Economics and Taxation

There is a better way!

This essay examines the flow of taxation money, and concludes that opportunities for streamlining exist.

The Big Picture:

First, there are some realities to make clear. The biggest one is regarding the quality of life for the poor. Some people will be on the bottom of the socioeconomic scale. Indeed, a full 50% of the people will be earning less than (or at most, no more than) the other half of the population. This is a law of statistics.

It is a ‘law’ of human nature that the lowest wage earners will be paid, after taxes, just enough to get by on, or less. The only two reasons for paying an employee more are: a) The cost of discharge plus hiring and training a replacement is high; and b) An offer the competition is likely to make to the employee would be, in the eyes of the employee, significantly more attractive. Any overly generous employer will be either unable to make a profit, or under-bid in business deals, and there will be no money to pay those employees, or no work for those employees of that ‘generous’ business. Social welfare, where it exists, will have pity on those who are not otherwise able to survive. To a lesser degree, pity will also be had on those who are only just making it. The businesses which best find the sweet point between: a) Over-paid workers and no contracts; and b) Under-paid workers and unconscionable staff turnover costs – will be the ones who rule the economy. And those workers will tend to be marginally paid.

And if all employers in an economic sector were to be uniformly generous, and none tried to under-bid the other – what would happen? An entrepreneur would see the opportunity, the market niche would be filled, and the new completion would force a restructuring of the sector.

It does not really matter how it happens, but if the lowest are paid more than enough, it will be only a temporary state of affairs!

Somehow it always happens, the lowest – those at the bottom – are not able to drop any lower because the bottom is a hard limit.

The Question to Ask:

With that stated, and hopefully accepted, let us turn to taxation. “Who should be taxed?” and “On what basis should tax be charged?” These are not the first questions. The starting point is: “Where does the value represented by tax money come from?”, or “There is only ONE taxpayer. WHO IS IT?”

But look at this vicious circle. Higher prices paid by higher-paid workers, whose employers are selling higher-priced goods to be bought by higher paid workers. WHO is the taxpayer?

Tax money comes from neither corporations nor consumers, for as shown above, they each pass the burden to the other. Furthermore, as noted above, change in taxation will eventually be met with either bankruptcy, or with price and/or salary changes which return the system to the old status quo (albeit at inflated prices and wages – with devalued currency).

Progressive Taxation:

With that in mind, it is fairly simple to see that progressive taxation is a myth. It is clearly understandable that whenever a progressive tax is raised, salaries and prices will be adjusted, as required, to re-establish the norm.

The Middle Man:

It is a popular statement that, “It is the middleman who gets the profit.” You can always buy things cheaper by avoiding the middleman. This is because, if you buy from the local distributor you need to pay him for the salaries of the clerks (salaries are taxed), and also for the heat and light (taxed) to keep the shop (land is taxed) habitable. Furthermore, you need to pay his trucking costs (Taxed items include: Driver’s salary, Van purchase and maintenance, Fuel, Etc.). He has also other support staff, from the janitor (using taxed supplies) to the accountant who (in part) follows all those tax dollars around.

Yes, of course it is cheaper to avoid the middleman. Most of us, however, do not realize that the biggest middleman is the GOVERNMENT, taking its skim of cash flow at every stage. If all the taxes are paid for by the final purchaser (and this is easier to see with a ‘Value-Added’ tax (VAT: In Canada known as the GST and/or HST (Goods and Services Tax; Harmonized Sales tax))), the taxes are coming from (or through) the purchaser who is spending money earned as salary; money which is paid for by the customers of that person’s employer. Surely taxes can not be paid by customers! HOW and WHERE is tax money generated?

Consider this case: A civil servant, paying tax on a government service; Perhaps tax on purchasing a marriage licence. Maybe you could consider the licence itself a tax. Regardless of how much is tax, the questions are, “Where does the money to pay the tax come from?” and “Where does the tax money go to?” The purchaser gets the money from his pay cheque, which was issued by his employer, the government, against revenues of taxation. TILT! The money is just going around in a tight circle. Even the income tax the civil servant pays is going around in a tight loop, back into the government coffers, in part to pay the same employee’s salary (and another part goes to pay the accountant who follows the money around). New revenue is not generated by taxing civil servants. It therefore does not make sense to tax civil servants. They should simply be paid correspondingly less. Furthermore, by eliminating the taxation of civil servants, we could eliminate a few ‘bean counting’ jobs; jobs which are needed to support a top-heavy system; jobs performed by people who could otherwise be employed productively, were they not needed for the futility of their present task. Taxing government money can only be considered a burden on the system, since it is just forcing money to go around in, and to be be followed around in, tight circles. Where does NEW money come into the system from?

And – The Taxpayer Is … !

OK. Allow me to mix a metaphor, split an infinitive, and spill the beans. There is only one taxpayer, and that payer is the Gross National Worth! Tax money, or rather the value it represents, can only come from rising of the Gross National Worth. It is the increase in the country’s net worth that pays the value represented by taxes; and if the net worth is not increasing fast enough, there is deficit financing and inflation – i.e., a rising in the value of existing goods as measured in the country’s currency.

By extrapolation, it seems the only justification for taxation is to ‘bias the “Playing Field”,’ thus making it non-level, and expressing scorn on whatever. By way of example, it can be generally agrees, or at least argued, that the usual ‘luxury-and sin-tax’ items (Tobacco & alcohol), should be taxed; and also ‘carbon,’ and other pollutants. Hopefully such taxation would be used in a responsible, proactive, and socially-conscious manner.

Not convinced? Look back to the feudal system. The king took taxes in kind. In a feudal system, clearly, taxes are only paid by the wealth of product reaped off of, or out of, the land and the backs of the people. If taxation is excessive, the poor get poorer and will live in worse misery. Where there is taxation and no little green pieces of paper to confuse the issue, taxation is more obviously the redistribution of the Gross National Worth. If the king expends resources to keep marauding invaders away from the land he lords over, his servants can take more time to farm. Quality of life is improved in several ways. The king's larder may be filled, for use (by him, or the whole kingdom) in time of famine. The surfs have a better (less endangered) life. Some can take time to invent and make tools, with further improvements to the quality of life. This can be considered good. Not optimum, but good.

For another try at convincing you, I ask you to think of road and sidewalk maintenance. People in cities are supposed to shovel snow from the sidewalks in front of their houses (although the fines for not shovelling tend to be cheaper than the costs from law suits brought by pedestrians who slip because “the walk looked better shovelled than it actually was” – but that is another matter). Farmers in Canada, at one time, were expected to maintain the roads in front of their properties. These are forms of taxation: The extraction of worth, from the people, for the people, by the people (=government). People can only do these tasks if they have the reserve of resources and wealth: Time and health to do the work; Tools to ease the effort; Supplies to do the job (obtained directly, by barter, or by purchase with money); The spirit and the skill to do the job. The doing of these tasks forestalls other productive activities by the people involved. It is the Gross National Worth that is funding these non-monetary forms of taxation.

Land. People. Skills. Resources. These make a country with value. If the people in a country use their skills, assemble the resources, and share, they live better. The country’s worth can increase. Government programmes redistribute the various aspects contributing to quality of life (and should provide managerial direction to that redistribution, so as to optimize the return on investment). Changing taxation policies can redistribute the burden, but only temporarily. Deficit spending redistributes the quality of life aspects across time. The government's contribution to increasing the country's worth comes from good management and direction in the deployment of resources.

Alternate Confusion:

In Canada, there often arises the question of whether a program is ‘Federal’ or a ‘Provincial’ responsibility. This determination is bunk. We have ‘Equalization Payments’. Regardless of which branch of government the money is spent by, it must come from somewhere – and it has just been shown that that somewhere is all the same.

Late-Breaking Consideration:

Perhaps, instead of the Gross National Worth (which changes in proportion to the Gross Domestic Product), I should be using a different measure based on the “Genuine Progress Index”. This alternative, the GPI, may be explored at http://www.GPIAtlantic.org. However, for the purposes of this article the distinction is moot.

Price Changes:

Let us turn to fanciful numbers. Maybe at one instant of time the money supply, the total value of all money in a country, is $ 1 billion, and the cost of a refrigerator is $ 100. If suddenly the government prints, and distributes, another $ 0.5 billion (think post-war Germany), anyone selling a refrigerator should expect the same value. They should expect to be paid $ 150. The value of one refrigerator is still 1/10,000,000 (or for those using the British definition of ‘billion’: 1/10,000,000,000) of the value of the country. The monitory price change is only an inflationary adjustment. It is the value of money, not the value of refrigerators that has changed.

Alternatively, if instead of an increase in the money supply there were to be an increase in the efficiency with which refrigerators were made, the cost would go down. (If the price did not go down immediately, the competition would see to it. You can argue this as less effort being needed to make one, and so fewer labour hours and material costs are encountered. Alternatively, it could be argued with the laws of supply and demand; If you make them cheaper, they sell cheaper.) Regardless of how it is argued, one must admit the monetary cost of a refrigerator would go down. But would the value of a refrigerator change? Would the benefit of owning a refrigerator change? No. Relative to the value of the country, yes, the value of a refrigerator would change, but it is the value of the country which would go up as an outcome of the increase in efficiency based on the “work smarter” scheme.

If we combine these effects – let the government increase the money supply, and let the efficiencies increase too – there will be a balance where prices are stable. If we let the government print and inject money into the system at an appropriate rate, (injection places include: Salaries of civil servants; Maintenance of parks and purchase of land for new parks; Funding policing and justice system costs; Funding libraries and museums; and even Maintaining and restoring the health of citizens; as well as Covering all those other things with untenable value (i.e. those things which the private sector will not or should not invest in, but which the populace needs or will benefit from)), then prices, including labour prices (also known as salaries and wages), will be stable.

Conclusion for the Perfect System:

Indeed, the suggestion of this essay is that all government money should come from the printing presses, not from taxes. There should be no taxes, and no burden on the system by way of tax accountants. The government has the licence to print money. Let them use it. (But not abuse it. That is why we elect.) If the privilege is abused the country suffers inflation; the net value of the country, divided among the populace, will not be enough for persons at the bottom of the uneven economic distribution to cope. As long as the populace knows and understands this, and the government realizes the people know and are watching, and have power, the country should not suffer.

Application in an Imperfect System:

There are, however, some big problems with such a system. Any governmental changes to the status quo will upset the existing balances in the economy. The more drastic the change, even when it is a change for the better, the worse the upset – and this proposal is for a highly radical change. How and where can a system like this be started? It must be started at the country level, since smaller political units do not have control over the money supply. Is the only place a small island (that will grow [tilt!])? Perhaps one of the breakaway republics could try it. Quebec, Scotland, Ireland, maybe? Could it be instituted as post-war reparations?

Another set of problems include that it must be championed by someone, must be accepted by the powerful, and must be understood by the populace. A change favouring the weak will be rejected by those with power. This system, in times of inflation, will erode most severely the wealth of the rich; those with wealth sitting un-invested in the bank. In times of restraint, it is the poor who will benefit from the increased services. This system might only be adaptable by a benevolent dictator (or, as noted above, in post-war reparations).

Yes, this article ends with a weak conclusion. The idea could benefit from group discussion, and brainstorming. You and others are invited to critique, to rebut and to respond otherwise. Please, and Thank You.