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
Warning: include(inc/ads-body.inc) [function.include]: failed to open stream: No such file or directory in /home/accounta/public_html/28641_business_personal_taxes.php on line 59
Warning: include(inc/ads-body.inc) [function.include]: failed to open stream: No such file or directory in /home/accounta/public_html/28641_business_personal_taxes.php on line 59
Warning: include() [function.include]: Failed opening 'inc/ads-body.inc' for inclusion (include_path='.:/usr/lib/php:/usr/local/lib/php') in /home/accounta/public_html/28641_business_personal_taxes.php on line 59
MORE RESOURCES:
 ABC News | IRS offers help paying taxes Washington Post When you have 140 million individual tax returns, "you need to be continually looking at ways to serve people," Shulman said. "This effort continues my ... Time Is Running Out to Collect 2006 Refund Record Number of Tax Filers Owed No Taxes in 2008 IRS Waiting For Claimants To $1.3 Billion Tax Refunds For 2006 |
 Richmond Times Dispatch | Time to go home; bills on taxes, schools and more were completed Henderson Gleaner INDIANAPOLIS — Businesses got a breather on taxes. Schools won authority to shift some extra dollars into the classroom. Taxpayers received the right to ... Local lawmakers back sales tax increase Bolling wades into rules dispute Gregoire calls special session for Monday |
 Boston Globe | Social Security to start cashing Uncle Sam's IOUs The Associated Press For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year. Not anymore. ... Boomers' retirement offers opportunities, challenges Social Security to start cashing government IOUs |
Govt to release tax review by May budget Sydney Morning Herald The biggest review of Australia's tax system in more than 60 years will be released within two months. Treasurer Wayne Swan announced on Sunday the ... |
Condo buyer's welcoming gift: Bill for taxes owed by developer Chicago Tribune Kenya Merritt has no problem paying the property taxes on her Austin neighborhood condo, but she isn't keen on paying taxes for the developer. ... |
 The Star-Ledger - NJ.com | Christie will propose constitutional amendment to cap tax hikes The Star-Ledger - NJ.com In a budget address on Tuesday, Christie will seek to limit annual tax hikes. TRENTON -- Gov. Chris Christie will propose a constitutional amendment ... |
Another sneaky Queen's Park tax attempt: Sa Toronto Sun Di Novo calls it a “novel idea” that will not cost any tax dollars. Excuse me? Why shouldn't affordable housing come from our tax dollars? ... |
Marois blasts premier on his integrity Montreal Gazette Proposals put up for discussion included tax measures, like the elimination of payroll taxes, favouring consumption taxes over income taxes and lower taxes ... |
 Salon | Legislative push aims to tax Internet sales in California Sacramento Bee Most Californians probably don't know they're supposed to keep track of all those online or catalog purchases and declare them on their state income tax ... Tax laws need to be fair to small business New tack for taxing online sales Amazon.com Tactics Draw Harsh Criticism |
New Hawaii law lowers huge unemployment tax hike BusinessWeek Businesses in Hawaii are getting immediate relief from the nation's largest increase in unemployment taxes after Gov. ... Lingle signs bill lowering unemployment tax increase |
Taxing Overseas Firms for SOX Compliance
The Sarbanes-Oxley Act, also called the Public Company Accounting Reform and Investor Protection Act of 2002 was signed into law on July 30, 2002 by President Bush. In the aftermath of Enron, Arthur Andersen, Global Crossing, and WorldCom, SOX promises greater corporate accountability and transparency.
Deducting Points On Home Refinances
Deduction of Refinance PointsAny points that you pay in the refinancing of your residence are tax deductible over the length of the loan in question. The deduction is allowable only if the residence is your primary home and the new mortgage replaces a previous one and/or is used to improve the residence.
The Annual Gift Tax Exclusion: Getting The Edge
Whether helping the kids with a down payment on their first home, paying the premiums on a life insurance policy in an irrevocable trust, or moving appreciated assets to a younger generation, annual gifting will touch the lives of millions of Americans. But before the transfer is made, an investor should spend some time looking at the investment and the tax ramifications of the property to be passed.
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 one of the downsides to filing taxes is that you may find yourself owing the taxman come April 15. What do you do when you realize that you not only owe money, but you owe more than you can pay at the time?The answer is: charitable deductions.
Surprising Truths About Tax Preparers
Choosing the right tax preparer for your business is a decision best not left until April. A former tax preparer and small business mastermind offers insights into the secret world of tax preparers.
Complaince of Tax Return in Electronic Commerce Taxation
Emerging Legal issues of Tax compliance of e-business Self-assessment system relies on taxpayers voluntarily meeting their tax obligations by tax payee. This concept is recognised in all tax statutes, which sets out taxpayers' primary obligations to fill tax return on self-assessment, and clearly spells out that taxpayers are required to determine the amount of tax payable correctly and to pay it on time.
How to Maximize Your Home Business Tax Deductions for 2005
Someone once said, 'the best way to calculate your taxes is?Honestly'. For 2005, add 'Smartly' to that and you'll get to keep more than you make.
Tax Deductions - Mr. C.P.A. Can I Deduct a Pizza? You Too Can Deduct Your Fun By Using Tax Tips
Recently, I stumbled across a concept that could change your financial life. You can call it a paradigm shift or a new perspective or just a different way to look at things.
IRS Reports Tax Gap of $300 Billion
The Internal Revenue Service is reporting that the difference between what U.S.
Tax Time Tune Up
Excerpted from the new book, "How to Do Space Age Work with a Stone Age Brain" TMThe complete article with pictures and sample Auto Log is available at www.organize.
Electronic Commerce Taxation and Pakistan
Assume a buyer in Pakistan downloads software from the Internet for a 30-day trial. If he likes the software, he submits his credit card information and receives an authorization code that allows him unrestricted use of the software.
Furnishing Evidence in E-Tax Compliance
Self-assessment relies on taxpayers voluntarily meeting their tax obligations. This concept is recognised in all tax statutes, which sets out taxpayers' primary obligations, and clearly spells out that taxpayers are required to determine the amount of tax payable correctly and to pay it on time.
Home Business Tax Tips
If you have recently started an Internet or home business, your probably a little intimidated by having to submit a tax return and the possibilities of being audited. Simply follow these guidelines and rest assured that filing your next tax return will go smoothly.
Requirements To Produce Tax Information (Whats Up With That?)
"What we've got here is a failure to communicate." --Strother Martin in Cool Hand Luke Statutory Law Governments pass laws, it's what they do.
Business Tax Loophole: Leasing Assets To Your Corporation
While there are many equally valid reasons to incorporate, saving money on taxes is a consideration that can yield relatively immediate results. Leasing assets to your corporation is a tax strategy you should absolutely consider if you already have a corporation or are thinking about forming one.
Understanding Marketing Tax Deductions
Marketing is a necessary expense in running practically any business and the IRS acknowledges as much. You may run advertisements on or in the Internet, radio, television, magazines, newspapers and other media to sell your products or services.
Are You Overpaying Taxes If You Use Tax Preparation Software?
For many business owners the answer to this quandary is tax preparation software. Fill out a fairly simple interview, click "print" and out comes a completed return that will pass muster with the IRS.
Small Business Tax Credit - Americans with Disabilities Act
Many small businesses complain when confronted with the expense of complying with the Americans with Disabilities Act. Most do not realize that there are a number of tax incentives available to offset the costs.
Are You An Innocent Victim of These Popular Myths?
Misconceptions, misinterpretations and just plain "untruths" are floating about income taxes. Believing them could be costing thousands of tax dollars!Myth: A Professional Tax Preparer knows all there is to know about taxes so you don't have to know anything them.
History Of The Federal Income Tax
The powers of Congress, and the limitations set upon those powers, are set forth in Article I of the United States Constitution. Section 8 specifies both the power to collect, "Taxes, Duties, Imposts and Excises," and the requirement that, "Duties, Imposts and Excises shall be uniform throughout the United States.