OECD: Taxing the Rich Promotes Economic Growth

An Organization for Economic Cooperation and Development report claims that not only does redistributing wealth through high taxes not slow growth — it is actually the best way to reduce income inequality that is responsible for weakened economic growth in rich countries, The Wall Street Journal reported.

The report found a "long-term trend toward higher inequality" in well-to-do countries. It said that such disparities in income in Europe, the U.S. and elsewhere contributed to economic sluggishness.

The report argued that OECD countries needed to invest in human capital by educating underprivileged children, since poor families comprise the bottom 40 percent in income distribution, the Journal reported.

"Redistribution policies via taxes and transfers are a key tool to ensure the benefits of growth are more broadly distributed and the results suggest they need not be expected to undermine growth.

"But it is also important to promote equality of opportunity in access to and quality of education," the OECD report said.

In measuring inequality of income the OECD said that northern European countries such as Sweden (at 6.3 percent) were less unequal than Britain (9.6 percent) and the U.S. (16.5 percent).

Of the 34 OECD countries, inequality was highest in Mexico, where the top 10 percent enjoys incomes 30 times larger than the bottom 10 percent, the Journal reported.

OECD economist Mark Pearson said the report showed a convincing link between rising inequality and weaker economic growth.

The report argued that U.S. economic growth would be 6 percent to 7 percent stronger had inequality not increased over the two decades from the 1990s to 2010, and the British economy nearly 9 percent more robust. It said that raising taxes to redistribute wealth would aid growth, according to the Journal.

There are some 120 million Europeans at or near the poverty level. The influx of millions of immigrants to Europe may have contributed to the income disparity. Many immigrants, particularly from Muslim countries, have become dependent on welfare.

Immigration critics note that the governments of Denmark, Norway and Sweden devote substantial portions of their budget to helping support non-European immigrants.

The 34-nation OECD sees its role as setting international standards to promote economic, social and environmental change and to recommend policies intended to improve the quality of people's lives.

Related Stories:

• Europe’s Immigration Issues Coming Here
• OECD: Wealth Disparity Worst in Decades