Robin Hoods never die

We all remember well the famous tribute to Gen. McArthur: “Old soldiers never die; they just fade away.” Unfortunately it is impossible to repeat the same tribute in modern times for Robin Hoods. They never die, and never fade away.

The tale of Robin Hood has always been a very attractive topic for book writers, movie makers and some politicians. The reason is obvious: The majority of common people everywhere love the idea of taking from the rich and giving to the poor. For example, almost all parties on the left, including the social democrats, believe that the best way to solve the problem of poverty created by unjust income distribution is through a transfer of income and wealth from the rich to the poor. The simplest and most practical way to do that, they think, is through a suitable taxing policy.

However, poverty and unjust income distribution are very complex problems that cannot be solved by such simple remedies. In short, income and wealth transfer from the rich to the poor via a simple tax policy cannot solve such complex problems. Even before the last crisis, the poverty line stayed at effectively the same level in many countries despite various tax reforms that were designed to end the problem.

Not long ago, the Liberal Democrat Party of the United Kingdom proposed a “tycoon” tax. The tax’s name is politically quite attractive to the left and, more importantly, to ordinary British citizens who face economic problems. And then newly elected French President François Hollande also announced that he would target the rich with a new tax policy. The hottest topic during the recent TV debate between U.S. President Barack Obama and Republican challenger Mitt Romney were their opinions on taxing the rich.

These seasoned politicians surely know the failure stories of such taxation policies, which were implemented in some Western countries in the past. The problem is that the policies cannot feasibly ensure balanced income distribution and increased tax revenues. Past experiences have proven that targeting the rich has always been politically a very attractive move but was not successful when implemented by almost all leftist parties in Western Europe, especially after World War II.

It brought neither prosperity to the poor nor, particularly, increased tax revenues to the government. Instead, it destroyed investment for production incentives, at least for a time, and resulted in slower growth rates and higher unemployment which, of course, did not benefit the poor.

Recently, discussion about a similar idea has begun in Turkey. As growth is slowing down and new price hikes are becoming necessary to stop a drop in the budgetary balance, proposing higher taxes for the rich might seem politically attractive but not practical, as all historical facts and the stories of past failures indicate.

There is no clear evidence or past experience to indicate which maximum tax rate level is feasible in the interests of finding a rate which will not discourage new domestic and foreign investments and, at the same time, contribute considerably to narrowing the budget deficit. The policies taken must not do more harm than good.