Paying your Dues

Paying your Dues

Hungy Ye
Taxesfiscal policy
February 19, 2012

Ben Franklin, one of the fathers of the United States said that death and taxes are the only constants in life.  Indeed, beyond printing money taxes are one of the cornerstones that keep the world as we know it turning round by providing governments with a source of revenue, so they can provide essential public services and infrastructure and the like, so that we can go about our business. Naturally, the more governments collect, the more services and free stuff the management can afford to hand out: free schooling, free healthcare, wider roads, free internet cables etc.

Trouble is however, who wants to pay? No one, well not many people want to give their money away to be spent on other people’s behalves. And people especially hate being charged for something they see as their right, which you can see in Labour’s mineral resources rent tax that still hasn’t gotten anywhere yet, years after its original incarnation was drafted and met with an uproar from the beneficiaries of the mining industry.

Another curious observation that gives more evidence of this is that while people seem to love tax cuts when the economy is good, no one wants to pay even if the world ended. No brownie points for the reason why Mr. Howard and Mr. Bush, being liberals in name at least who love tax cuts won their re-elections in 2004 during one of the world’s strongest economic expansions (bull markets, in finance speak), whereas the Obama administration had trouble with coming up with a plan to contain the U.S. debt last year because the opposition didn’t want to raise taxes, which could’ve led to another global financial meltdown. The world as we know it may have very well ended because people won’t pay taxes.

So then, that raises an important question: who should pay?

Adam Smith being the architect of modern economics wrote in his infinite wisdom that taxes should be ‘equitable’, that is people should pay in proportion to the amount they’re getting out of being in a civilized society.  That’s a pretty vague guideline, but let’s just suppose that he had in mind a tax charged at a fixed proportion on anyone’s income, which is equitable in the sense that people are paying depending on the amount of money they’re earning as a member of society; as society makes you rich you give back a little bit more.

Non-Chinese socialists, the more reasonable of the left wing political camp, think that taxes should make individual wealth equitable, and that taxes allow governments to perform the important function of the redistribution of wealth. I assume this is what 99% of the people who attempted to occupy wall street a few months back were demanding and what many western governments have taken upon themselves to do: tax the fat cats to make life a little bit easier for the little guys. Besides, if we assume as all good and only good economists do, with diminishing marginal utility of wealth, rich people won’t feel it nearly as much as the good it will do for the less well off.

Naturally opposing them are the right wing liberals and Chinese communists who are as big on capitalism as they come. The argument goes that socialism distorts market incentives for people to perform their best and in the course of selfish greed do good for society as a whole, an argument beautifully presented by Sir Smith in the 18th century. They claim that in making life comfortable for the little guys they’re really setting everyone down the path of laziness, where socialists will depend on the state to provide and it’s those who actually want to work hard and do well that end up with the job of supporting society.

We can go on laying down the facts but it still doesn’t answer the question. Ultimately it’s probably best if the government ran itself without interfering with the lives of its citizens-and also so we can do away with this who pays debate. But seeing as most of the times in the past that government’s have tried to print money to cover for themselves (I recently had the good fortune of being able to examine a 100 trillion Zimbabwean dollar note, and it is a work of art) usually had the effect of breaking their respective economies through hyper-inflation, how much taxes should be paid, and indeed just how much influence should governments have remain important points of discussion.