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Theodore Pelagidis*
The disappearance of the upper
middle class.
In Greece.
Only.
Tables and graphs from M. Mitsopoulos – ...
Middle class definitions
• Marx: middle class, a buffer between poor and the wealthy
• Aristotle: political communities wi...
Put the blame on “Dream Hoarders”
It’s not the 1% stupid! It’s the upper 20%!
Upper > 120.000$ / per year
Dream Hoarders in Greece?
Income falls, taxation increases
The relentless erosion of the most lucrative for the state part of the tax base
AADE 2012-2018 and GGDE 2010-11, annual st...
The relentless swelling of the lower income brackets.
AADE 2012-2018 and GGDE 2010-11, annual statistical bulletin. Years ...
The migration towards lower incomes during the crisis I
AADE & GSIS, Annual bulletin of statistical data, law on solidarit...
The migration towards lower incomes during the crisis II
AADE & GSIS, Annual bulletin of statistical data. * taxpayers wit...
Who pays what share of income tax – Do the high income Greeks pay taxes?
AADE & GSIS, Annual bulletin of statistical data,...
The precarious few that pay the bill for everyone else. 2,2+0,5=2.7% taxpayers (30.000+) pay 20,6% +21.4% =
42% of taxes. ...
11
Evolution of income by key source.
AADE 2014-2018, annual statistical bulletin. Years in figures are years
income was g...
High taxes everywhere
• Corporate income tax and dividends
• Excise tax on electricity for energy intensive industrial use...
Wage tax wedge: High & very progressive, very high taxes on labor
OECD Taxing Wages 2018 data.
OECD Taxing Wages 2018 data...
High, progressive, rates and low revenue.
How come?
Βecause of the high and progressive wedge: Few employees and even fewe...
Taxation of corporate income and personal income tax on dividends
Corporate income tax (CIT) was after 2015 on the high si...
Corporate income tax – Increases in tax advances, not a growth of the tax base
supports increased tax revenue
• Losses of ...
Tax base erosion in property? It can happen
Democracy & Middle class in the post-
globalization digital capitalism era
• Conclusions-Greece
Highest 20% = highest 2.7%...
Democracy in the post-globalization era
• Illiberal /authoritarian regimes are
becoming more efficient than
western countr...
Divided we stand
(highly fragmented global production chains are leading to an equally fragmented middle class and, thus, ...
Radicalization of Politics. Political
Fragmentation in Greece
Managerial and Decision Economics 12/2018, Pelagidis-Mitsopo...
Fasten your seatbelts and …get ready for an
even worse, more polarized, parliament (?)
Thank you
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19.6.2019, Παρουσίαση Θ. Πελαγίδη στο Συνέδριο "Η Ελλάδα Μετά ΙΙΙ: Η ανασύσταση της μεσαίας τάξης"

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Για τρίτη συνεχή χρονιά, ο Κύκλος ιδεών για την Εθνική Ανασυγκρότηση,
σε συνεργασία με τη Συμεών Γ. Τσομώκος Α.Ε., πραγματοποιούν το ετήσιο διήμερο συνέδριο H ΕΛΛΑΔΑ ΜΕΤΑ
στις 19 και 20 Ιουνίου 2019
στο ξενοδοχείο Divani Caravel.
Κεντρικό θέμα στο φετινό συνέδριο είναι: Η ανασύσταση της μεσαίας τάξης

Κύκλος ΙΙ: Οι επιπτώσεις της περιόδου 2009- 2019 στη μεσαία τάξη

https://ekyklos.gr/19-20-iouniou-ellada-meta-iii-i-anasystasi-tis-mesaias-taksis.html

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19.6.2019, Παρουσίαση Θ. Πελαγίδη στο Συνέδριο "Η Ελλάδα Μετά ΙΙΙ: Η ανασύσταση της μεσαίας τάξης"

  1. 1. Theodore Pelagidis* The disappearance of the upper middle class. In Greece. Only. Tables and graphs from M. Mitsopoulos – T. Pelagidis (2020), Who’s to Blame for Greece. Taxing ourselves to Death 3rd edition, MacMillan/Palgrave. Elaboration M. Mitsopoulos
  2. 2. Middle class definitions • Marx: middle class, a buffer between poor and the wealthy • Aristotle: political communities with large middle classes: better administered, not dominated by the extremes • M. Weber: the middle class is the broad group of people in contemporary society who fall socio-economically between the working class and upper class. The common measures of what constitutes middle class vary significantly among cultures. A sizable and healthy middle-class can be viewed as a characteristic of a healthy society. • R. Layard, people do care about relative standing… • R. Barro (JPE, ’99, Determinants of Democracy, with a sample of 100 countries) empirical evidence on: the higher the share of income going to the middle class, the more likely a society to be democratic. The propensity for democracy rises with per capita GDP, primary schooling, and a smaller gap between male and female…
  3. 3. Put the blame on “Dream Hoarders” It’s not the 1% stupid! It’s the upper 20%! Upper > 120.000$ / per year
  4. 4. Dream Hoarders in Greece? Income falls, taxation increases
  5. 5. The relentless erosion of the most lucrative for the state part of the tax base AADE 2012-2018 and GGDE 2010-11, annual statistical bulletin. Years in figures are years income was generated. It was submitted and the tax verified and paid in the subsequent year. Thus AADE 2018 data represents 2017 income in figure and the tax under 2017 was fully paid in 2018. • Following the rapid fall during 2009-2013 (tax return filing years 2010-2014), the number of taxpayers, income and tax paid by individuals with over €30K annual declared income rebound in 2014 because of legislative changes. • Most importantly, the gradual recovery of the country since 2014 has not stopped the erosion of the number and declared incomes of this, most lucrative for the state because of the very progressive tax system, income group. • Continuous increases in the progressivity of the personal income tax stabilize in the short term the tax take from this group, but cannot reverse the long term trend. • This income group still steadily declines, in spite of GDP stabilization & rebound! 5
  6. 6. The relentless swelling of the lower income brackets. AADE 2012-2018 and GGDE 2010-11, annual statistical bulletin. Years in figures are years income was generated. It was submitted and the tax verified and paid in the subsequent year. Thus AADE 2018 data represents 2017 income in figure and the tax under 2017 was fully paid • Since 2009 the number of taxpayers with under €10K annual declared income increases steadily. • Since the total declared income in this group remains broadly stable, as a result of a recent rebound, a continuous decline of the average per taxpayer income in this group emerges. • The contribution to the tax take of the government by this group remains negligible – but for private sector employees one should not neglect to take into account the high social security contributions that are in effect a tax for their non-retributive part. 6
  7. 7. The migration towards lower incomes during the crisis I AADE & GSIS, Annual bulletin of statistical data, law on solidarity surcharge (law 3833/10, as applicable in 2015 & current law). Definition of taxable income has been broadened and first applied on 2014 income that was taxed in 2015 (column 2015 here. • A large decline in declared incomes, and especially upper middle class income and higher high wage & pension income. This decline accelerated further in the 2015-18 period! • The increase in rates manage just to compensate for the large decline of incomes of the upper middle class, leaving essentially the tax take unaltered. • For the wealthy, a smaller percentage decline in incomes, along with the increase in rates, led to a small increase in taxes paid by 2018. • Incomes at the bottom are more stable, as many taxpayers migrated to these income brackets from higher incomes and almost all new jobs are generated there. 7 €millionor% 2010 2015 2018 %Δ15/10 Δ15/10 %Δ18/10 Δ18/10 Annual incomebracket €0to10.000 18.867,2 17.748,3 18.869,6 -6% 1.118,8- 0% 2,4 €10to30.000 55.152,5 42.573,8 41.694,8 -23% 12.578,7- -24% 13.457,7- €30.000to60.000 18.165,7 8.600,4 7.618,0 -53% 9.565,3- -58% 10.547,7- Over€60.000 7.832,6 7.090,0 5.430,0 -9% 742,6- -31% 2.402,5- Total 100.017,9 76.012,5 73.612,5 -24% 24.005,4- -26% 26.405,4- Annual incomebracket €0to10.000 13.116,4 14.163,0 15.444,3 8% 1.046,6 18% 2.327,9 €10to30.000 45.436,3 36.403,3 36.555,8 -20% 9.033,0- -20% 8.880,5- €30.000to60.000 13.921,6 5.514,6 5.519,5 -60% 8.407,0- -60% 8.402,1- Over€60.000 4.330,6 2.896,8 2.883,7 -33% 1.433,8- -33% 1.446,9- Total 76.804,9 58.977,7 60.403,3 -23% 17.827,2- -21% 16.401,6- Annual incomebracket €0to10.000 12,8 606,7 561,5 4623% 593,9 4271% 548,7 €10to30.000 3605,8 4657,1 4811,2 29% 1.051,3 33% 1.205,4 €30.000to60.000 3215,6 1987,6 1908,4 -38% 1.228,0- -41% 1.307,2- Over€60.000 2180,9 1998,8 1981,3 -8% 182,1- -9% 199,6- Total 9015,1 9250,2 9262,5 3% 235,1 3% 247,4 All income Wageandpensionincome Incometaxandsolidaritytax
  8. 8. The migration towards lower incomes during the crisis II AADE & GSIS, Annual bulletin of statistical data. * taxpayers with positive income. Registered taxpayers with zero income have been excluded. • A large decline in the, already relatively few, individuals that paid the majority of the personal income tax. High income earners declined further during 2018 (2017 incomes). • Surely, tax enforcement has become more efficient under the independent AADE, but at the same time tax evasion at all levels persists. But the decline of incomes is also a fact, and the number of high income earners declined further during 2017. • As the tax base moves to lower levels, policymakers are forced to target lower incomes to replenish tax revenue, ie with the reform of the tax return that basically exempted incomes of up to 180% of the poverty level from any income tax and with a reliance on social security contributions (that burden disproportionally to taxes low income wage earners). • This reduction has been, correctly, matched with a subsidy for children, but this subsidy has to be much more generous and linked, for higher incomes, with a tax rebate. Thus, beyond a “low income parental safety net” the planned reduction in the tax rebate should be linked with an increased tax rebate/credit for working families and the very elderly, as is common a number of core EU countries. 8 1.000 taxpayers or % 2010 2015 2018 %Δ15/10 Δ15/10 %Δ18/10 Δ18/10 Annual income bracket €0 to 10.000 3.338 5.043 5.244 51% 1.705,8 57% 1.906,8 €10 to 30.000 3.066 2.633 2.583 -14% 433,2- -16% 482,6- €30.000 to 60.000 446 220 195 -51% 225,2- -56% 250,1- Over €60.000 81 55 44 -32% 25,8- -46% 36,9- Total 6.930 7.951 8.067 15% 1.021,7 16% 1.137,2 Taxpayers *
  9. 9. Who pays what share of income tax – Do the high income Greeks pay taxes? AADE & GSIS, Annual bulletin of statistical data, law on solidarity surcharge (law 3833/10 & current law). Definition of taxable income has been broadened in the meantime. * taxpayers with positive income. Registered taxpayers with zero income have been excluded. • Greek taxpayers with over €30.000 annual income (just 2,9% of registered taxpayers with a positive income, from 3,3% in 2015 and 7,6 in 2010), have 17,7% of all declared incomes (20,61% of total in 2015 and 26% in 2010) and pay 42,1% of all personal income tax and the solidarity surcharge (43,1% in 2015 and 59,9% in 2010). Note that the taxes paid fall more rapidly than incomes in this bracket exactly because of the high progressivity of the tax rates. The unfortunate trends are strongest in the €30-60.000 (upper middle class) bracket. So especially the upper middle class pays a lot of taxes and at the same time has a very large decline of pre tax incomes – a process that is very costly for the state given the hyperprogressivity of the tax system! • Those with an income below €10.000 (65% of registered taxpayers with a positive income, up from 48,2% in 2010) pay much more than in 2010 (6,1% of total instead of 0,1%), mainly because of the taxation of “assumed incomes” from houses and cars, and the reduction of the tax exemption for self employed. Another factor increasing the income, and taxes, in this bracket is the continuing migration of incomes in this bracket (25,6% of total instead of 18,9% in 2010). So, yes the poorer pay more taxes than in 2010, but the comparison takes place with the zero basis of 2010 and the absolute number is low, reflecting again the very high progressivity of the system. • The €10.-30.000 bracket now has fewer taxpayers (32% of total from 44,2%), their share of income has stayed broadly constant but they pay more taxes (51,9% of total from 40%). 9 % share of total 2010 2015 2018 2010 2015 2018 2010 2015 2018 Annual income bracket €0 to 10.000 48,2% 63,4% 65,0% 18,9% 23,3% 25,6% 0,1% 6,6% 6,1% €10 to 30.000 44,2% 33,1% 32,0% 55,1% 56,0% 56,6% 40,0% 50,3% 51,9% €30.000 to 60.000 6,4% 2,8% 2,4% 18,2% 11,3% 10,3% 35,7% 21,5% 20,6% Over €60.000 1,2% 0,7% 0,5% 7,8% 9,3% 7,4% 24,2% 21,6% 21,4% Total 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% Taxpayers * Income Income tax& solidarity charge
  10. 10. The precarious few that pay the bill for everyone else. 2,2+0,5=2.7% taxpayers (30.000+) pay 20,6% +21.4% = 42% of taxes. 6 mil. Taxpayers pay only 6.1% of taxes AADE 2012-2018 and GGDE 2010-11, annual statistical bulletin. Years in figures are years income was generated. It was submitted and the tax verified and paid in the subsequent year. Thus AADE 2018 data represents 2017 income in figure and the tax under 2017 was fully paid in 2018. * without assumed incomes. ** Solidarity surcharge computed according to applicable law of year and according to AADE declared income. • The tax burden has increased for all income groups since 2009 (tax returns correspondingly filed in 2010). • At the same time progressivity has increased, but as incomes have dropped steadily in some brackets the stable burden reflects the counteracting effect of these two forces. • As the taxpayers have “migrated” massively to lower income brackets, this means that the disproportionate contribution of the higher income brackets to the personal income and solidarity surcharge take by the government has increased steadily (the 10,3%+7,4% =17,7% of declared incomes in the plus €30K bracket pay 20,6%+21,4%=42% of the tax and surcharge). We are talking here about less than 240.000 taxpayers (out of 8,9 million). 10 income bracket, annual income in € Taxpayers income, € mil. * Tax and surcharge, € mil. ** Taxpayers, % of total income, € % of total * Tax and surcharge, % of total ** - 840.762 9,4% 0,0% 0,0% 0-10.000 5.244.442 18.870 562 58,9% 25,6% 6,1% 10.000-30.000 2.583.077 41.695 4.811 29,0% 56,6% 51,9% 30.000-60.000 195.468 7.618 1.908 2,2% 10,3% 20,6% 60.000+ 43.973 5.430 1.981 0,5% 7,4% 21,4% Σύνολο 8.907.722 73.613 9.262 100,0% 100,0% 100,0%
  11. 11. 11 Evolution of income by key source. AADE 2014-2018, annual statistical bulletin. Years in figures are years income was generated. It was submitted and the tax verified and paid in the subsequent year. Thus AADE 2018 data represents 2017 income in figure and the tax under 2017 was fully paid in 2018. Data only since 2013 when coding system was renewed and thus is compatible for all years. • Wage income, as a declared aggregate, steadily increases. This is per se a positive development and reflects the steady rebound of the job market, even if it mostly happens at low wages. • At the same time, the successive pension reforms depress the related income in spite of the steady ageing of the society. • With the exception of the one- off increase in calendar year 2014 (when the new tax law applied fully with the publication of all circulars etc) declared income from dividends and interest (domestic and foreign) steadily falls.
  12. 12. High taxes everywhere • Corporate income tax and dividends • Excise tax on electricity for energy intensive industrial users– remaining issues • Taxes on communications • VAT • VAT on domestic air travel and coastal shipping • VAT on accommodation • Excise tax on fuels • Excise tax on alcoholic beverages & tobacco • Excise taxes & VAT on beer • Excise tax on coffee and wine • Stamp duty • Property taxes 12
  13. 13. Wage tax wedge: High & very progressive, very high taxes on labor OECD Taxing Wages 2018 data. OECD Taxing Wages 2018 data. Taxes in Europe database and SEV computation for some of OECD countries for some income levels and Bulgaria, Romania, Cyprus. High “from €0” and very progressive tax wedge in Greece. A root cause to many structural weaknesses!13 Move from middle to edge = highest progressivity in Europe!
  14. 14. High, progressive, rates and low revenue. How come? Βecause of the high and progressive wedge: Few employees and even fewer at higher incomes. Before the crisis high taxes for private sector employees were combined with weak enforcement among SMEs and self employed. This created a “barrier to growth”: Companies stayed small, large companies and their employees were relatively rare in Greece and self-employment was widespread as this allowed partial tax evasion that “rationalized” the high an progressive taxes on labor. As a result the tax base, especially among better paid private sector salaried labor, remained narrow. Monthly gross wages per company size. With employee SSC. Dec 2017. IKA/EFKA Employment share per company size. SBA Factsheet 2018 (2017 data) EC Taxation Trends in Europe, 2017, and employment to population, AMECO 2017.Self employed to population. AMECO 14
  15. 15. Taxation of corporate income and personal income tax on dividends Corporate income tax (CIT) was after 2015 on the high side, and is expected to move by 2022 to simply above average. Dividends, after the reduction applicable from 2019, are taxed competitively when compared to the “tax neighborhood” countries like Bulgaria, Romania and Cyprus. But in the case of a member of the board with over 3% stake, SSCs are added and in the case the solidarity surcharge of 9% applies (annual income over €65.000 and till €220.000) the total sum of taxes and SSCs can still reach 67% of pre tax pre distribution profit (65% after 2022), which constitutes a non- competitive tax performance. 2018 Taxes in Europe Database, PwC, Deloitte, KPMG, OECD. Greece 2019 & 2022 as currently legislated. 2018. Taxes in Europe Database, PwC, Deloitte, KPMG. Greece 2019 with & without (reduced) social security contributions. * Includes rebates for distributed dividends if applicable. Greece with solidarity surcharge 9% (top rate is 10%), which can coincide with full SSC for a board member and shareholder with over 3% and who has not exhausted the SSC ceiling. 15
  16. 16. Corporate income tax – Increases in tax advances, not a growth of the tax base supports increased tax revenue • Losses of loss making Greek companies are normalizing, but the (taxable) profits of profitable companies recover only slowly. • Tax revenue increases at the same time as a result of expanded definitions of taxable income, increased rates and increases in tax advances for the next year. • The very high tax rates formed a disincentive to seek profits – no surprise profits did not grow! • Tax on dividends reduced to 10% from 2019, and on profits set to decline to 25% by 2022. Published annual accounts, ICAP database. AE & EPE are all limited liability companies and partnerships (ΑΕ & ΕΠΕ & ΙΚΕ). NF sector: non financial sector. 2018 first wave data, second wave is expected to add up to 20% to the number of companies, but they are usually small loss making companies and add less than 5% to total sales. Year of P&L statement, full accounts published in year+1. Ministry of Finance, Data from monthly budget execution bulletins that is gross of returns. Annual budgets for tax revenue that is net of tax returns data not any more available after 2017. Calendar year. 16 OECD Tax Database, Law 4172/12, Law 4472/17, Law 4387/16, Law 4334/15, Law 3986/11, Law 4578/2018. Calendar year.
  17. 17. Tax base erosion in property? It can happen
  18. 18. Democracy & Middle class in the post- globalization digital capitalism era • Conclusions-Greece Highest 20% = highest 2.7%GR (30.000+) or=31.1% (10.000+) • No future without a prosperous upper middle class. Globally, “dream hoarders”, in Greece the real middle class (“astiki taksi”) almost disappeared. • Middle class in Greece reminds C. Lasch’ ‘Minimal Self’ as… LESS ROOM- OPPORTUNITIES FOR THE AVERAGE MAN TO MAKE A LIVING • Varieties of ‘big time’ capitalism (no free market, BREAKS THE BACKBONE OF THE MIDDLE CLASS!) • 1. western liberal • 2. Asian authoritarian • Three variables cross section: Efficiency, Prosperity, Democracy (the right sequence?). Asia: With efficiency you get prosperity but not democracy. West: No prosperity/democracy without efficiency!
  19. 19. Democracy in the post-globalization era • Illiberal /authoritarian regimes are becoming more efficient than western countries with reliance on: • Semi-free market global capitalism*, • technocratic governance • leader authenticity • What the Hong-Kong demonstrators tell us about the future of the middle class in Asia? • The new trilemma?: Prosperity, Democracy, efficiency. -Prosperity goes with efficiency. -You need efficiency for prosperity and for liberal democracy (in case u choose it…) -Democracy does not provide necessarily prosperity and efficiency. Not any more. Nor it is the indispensable outcome of growth (Asia paradigm) The sequence is: Efficiency, prosperity, and possibly (!) democracy If you have efficiency, you may choose either prosperity (Asia) or Democracy (or both (Europe)?
  20. 20. Divided we stand (highly fragmented global production chains are leading to an equally fragmented middle class and, thus, to an equally fragmented political system?
  21. 21. Radicalization of Politics. Political Fragmentation in Greece Managerial and Decision Economics 12/2018, Pelagidis-Mitsopoulos 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 50 100 150 200 250 300 2000 2004 2007 2009 2012May 2012June 2016January 2015September Seats 2 biggest parties % votes 2 biggest parties 0 1 2 3 4 5 6 7 8 9 2000 2004 2007 2009 2012May 2012June 2016January 2015September Parties in parliament 0% 10% 20% 30% 40% 50% 60% 2000 2004 2007 2009 2012May 2012June 2016January 2015September Syriza - radical nature after 2015 debatable Golden Dawn LAOS Independent Greeks Communists Vote share of extreme parties in parliament 34% 36% 38% 40% 42% 44% 46% 0 1 1 2 2 3 3 4 2000 2004 2007 2009 2012May 2012June 2016January 2015September Parties in government Government vote share
  22. 22. Fasten your seatbelts and …get ready for an even worse, more polarized, parliament (?) Thank you

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