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