tepid consumer spending and employment growth, Federal Open Market Committee minutes reveal. The FOMC warned that a potential intensification of the European debt crisis and the looming fiscal cliff also present ‘significant downside risks’ to the outlook. As such, the FOMC considered new policy options, including a large-scale asset purchase program and the extension of the Fed’s low-rate pledge to jump-start the economy.

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The Differences Between Inflation and Unemployment

Unemployment

Unemployment (Photo credit: Dekonstruct2009)

This was an extract l came across the other day courtesy of Reuters and tries to explain how they initiate the various scenarios that exist! In how to control inflation, interest rates and unemployment. Also as these are the main protagonists that act in various ways to prevent the growth, that so many countries want!

Firstly before l continue l would like you to read this extract, then l will explain simply why these 3 factors cannot be controlled! 

Copied and pasted as it was written:        

Ben Bernanke and the rest of the FOMC faced similarly stark costs and benefits this week when they weighed additional monetary easing: in Ryan Advent’s words, it’s a choice between “a trillion-dollar output gap and 6 million unnecessarily unemployed workers,” versus “having 4% inflation for a year rather than 2%”. For Tyler Cowen, who in his own words is “more agnostic about the gains from monetary expansion than are many of its advocates,” the choice was easy: The Fed clearly should pursue a more expansionary monetary policy because “the costs of inflation, within reasonable ranges, are not very high”. Ultimately, the Fed announced this afternoon that although inflation has declined and unemployment hasn’t, there would be no new easing.

So let us look at these 3 areas in the way they impact on the life blood of any country. I call them the life blood as so often many governments forget that without this life blood,the heart of any country would stop pumping and producing growth. Well that is exactly what has happened and try as they may they cannot ” kick-start growth” well kicking anyone to buy or consume will not work! As anyone knows when you beat any animal with a big stick it becomes used of being beaten, well it works the same with kicking a person or an economy! Though sooner or later they will kick-back and will take themselves away from the situation and as we know the bull market will become a bear! As this is the only way the market can bear the ups and downs wrought upon it!

So let us start with ” interest rates” and the fact that we need to keep it low! Why? so that our economy will not grow too quickly or explode! It is simpler to control borrowing and lend to more people already in sinking in debt! This of course leads us to the fact that if we do not lend we cannot provide growth. Then without growth no kick-start to the economy, hence no growth!

Next we need to look at ” inflation” and how it cannot be allowed to become uncontrollable and so we cannot spend too much on public services and thus we have to maintain a balance! The problem is all types of inflationary measures have failed in the past and when we start to grow and people borrow too much debt we fuel inflation and eventually,we have another crash.

Lastly and to me most important is the life blood of our economy and that is unemployment or maybe its proper title employment. I use the word ” proper” in other posts quite often, as in ” prosperity” as this is true wealth built on firm foundations and provides an eternal balance.

So to put into ” prospective” we have to ” provide” employment to our life blood with a “secure” and safe environment and an income sufficient to look after themselves and their family.

What we have is a vicious circle of inflation and unemployment fueled by interest rates, borrowing and debt!

Is it not time for a change? Add your comments ,like and share!

Thank you Ian [Editor]

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