For my entire working life the conventional wisdom seems to have been that only a mug would pay their full share of taxes, and that it was every citizen’s duty to reduce their responsibilities in this area to a minimum. Those who succeeded in paying the least amount of taxes have generally been lauded as heroes.
It’s a shame really, and it has never been my perspective on the matter. I have concluded that it is just another sign of the disconnect between people and their government that leads them to such a cavalier attitude to their relationship with the society that they live in and depend on.
To give you an example of how twisted this logic has become, the managers of the pension funds (into which we are all paying in the hopes of providing for our future security) are encouraging the businesses that they invest in to reduce their taxes as much as possible, so that they can feed more profits into the pension funds. So the people in charge of the money that is supposed to provide for our old age, are motivated to reduce our other forms of social security as much as possible.
Each little part of it may make sense to the people involved, but the big picture doesn’t make sense at all.
To move forward on The Path to a Future we need to have a different relationship with the people that live around us and our society as a whole, such that we voluntarily pay our taxes and consider it an extremely good deal!
There are two primary reasons why people object to paying their taxes. First, they don’t see a relationship between their contribution to the state and their circumstances. Second, they believe that the system is fundamentally corrupt, with uneven collection and wasteful distribution.
Given that we know that our sustainably prosperous future requires the co-development of super-security and a supereconomy, this problem relationship with taxation is something that we have got to resolve. We’ve got to reach a place where we are voluntarily paying taxes because we understand what a difference our contribution makes to our own lives, we can see that it is being collected fairly, and we know that it is being spent appropriately.
Now you might consider that making all of that a reality to be a pretty tall order, but I hope to show you that a few simple changes will make it a short order.
The first thing to do is to separate income taxes from all the other kinds of taxes, and then we’ll come back to things like sales and property taxes after we have dealt with income tax. Income taxes have the broadest reach, collect the most revenue, and are the least subject to the exercise of choice, and for these reasons they require special treatment.
In a super-trio society there is a direct linkage between income taxes and super-security that makes it easy to understand why you’re paying them and what the money is being used for. In a super-trio society income taxes are used only to pay for super-security services. This means that the money is spent in a way that everybody can agree is essential and important. Furthermore, by linking the amount of money raised from income taxes to the cost of providing super-security services, there is a direct connection that everyone can see and understand.
The next thing we need to do is to simplify what we mean by “income”: everything that anyone receives in a form or manner that can be spent, is counted as income. It doesn’t matter if the money came as wages from a job, lottery winnings, the sale of an appreciated asset or an inheritance, it all counts as income. If you get it, and you didn’t have it before, and you can spend it: it’s income.
Great, that’s two really important bits under our belt: what counts as income, and what we spend income taxes on. Only a short way to go!
The final step is to create the relationship between the amount of taxes that need to be raised, and the amount of income available to raise it from; this gives you your basic rate of income tax, say 30%. You could simply leave it at that, the traditional “flat tax”, or you can modify it with a progressive tax regime linked to the median earnings of a taxpayer, which I think is a vastly superior system. With a progressive tax linked to median earnings, you can build in universal incentives to raise average earnings at the same time as containing supersecurity costs. When the basic rate of income tax is linked to median earnings it creates an incentive for everyone to keep the costs of universal services low, because those costs determine the basic tax rate. The linkage also makes it in the best interests of the highest earners to raise the median earnings of the whole population, because that reduces their personal tax burden.
Frankly, the manner in which tax rates are distributed across income ranges can be something that varies from constituency to constituency, and is the subject of internal political policy. The point is that with three simple changes we have dramatically changed the face of income taxation: we have made it understandable, relevant and fair. By clearly establishing what income taxes can be used for, we have created a direct link between the quality of the life we lead and the quantity of taxes we pay.
And these are all changes that any government worth its name could implement within months. They simplify the tax code and shift the political burden from deciding how much to charge people for the right to be a citizen, to how much should be spent to provide the security that is the right of every citizen.
It is important to note here that there is a reasonable maximum rate of income tax, beyond which incentive is eroded, and the legitimacy of its claim to be a voluntary contribution is degraded. That reasonable maximum is a rate of 50%. If someone cannot keep at least half of what they have earned, then the social contract has become distinctly suspect. Given this maximum rate for income tax, there is an automatic and appropriate ceiling on the budget available for super-security services.
A quick perusal of the contents of super-security services might leave you wondering how we’re going to pay for the military, subsidies to various industries, park maintenance or any of the other myriad of expenses currently included in many government budgets, and which are not part of the seven basic super-security services. You’re right, none of these is included in the specifications for super-security, and therefore they cannot be paid for with income taxes. This has the advantage of making income taxes universally acceptable, and the second advantage of shifting the burden for all other government expenditures on to sales taxes, property taxes and taxes on corporate profits. I’m sure that these matters will be the subject of much debate, and may well result in an elevated interest in the political dialogues of our communities – so be it!
This leaves us with the other three primary categories of taxation, aside from income taxes: property taxes, sales taxes and taxes on the profits earned by businesses.
Property taxes are relatively easy to deal with, because property always has a location. So it makes sense that any taxes levied on property are collected and spent as locally to that property as is possible. Effectively, this means that they are collected at the Community level, and spent there too.
Sales taxes come in two different forms: taxes simply designed as a way to raise revenues, and taxes applied to products as part of an effort to maintain the quality of market mechanisms. In the case of the latter, for instance carbon taxes, the appropriate level is determined based on analysis of what is necessary to balance any distortions in normal functioning of the market and, while this is bound to be the subject of political policy, its primary intention is correctional and the revenues specifically directed to the maintenance of that market.
Common sales taxes, applied to anything except super-security services, are a flexible and convenient way to raise revenues that can be appropriated for whatever purpose is desired. Sales taxes can and should be defined by each layer of government, as suits the needs of that layer.
The level of taxation levied on the profits of businesses is entirely subject to the political aspirations of the society within which those businesses operate. Having provided for the basic needs and security of the citizenry using funds raised from income taxes, you could argue that there is no reason to have corporate taxes. In reality it is quite likely that the society will aspire to various ambitions over and above the provision of super-security services, and to the extent that they are unwilling to fund those ambitions out of property or sales taxes, then corporate taxes are a likely candidate.
As well as proper representation, a fair and comprehensible tax system is vital for our transformation, and we can have such a system within months. Its implementation will be transformative for the role of government, the equity of our societies and our ability to focus on building our future. This is a step we can take, we must take, and which will be the equivalent of changing gears in our progression.
Part 24 in the serialization of the The Path to A Future – published 2009.
A new section will be posted every 2 weeks during 2011. Enjoy!
To get a free PDF of the book go to www.standardsoflife.org/thepathtoafuture.