Deprecated: mysql_connect(): The mysql extension is deprecated and will be removed in the future: use mysqli or PDO instead in /home/a26f9f83/public_html/articles/includes/config.php on line 159
To Tax or Not to Tax - This is the Question > NetSparsh - Viral Content you Love & Share

To Tax or Not to Tax - This is the Question

To tax or not to tax - this question could have never been asked twenty years ago.

Historically, income tax is a novel invention. Still, it became so widespread and so socially accepted that no one dared challenge it seriously. In the lunatic fringes there were those who refused to pay taxes and served prison sentences as a result. Some of them tried to translate their platforms into political power and established parties, which failed dismally in the polls. But some of what they said made sense.

Originally, taxes were levied to pay for government expenses. But they underwent a malignant transformation. They began to be used to express social preferences. Tax revenues were diverted to pay for urban renewal, to encourage foreign investments through tax breaks and tax incentives, to enhance social equality by evenly redistributing income and so on. As Big Government became more derided - so were taxes perceived to be its instrument and the tide turned. Suddenly, the fashion was to downsize government, minimize its disruptive involvement in the marketplace and reduce the total tax burden as part of the GNP.

Taxes are inherently unjust. They are enforced, using state coercion. They are an infringement of the human age old right to property. Money is transferred from one group of citizens (law abiding taxpayers) - to other groups. The recipients are less savoury: they either do not pay taxes legally (low income populations, children, the elderly) - or avoid paying taxes illegally. But there is no way of preventing a tax evader from enjoying tax money paid by others.

Research demonstrated that most tax money benefited the middle classes and the rich, in short: those who need it least. Moreover, these strata of society were most likely to use tax planning to minimize their tax payments. They could afford to pay professionals to help them to pay less taxes because their income was augmented by transfers of tax money paid by the less affluent and by the less fortunate. The poor subsidized the tax planning of the rich, so that they could pay less taxes. No wonder that tax planning is regarded as the rich man's shot at tax evasion. The irony is that taxes were intended to lessen social polarity and friction - but they achieved exactly the opposite.

In economies where taxes gobble up to 60% of the GDP (France, Germany, to name a few) - taxes became THE major economic disincentive. Why work for the taxman? Why finance the lavish lifestyle of numerous politicians and bloated bureaucracies through tax money? Why be a sucker when the rich and mighty play it safe?

The results were socially and morally devastating: an avalanche of illegal activities, all intended to avoid paying taxes. Monstrous black economies were formed by entrepreneuring souls. These economic activities went unreported and totally deformed the processes of macroeconomic decision making, supposedly based on complete economic data. This apparent lack of macroeconomic control creates a second layer of mistrust between the citizen and his government (on top of the one related to the collection of taxes).

Recent studies clearly indicate that a reverse relationship exists between the growth of the economy and the extent of public spending. Moreover, decades of progressive taxation did not reverse the trend of a growing gap between the rich and the poor. Income distribution has remained inequitable (ever more so all the time) - despite gigantic unilateral transfers of money from the state to the poorer socio - economic strata of society.

Taxes are largely considered to be responsible for the following:

  • They distorted business thinking;

  • Encouraged the misallocation of economic resources;

  • Diverted money to strange tax motivated investments;

  • Absorbed unacceptably large chunks of the GDP;

  • Deterred foreign investment;

  • Morally corrupted the population, encouraging it to engage in massive illegal activities;

  • Adversely influenced macroeconomic parameters such as unemployment, the money supply and interest rates;

  • Deprived the business sector of capital needed for its development by spending it on non productive political ends;

  • Caused the smuggling of capital outside the country;

  • The formation of strong parallel, black economies and the falsification of economic records thus affecting the proper decision making processes;

  • Facilitated the establishment of big, inefficient bureaucracies for the collection of taxes and data related to income and economic activity;

  • Forced every member of society to - directly or indirectly - pay for professional services related to his tax obligations, or, at least to consume his own resources (time, money and energy) in communicating with authorities dealing with tax collection.

Thousands of laws, tax loopholes, breaks and incentives and seemingly arbitrary decision making, not open to judicial scrutiny eroded the trust that a member of the community should have in its institutions. This lack of transparency and even-handedness led to the frequent eruption of scandals which unseated governments more often than not.

All these very dear prices might have been acceptable if taxes were to achieve their primary stated goals. That they failed to do so is what sparked the latest rebellious thinking.

At first, the governments of the world tried a few simple recipes:

They tried to widen the tax base by better collection, processing, amalgamation and crossing of information. This way, more tax payers were supposed to be caught in "the net". This failed dismally. People found ways around this relatively unsophisticated approach and frequent and successive tax campaigns were to no avail.

So, governments tried the next trick in their bag: they shifted from progressive taxes to regressive ones. This was really a shift from taxes on income to taxes on consumption. This proved to be a much more efficient measure - albeit with grave social consequences. The same pattern was repeated: the powerful few were provided with legal loopholes. VAT rules around the world allow businesses to offset VAT that they paid from VAT that they were supposed to pay to the authorities. Many of them ended up receiving VAT funds paid the poorer population, to which these tax breaks were, obviously, not available.

Moreover, VAT and other direct taxes on consumption were almost immediately reflected in higher inflation figures. As economic theory goes, inflation is a tax. It indirectly affects the purchasing power of those not knowledgeable enough, devoid of political clout, or not rich enough to protect themselves. The salaries of the lower strata of society are eroded by inflation and this has the exact same effect as a tax would. This is why inflation is called the poor man's tax.

When the social consequences of levying regressive taxes became fully evident, governments went back to the drawing board. Regressive taxes were politically and socially costly. Progressive taxes resembled Swiss cheese: too many loopholes, not enough substances. The natural inclination was to try and plug the holes: disallow allowances, break tax breaks, abolish special preferences, eliminate loopholes, write-offs, reliefs and a host of other, special deductions. This entailed conflicts with special interest groups whose interests were duly reflected in the tax loopholes.

Governments, being political creatures, did a half hearted job. They abolished on the one hand - and gave with the other. They wriggled their way around controversial subjects and the result was that every loophole cutting measure brought in its wake a growing host of others. The situation looked hopeless.

Thus, governments were reduced to using the final, nuclear-like, weapon in their arsenal: the simplification of the tax system.

The idea is aesthetically appealing: all tax concessions and loopholes will be eliminated, on the one hand. On the other, the number of tax rates and the magnitude of each rate will be pared down. Marginal tax rates will go down considerably and so will the number of tax rates. So, people will feel less like cheating and they will spend less resources on the preparation of their tax returns. The government, on its part, will no longer use the tax system to express its (political) preferences. It will propagate a simple, transparent, equitable, fair and non arbitrary system which will generate more income by virtue of these traits.

Governments from Germany to the USA are working along the same lines. They are trying to stem what is in effect a tax rebellion, a major case of civil disobedience. If they fail, the very fabric of societies will be affected. If they succeed, we may all inherit a better world. Knowing the propensities of human beings, the safe bet is that people will still hate to see their money wasted in unaccounted for ways on bizarre, pork barrel, projects. As long as this is the case, the eternal chase of the citizen by his government will continue.

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: http://samvak.tripod.com

In The News:

This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news

New York Times

Republicans, Closing In on Final Tax Bill, Aim for a Vote Next Week
New York Times
WASHINGTON — Republican lawmakers, scrambling to reach agreement on a final tax bill that they hope to pass next week, are coalescing around a plan that would slightly raise the proposed corporate tax rate, lower the top rate on the richest Americans ...
Tax package would lower top tax rate for wealthy AmericansThe Denver Post
Republicans propose to delay, pause Obamacare taxesReuters
GOP negotiators move closer to reducing top tax rate for high-income households but face blowbackWashington Post
Politico -ConsumerReports.org -Treasury Department
all 799 news articles »

New York Times

How the Tax Bill Hurts the Poorest Schools
New York Times
Currently, taxpayers can deduct their state and local taxes, and that deduction makes them more likely to support higher spending on programs funded by those taxes, including public schools. With its bills, Congress would significantly cut the ...

and more »

CNN

Trump winds up for final pitch to Americans on tax overhaul
CNN
Joined by about 120 people -- families and military personnel who have been invited -- the President will speak Wednesday afternoon from the Grand Foyer of the White House. Some young people will be among those invited, and the President will dedicate ...

and more »

Bloomberg

Facebook to Start Paying Taxes Locally, Instead of Through Ireland
Bloomberg
The Commission also has ordered Apple Inc. to pay about 13 billion euros (about $15 billion) in back taxes to Ireland, after it said the country granted unfair deals that reduced the tech giant's corporate tax bill. Apple and Ireland are appealing the ...
Facebook to overhaul Irish tax schemeBBC News
Facebook to stop routing ad revenue via Ireland amid pressure over taxesThe Guardian
Facebook to Give Countries a Chance to Tax Its Profits From Local AdsWall Street Journal
Irish Times
all 45 news articles »

New York Times

California Today: A Tax Challenge for Sacramento - The New York ...
New York Times
Tuesday: Proposition 13, Mayor Ed Lee of San Francisco dies, Mulholland Drive and a box of chocolates.
As California burns, Congress plans to slash tax write-offs for fires and other disastersLos Angeles Times

all 16 news articles »

6 States Raising Taxes in 2018
Motley Fool
Let's face it, no one enjoys preparing their taxes or complying with federal and state tax code each and every year. It's not hard to see why, either. The federal tax code was nearing 10.1 million words in length as of 2015, and it's gained an average ...

and more »

Business Insider

Paying taxes on bitcoin isn't nearly as hard as it sounds
Business Insider
Bitcoin's incredible rise in value from just shy of $1,000 per bitcoin on January 1 to more than $19,000 on December 8 has likely caused many bitcoin owners to sell all or part of their investment. But as tax season approaches, it may not be ...

and more »

New York Times

Tax Plan's Biggest Cuts Could Be in Living Standards
New York Times
In the summer of 2006, as President George W. Bush was pressing to make permanent the tax cuts he had pushed through Congress in 2001 and 2003, the Treasury Department published a so-called dynamic analysis that, the administration hoped, would prove ...

and more »

Protection sought to ensure gross receipts taxes from LANL
Santa Fe New Mexican
Santa Fe County commissioners want the state Legislature to protect Northern New Mexico communities from the possibility that a change in management at Los Alamos National Laboratory could cost local governments millions in tax revenue. Commissioners ...

and more »

Realty Income: Oh No Not Higher Taxes
Seeking Alpha
But if you are holding the stock in a taxable account, there could be some tax implications you weren't expecting. Over the years, Realty Income has paid out dividends that have been classified into three categories: Ordinary income, nontaxable ...

and more »
Google News

Deducting Points On Home Refinances

Deduction of Refinance PointsAny points that you pay in the... Read More

Car Donation: An Easy Way to Support Your Favorite Charity and Get a Tax Deduction

Most people look forward to getting their tax return, but... Read More

Small Business Tax Credit - Americans with Disabilities Act

Many small businesses complain when confronted with the expense of... Read More

Tax Audits: What Signs Make You More Likely to be Audited by the IRS?

It's a major fear for most Americans: A notice from... Read More

Euro Tax Haven Threat

Media reporting of a new EU savings tax directive has... Read More

Seven Key Tax Deductions for the Self Employed

As a sole proprietor, it's wise to familiarize yourself with... Read More

Understanding Basic Tax Terms

If your like many, you don't always understand what people... Read More

Taxation of Isle of Man Companies from April 2006

At the present time a company incorporated in the Isle... Read More

Fiscal Deity: Tax Consultant

Strategic planning throughout the year results in a minimal tax... Read More

Tax Investigation - What You Need To Do

The knock on the door from a Tax Inspector is... Read More

State Tax Information

All states also have their own tax system. Typically there... Read More

Estate Taxes - It Pays to Plan Ahead

Estate taxes. It's not enough to simply know they exist,... Read More

Alas! In E-Commerce Taxland

In trying to comply with tax laws for your e-business,... Read More

Small Businesses Filing Amended Federal Tax Returns to Recover Money

Small Businesses Filing Amended Federal Tax Returns to... Read More

Tax Records - What You Should Keep And For How Long

Many taxpayers are confused about how long they should keep... Read More

Your IRS Tax Appeal Rights

Are you in the middle of a disagreement with the... Read More

Another Tax Loophole

Just image, you are a small manufacturing company, business has... Read More

Organizing Your Taxes

Does this scene sound familiar? It's April 7. You haven't... Read More

What to Do If You Can?t Pay Your Taxes

The end of tax filing extensions is quickly approaching. What... Read More

Home Business Tax Tips

If you have recently started an Internet or home business,... Read More

Correspondence From The IRS ? Yikes!

It's a moment every person dreads. You pick up the... Read More

Fraudulent Tax Shelters ? KMPG Goes Down Hard

In the largest criminal tax case ever filed, KMPG has... Read More

Small Businesses: Company Car Vs. Personal Mileage Reimbursement In Hurricane Katrinas Wake

With gas prices at an all time high before Hurricane... Read More

Know A Tax Cheat? Get Paid To Tell The IRS

According to the IRS, taxpayers underpay their taxes by some... Read More

Some Folks Pay A Lot Less Tax Than Others On Very Same Income?Did You Pay Too Much Tax In 2004?

Someone once remarked, "Next to being shot at and missed,... Read More