This essay examines the flow of taxation money,
and concludes that opportunities for streamlining exist.
A reality about economics and about statistics must be acknowledged. Some people will always be at the lower end of the income distribution; a full half the population will earn less (or at most, no more than) anyone in the other half of the population. Market forces ensure that most low-wage workers are paid only enough to get by, unless employers must pay more to avoid the expenses of turnover, losing workers to competitors and having to rehire. Businesses that pay significantly above this level either lose profitability or get under-bid, and eventually disappear. When generosity appears, competitive pressure or economic decline tends to erase it. Over time, the lowest earners inevitably drift back toward subsistence.
“Who should be taxed?” and “On what basis should tax be charged?” These are not the first questions. The starting point should be: “Where does the value represented by tax money come from?”, or “If there is only ONE taxpayer. WHO IS IT?”
Taxes can be applied at various places:
Thus:
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? Or, worded differently: Where does the value of money, spent as if it came from taxes, come from?
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, paid with devalued currency).
Taxes may be paid by manufacturers, employers, consumers, employees, or property holders – but in every case the cost is ultimately passed along. Businesses finance rising taxes by raising prices. Consumers pay those prices using wages that themselves must rise to cover taxes. Employers fund those wages through prices paid by other consumers. The result is a closed loop: higher wages support higher prices, which support higher wages. Either there is inflation, or prosperity.
Neither corporations nor individual consumers generate new value through taxation. They merely circulate costs among themselves. Even progressive taxes eventually wash out through adjustments in wages and prices until the system returns to its previous balance; the only change being the devaluing of a unit of currency.
A striking example is the taxation of civil servants. Government workers are paid from tax revenues, then pay taxes back into the same system. This money is cycling around in administrative loops, requiring accountants and administrators to track it – effort that clearly produces no new value. In such cases, taxation does not create revenue; it merely reallocates internal funds at additional cost.
Ultimately, it can only come from growth in a nation's total worth: its people, land, skills, productivity, and resources. Taxes merely redistribute this Gross National Worth. When the country becomes more capable and productive, there is more real value available to support government activity. When there is no progress, deficits and inflation appear instead.
From this perspective, taxation mainly functions as a tool to influence behaviour or to re-balance resources – for example, by discouraging harmful activities and by funding shared infrastructure and services. But the value itself always originates from human effort and productive capacity – never from the mere act of collecting taxes.
Printing money instead of collecting taxes could, in theory, fund government directly, provided the rate of new money creation matches real increases in national worth. In practice, however, such a system would be difficult to introduce without severe disruption, and risk of mismanagement. Real economies are complex and imperfect, and any radical change would need careful leadership to sponsor it, and broad understanding in the public receiving it to allow and ensure its proper maintenance.
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 the raising 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. (Alternatively, this can be viewed as the devaluing of the 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 some things; encouraging other things. By way of example, it can be generally agreed, 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 production 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 growing crops 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, further improving 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. Farmers in Canada, at one time, were expected to maintain the roads in front of their properties. This was a form of taxation: The extraction of worth, from the people, for the people, on the demand or instruction of the people (=government); and was done in return for the other governmental services they otherwise enjoyed without specifically paying for. 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. It was the rising Gross National Worth that funded 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 programs 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 advances in time the noted Life Quality improvements, and thus, to an extent, it is justifiable, even desirable, to burden the future generations with the need to pay for improvements they will receive. The government's contribution to increasing the country's worth comes from good management and direction in the deployment of resources.
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.
Perhaps, instead of the Gross National Worth (which changes in proportion to the Gross Domestic Product), I likely should be using a different measure based on the “Genuine Progress Index”. This alternative, the GPI, may be explored at http://www.GPIAtlantic.org/gpi.htm. However, for the purposes of this article the distinction is not being pressed.
Indeed, the suggestion of this essay is that most government money should come from the printing presses, not from taxes. There should be no taxes, except perhaps to guide the behaviour of the people and corporations towards responsibility. Liquor taxes, tobacco taxes, and the like, should go directly to funding cancer research and DUI awareness and enforcement. And, the taxation should be structured so that it can be done with a minimum of redundant ‘bean-counters’. The government has the licence to print money. Let them use it. (But not abuse it. That is why we elect. It is also an important ‘why’ behind the existence of a public education system.) 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. Indeed, it will be more able to prosper.
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 greater 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. Ireland, Quebec, Scotland? Could it be instituted as part of post-war reparations? Gaza or Ukraine; under the supervision of a benign international supervisory body?
This essay therefore ends not with a prescription, but with an invitation to question assumptions, to examine where value truly arises, and to consider whether our systems could be made simpler, fairer, and more efficient.
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.
This material is Copyright (© 1996, through 2026, R. W.C. Stevens). Reproduction, with this copyright notice intact, is permitted – but sharing the URL would save a tree, and probably make more sense.
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