| To tax or not to tax - this question could | | | | income and economic activity;Forced every |
| have never been asked twenty years | | | | member of society to - directly or indirectly |
| ago.Historically, income tax is a novel | | | | - pay for professional services related to |
| invention. Still, it became so widespread and | | | | his tax obligations, or, at least to consume |
| so socially accepted that no one dared | | | | his own resources (time, money and energy) in |
| challenge it seriously. In the lunatic | | | | communicating with authorities dealing with |
| fringes there were those who refused to pay | | | | tax collection.Thousands of laws, tax |
| taxes and served prison sentences as a | | | | loopholes, breaks and incentives and |
| result. Some of them tried to translate their | | | | seemingly arbitrary decision making, not open |
| platforms into political power and | | | | to judicial scrutiny eroded the trust that a |
| established parties, which failed dismally in | | | | member of the community should have in its |
| the polls. But some of what they said made | | | | institutions. This lack of transparency and |
| sense.Originally, taxes were levied to pay | | | | even-handedness led to the frequent eruption |
| for government expenses. But they underwent a | | | | of scandals which unseated governments more |
| malignant transformation. They began to be | | | | often than not.All these very dear prices |
| used to express social preferences. Tax | | | | might have been acceptable if taxes were to |
| revenues were diverted to pay for urban | | | | achieve their primary stated goals. That they |
| renewal, to encourage foreign investments | | | | failed to do so is what sparked the latest |
| through tax breaks and tax incentives, to | | | | rebellious thinking.At first, the governments |
| enhance social equality by evenly | | | | of the world tried a few simple recipes:They |
| redistributing income and so on. As Big | | | | tried to widen the tax base by better |
| Government became more derided - so were | | | | collection, processing, amalgamation and |
| taxes perceived to be its instrument and the | | | | crossing of information. This way, more tax |
| tide turned. Suddenly, the fashion was to | | | | payers were supposed to be caught in "the |
| downsize government, minimize its disruptive | | | | net". This failed dismally. People found ways |
| involvement in the marketplace and reduce the | | | | around this relatively unsophisticated |
| total tax burden as part of the GNP.Taxes are | | | | approach and frequent and successive tax |
| inherently unjust. They are enforced, using | | | | campaigns were to no avail.So, governments |
| state coercion. They are an infringement of | | | | tried the next trick in their bag: they |
| the human age old right to property. Money is | | | | shifted from progressive taxes to regressive |
| transferred from one group of citizens (law | | | | ones. This was really a shift from taxes on |
| abiding taxpayers) - to other groups. The | | | | income to taxes on consumption. This proved |
| recipients are less savoury: they either do | | | | to be a much more efficient measure - albeit |
| not pay taxes legally (low income | | | | with grave social consequences. The same |
| populations, children, the elderly) - or | | | | pattern was repeated: the powerful few were |
| avoid paying taxes illegally. But there is no | | | | provided with legal loopholes. VAT rules |
| way of preventing a tax evader from enjoying | | | | around the world allow businesses to offset |
| tax money paid by others.Research | | | | VAT that they paid from VAT that they were |
| demonstrated that most tax money benefited | | | | supposed to pay to the authorities. Many of |
| the middle classes and the rich, in short: | | | | them ended up receiving VAT funds paid the |
| those who need it least. Moreover, these | | | | poorer population, to which these tax breaks |
| strata of society were most likely to use tax | | | | were, obviously, not available.Moreover, VAT |
| planning to minimize their tax payments. They | | | | and other direct taxes on consumption were |
| could afford to pay professionals to help | | | | almost immediately reflected in higher |
| them to pay less taxes because their income | | | | inflation figures. As economic theory goes, |
| was augmented by transfers of tax money paid | | | | inflation is a tax. It indirectly affects the |
| by the less affluent and by the less | | | | purchasing power of those not knowledgeable |
| fortunate. The poor subsidized the tax | | | | enough, devoid of political clout, or not |
| planning of the rich, so that they could pay | | | | rich enough to protect themselves. The |
| less taxes. No wonder that tax planning is | | | | salaries of the lower strata of society are |
| regarded as the rich man's shot at tax | | | | eroded by inflation and this has the exact |
| evasion. The irony is that taxes were | | | | same effect as a tax would. This is why |
| intended to lessen social polarity and | | | | inflation is called the poor man's tax.When |
| friction - but they achieved exactly the | | | | the social consequences of levying regressive |
| opposite.In economies where taxes gobble up | | | | taxes became fully evident, governments went |
| to 60% of the GDP (France, Germany, to name a | | | | back to the drawing board. Regressive taxes |
| few) - taxes became THE major economic | | | | were politically and socially costly. |
| disincentive. Why work for the taxman? Why | | | | Progressive taxes resembled Swiss cheese: too |
| finance the lavish lifestyle of numerous | | | | many loopholes, not enough substances. The |
| politicians and bloated bureaucracies through | | | | natural inclination was to try and plug the |
| tax money? Why be a sucker when the rich and | | | | holes: disallow allowances, break tax breaks, |
| mighty play it safe?The results were socially | | | | abolish special preferences, eliminate |
| and morally devastating: an avalanche of | | | | loopholes, write-offs, reliefs and a host of |
| illegal activities, all intended to avoid | | | | other, special deductions. This entailed |
| paying taxes. Monstrous black economies were | | | | conflicts with special interest groups whose |
| formed by entrepreneuring souls. These | | | | interests were duly reflected in the tax |
| economic activities went unreported and | | | | loopholes.Governments, being political |
| totally deformed the processes of | | | | creatures, did a half hearted job. They |
| macroeconomic decision making, supposedly | | | | abolished on the one hand - and gave with the |
| based on complete economic data. This | | | | other. They wriggled their way around |
| apparent lack of macroeconomic control | | | | controversial subjects and the result was |
| creates a second layer of mistrust between | | | | that every loophole cutting measure brought |
| the citizen and his government (on top of the | | | | in its wake a growing host of others. The |
| one related to the collection of | | | | situation looked hopeless.Thus, governments |
| taxes).Recent studies clearly indicate that a | | | | were reduced to using the final, |
| reverse relationship exists between the | | | | nuclear-like, weapon in their arsenal: the |
| growth of the economy and the extent of | | | | simplification of the tax system.The idea is |
| public spending. Moreover, decades of | | | | aesthetically appealing: all tax concessions |
| progressive taxation did not reverse the | | | | and loopholes will be eliminated, on the one |
| trend of a growing gap between the rich and | | | | hand. On the other, the number of tax rates |
| the poor. Income distribution has remained | | | | and the magnitude of each rate will be pared |
| inequitable (ever more so all the time) - | | | | down. Marginal tax rates will go down |
| despite gigantic unilateral transfers of | | | | considerably and so will the number of tax |
| money from the state to the poorer socio - | | | | rates. So, people will feel less like |
| economic strata of society.Taxes are largely | | | | cheating and they will spend less resources |
| considered to be responsible for the | | | | on the preparation of their tax returns. The |
| following:They distorted business | | | | government, on its part, will no longer use |
| thinking;Encouraged the misallocation of | | | | the tax system to express its (political) |
| economic resources;Diverted money to strange | | | | preferences. It will propagate a simple, |
| tax motivated investments;Absorbed | | | | transparent, equitable, fair and non |
| unacceptably large chunks of the GDP;Deterred | | | | arbitrary system which will generate more |
| foreign investment;Morally corrupted the | | | | income by virtue of these traits.Governments |
| population, encouraging it to engage in | | | | from Germany to the USA are working along the |
| massive illegal activities;Adversely | | | | same lines. They are trying to stem what is |
| influenced macroeconomic parameters such as | | | | in effect a tax rebellion, a major case of |
| unemployment, the money supply and interest | | | | civil disobedience. If they fail, the very |
| rates;Deprived the business sector of capital | | | | fabric of societies will be affected. If they |
| needed for its development by spending it on | | | | succeed, we may all inherit a better world. |
| non productive political ends;Caused the | | | | Knowing the propensities of human beings, the |
| smuggling of capital outside the country;The | | | | safe bet is that people will still hate to |
| formation of strong parallel, black economies | | | | see their money wasted in unaccounted for |
| and the falsification of economic records | | | | ways on bizarre, pork barrel, projects. As |
| thus affecting the proper decision making | | | | long as this is the case, the eternal chase |
| processes;Facilitated the establishment of | | | | of the citizen by his government will |
| big, inefficient bureaucracies for the | | | | continue. |
| collection of taxes and data related to | | | | |