by Jemma Hooper
Tax, from the latin taxo, is a compulsory charge that is levied on citizens and other entities by a government in order to fund public expenditure. Tax is the revenue side of how governments pay for their existence. No tax? No government capable of paying its own way. It’s that simple.
So, what is the role of government? Is it to police the freedom of citizens? Some might argue that it is, but in reality, governments exist for the purpose of delivering certain outcomes to citizens. Many social philosophers rank these outcomes according to Maslow’s Hierarchy of Needs (1). At the base of the hierarchy is the fundamental Physiological needs – i.e. reliable delivery of what the body needs to keep ticking over. The next tier covers Safety needs – those things that keep our physiologies out of fight or flight mode. Next up is Social needs – those things that give us a sense of cooperative trust, belonging and social identity. Self-esteem needs address our need for the respect of peers, and our own self-respect. That sense of worth then feeds into the healthy ego required to drive the investment of effort in the final need, Self-actualisation – “being all we can be.”
What does this have to do with taxation? Simple. It is the role of governments to provide the greatest possible level of delivery for these needs to their target demographic. In the case of a liberal democracy, that ideally means everyone, as for every person to be said to be truly free, they must have a clean run at all five tiers of Maslow’s needs.
This is where economics comes into play. Economics (2) is the craft of designing systems of production and distribution that allow governments to meet these needs. Ideally, economic principles such as comparative advantage, relative scarcity, economies of scale, demand and supply and their related terms - equilibrium, elasticity and plasticity – deliver optimisable models which can be used to ensure that everyone who needs to have their hierarchy of needs met can do so with minimal cost.
History has taught us that having governments construct key social and economic infrastructure provides economies of scale that are impossible to achieve when individuals are forced to pay for the same services out of their own pockets. Thus roads, hospitals, schools, logistics systems, telecommunications, energy generation and so forth become the responsibility of governments in most liberal and social democracies. This allows citizens the time to specialise in specific fields of expertise, which in turn encourages employment systems and optimises productivity.
These economic capabilities all require the collection and use of capital resources by governments for implementation and ongoing maintenance. As demand for these resources grows, it is typically the role of governments to ensure that their demand is met and that the cost of delivery is equitable. Equitable is a key concept to note. It implies that everyone should make an “equal” contribution to the cost of government services. Different governments define “equal” in different ways, especially when it comes to income tax. Some charge an equal percentage of income (flat tax), equal percentage of income above a threshold amount (tax free threshold with flat tax), varying percentages of income above defined thresholds (progressive tax when higher income brackets pay more tax, regressive when they pay less), and so forth. The point of these differences is to balance supply and demand factors in a way that optimises the economic outcomes for the highest possible number of citizens.
Hence, an ongoing need for resource collection. In most civilisations, money has been adopted as a standard of equitable exchange. One can argue at length whether that has been a good thing or not, but in general, some dimensionless standard of “what things are worth” is inevitable once we get past sharing basic agricultural products with our neighbours. Thus, it has come to be that modern governments issue and collect money in the form of taxes, rather than chickens, eggs, grain, ore, etc.
So – that’s what tax is, and why it exists.
Different countries run with different income and corporate taxation settings.
Scandinavian countries (e.g. Sweden) (3)have traditionally had progressive income tax systems with very high levels of taxation in the top tax bracket. But with the extra tax revenue they bring in, many of the services that would be punishingly expensive in some countries are delivered cost-free to citizens in those nations. Those services include education, healthcare and other forms of public infrastructure.
The United States of America (4) currently has relatively low income tax margins, which conversely delivers very low levels of public utility – assuming one doesn’t include its military spending in that way. It has very expensive user-pays systems, whose costs are aggravated by that nation’s general level of punitive litigiousness. Australia (5) sits somewhere between the two, with a moderately progressive tax system and a balance of private and public expenditure on social services.
We should also briefly discuss other forms of taxation. Municipalities and states often levy payroll taxes, land taxes, and charge user-pays rates for certain government services. Some of these are what we could term as “Opportunity taxes” – government revenue recovered to pay for business programs which enable economic development through the provision of trained labour resources, logistics capabilities, etc.
“Bad” taxes are designed to drive down demand for a product or service that has deleterious impacts on the economy or society. Great examples of “bad” taxes are tobacco levies and carbon taxes. In Australia, tobacco vendors are slugged a very high levy on tobacco sales, which nominally goes towards health funding to mitigate the known risks of smoking. Carbon taxes charge polluters for their carbon output in an attempt to incentivise them to reduce emissions. Land use levies can be charged to mining corporations or industries that cause high environmental impacts in their operating sites. When such businesses exit an area, it is usually because their activity is no longer economically viable. Because few jurisdictions provide any incentive not to sell off non-productive assets to shell corporations that quickly goes into bankruptcy, the cost of rehabilitating the land concerned then falls on government. Such levies underwrite those activities.
Sales, consumption and land taxes are a way to penetrate the hip-pockets of wealthier citizens who are usually harder to hit with income or corporate taxes, by capturing that revenue at the point of sale or service – the theory being that they spend more on products and services than those who already spend all they earn. However, these taxes also come under criticism when the least economically advantaged citizens need to pay them.
With big spending governments, bureaucratic oversight over most government spending is an important governance process which tends to use a lot of resources. Smaller governments typically have smaller bureaucracies, but this is not always the case.
Despite all of these considerations, it is important that governments focus on delivering positive impact with the revenue they take in. Anti-corruption measures are especially important in this respect. Without transparency in government and trustworthy representatives and public servants, taxation can (and does) quickly become a mechanism for influence peddling and official corruption. The fact of taxation does not require our vigilance. We should, however, be using our democratic votes to ensure that government revenue is spent in a way that optimises accessibility and efficiency in the delivery of services. Government bureaucracy has a role in that. But independent audit and citizen vigilance is even more important. If you don’t like how your tax dollars are spent, get involved and have your say.
1. Wikipedia. Maslow's Hierarchy of Needs. http://en.wikipedia.org. [Online] https://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs.
2. —. Economics. Wikipedia. [Online] https://en.wikipedia.org/wiki/Economics. 2.
3. —. Taxes in Sweden. Wikipedia. [Online] https://en.wikipedia.org/wiki/Taxation_in_Sweden. 4.
4. —. Taxation in the United States. Wikipedia. [Online] https://en.wikipedia.org/wiki/Taxation_in_the_United_States. 5.
5. —. Taxation in Australia. Wikipedia. [Online] https://en.wikipedia.org/wiki/Taxation_in_Australia.
6. —. Taxation as percentage of GDP in some OECD nations. Wikipedia. [Online] https://en.wikipedia.org/wiki/Taxation_in_Sweden#/media/File:Tax_revenue_as_a_percentage_of_GDP_(1985-2014).png. 3.
Katherine Revello's Rebuttal to
'The Case for Taxation'
Government does not exist to deliver certain outcomes. It cannot do so without trampling on the rights of the citizenry, the protection of which is the sole legitimate function of government. The problem with a government that attempts to deliver certain outcomes is its perspective monism: government, even when rooted in the most egalitarian and just of law codes, is enervated by the officials who populate its organs. That means individual perspectives can bleed into the crafting and implementation of law, particularly when government becomes concerned with outcomes. Equality before the law is therefore impossible.
Any time government attempts to legislate outcomes, particularly by servicing need, one must ask the question: whose needs are being addressed? When government is purely concerned with preserving rights, the answer to this question is irrelevant because rights are held equally and in the same way by all citizens. However, when government decides to play a more proactive role in society and attempts to legislate outcomes, this question will have different answers depending upon the character of the politician in question. There is no singular hierarchy of needs that satisfies the entirety of the populace, unless one restricts government to a rights-centric perspective. Wealth is, of course, distributed disparately amongst the populace; the unique problems of different communities in which individuals live affect their needs. A farmer, for instance, cares far more about the protection of corn subsidies than does the resident of a manufacturing centre.
So, whose needs ought the politician promote through legislation? How do those whose needs have not been chosen as worthy of government protection go about seeking redress for the basic injustice that pervades society? Because, even supposing the tax burden paid by all members of the community is exactly the same, the inequitable distribution of that money, paid out to causes government officials feel are worthy, makes it impossible for law to be equitable.
The author’s allegation that the role of government is to deliver satisfaction of Maslow’s Hierarchy of Needs is rendered impossible by the conditions she establishes. This basic contradiction is evident in her assertion that “government exists for the purpose of delivering certain outcomes to citizens” and her subsequent designation of taxes that “drive down demand for a product or service that has deleterious impacts on the economy or society” as “bad.”
Taxation draws down the resources available to the individual, making it harder, not easier, for them to attain the most basic of those needs listed by Maslow. Because taxes are compulsory, the individual must satisfy the tax man before he satisfies himself. At the end of the day, the tax man only cares whether his bill has been resolved, not whether that money has made it difficult to pay his mortgage or to afford the costs associated with the activities his family enjoys. This cannot help but erode the top-level needs Maslow lists: namely self-esteem.
Taxation limits the productive capacity of the individual; it does not contribute to the greater freedom and security of the individual but undermines it. In the first place, taxes, particularly when used as a tool of social engineering, make it impossible for man to live life according to the dictates of his own conscience. When government uses tax to intentionally drive up the cost of items like taxes and soda because it has decided these have deleterious health effects, this restricts individual choice. When government meddles in the economic system and attempts to promote particular business practices, such as subsidizing certain crops, it raises the cost of doing other types of business and makes success harder, which again restricts personal choice. Add to that the fact that the taxes are collected with impunity by a government who does not care from whom it takes, only to whom it gives—and then discriminately—and the negative impact of taxation upon individuals is clear. The injustice of an individual’s tax burden is generally only a matter of concern if one is poor; the distribution of taxes is skewed in favor of those who, according to the judgment of empowered government officials, are most in need of social protection. Fundamentally, this is unequal. To talk of this kind of tax regime in the same sentence as democratic egalitarianism is breathtakingly hypocritical. Individual sovereignty is eroded by taxes; not aided. Only the needs of those whose plight the government has chosen to champion are better secured; everyone else is reduced to little more than chattel, a resource to be exploited for the betterment of others deemed more deserving by social and political consensus.
If taxes are to be used to deliver certain outcomes to citizens, it is citizens, not government, that needs to be in charge of the way the services on offer operate. This means there can be no compulsory taking from one to give to another whose plight politicians have deemed more worthy of protection. To the extent that services exist, they must be compulsory. This means taxation needs to be based in consumption. These already exist in many forms on municipal levels: tolls and fees associated with garbage collection are examples of consumption taxes. One can choose to utilize these services and pay a fee commensurate to what one receives in return or opt to avoid them and choose a different service more amenable to one’s needs. The beauty of consumption taxes is they put one’s well-being entirely within one’s hands by offering choice to the citizen. It’s hard to see what could be more conducive to the fulfillment of Maslow’s Hierarchy of Needs than a system such as this.