A new United Nations Trade and Development Report has found that reducing taxes for those who earn the most has not delivered widespread economic prosperity, as promised. In fact, the UN has found that such policies have caused developed economies to stagnate and grow increasingly unequal.
The UN report found that better income distribution within an economy helps to stimulate the economy in the short term while providing stronger incentives for investment, innovation and job creation in the long run.
Progressive taxes do not reduce incentives to invest in fixed capital, innovation, and skills acquisition. On the contrary, the reduction of inequality that can be achieved by progressive taxes is more likely to accelerate traditional growth and employment creation than the current trend towards less progressive taxation and lower social transfers.
Also of interest in the report was their finding on labour-market flexibility. The UN found that, not only has deregulation of the labour market failed to reduce unemployment, but it has even tended to exacerbate it!
What’s the solution? One answer is to do the exact opposite of the National Government and reintroduce more progressive tax rates.