Fair Taxation Is Impossible Without Responsible Government Spending

Some taxes are better than others, but there is no such thing as a fair tax.

We have reached the point where people think others are not paying their fair share, whatever that means.  Fair share of what?  What is your fair share of money that has been spent stupidly, by arrogant and non-responsive politicians?  Zero seems fairest.

The purpose of taxation is to raise the money that is necessary to maintain the government.  In a democratic, capitalist system, the thing that is forgotten is that the economic idea of taxation presupposed an efficient, minimalist sort of government.  There likely is a fair way to allocate those costs.

More from those who have more, less from those who have less.

Keep in mind though that 10% of $1,000,000 is a lot more than 10% of $50,000.  Progressive rates are a political idea not an economic idea.  They work wonderfully well in theory.  Not so much in practice.

Once we use taxation to achieve any other purpose than maintaining a minimalist government we buy economic trouble.

Some purposes seem innocuous enough.  Let’s have a gas tax to help pay for roads and bridges.  Seems reasonable.  The ones who use the most pay the most.  There is the nagging question of whether a BMW driver should pay more for gas, but I will leave that alone for now.  Personally I don’t have a problem with taxes that are just disguised user fees.  I would agree with tolls too.  I might exempt commercial users entirely.

How about a tax on cigarettes that makes them very expensive and thus discourages smoking and helps defray the medical costs?  How about a similar tax on alcohol?

Sounds good but money can’t tell where it came from.  The government needs the money for whatever it is that they think is important.  They cannot easily give up the money raised with a cigarette tax.  I recall when cigarette smuggling became a serious issue in the early ’90’s and they had to reduce the tax.  Turns out they needed the money and smokers were an easy target.  Making them quit was irrelevant.  If they had really intended for people to stop smoking, they would have just implemented whatever plan they had to deal with the revenue loss when they did quit.  And forget about the extra medical costs for smokers.  I doubt there is much.  Smokers die younger and relatively quickly.  I would need to see the numbers to believe they cost more.

The reality is the government does not care how they get the money.

Things that are not internally consistent lead to irony.  One of my favorite things.  A smoking, drunk driver, who buys lottery tickets, pays more tax than anyone.  Maybe we should applaud.  Not really, but it does demonstrate how the system works at cross purposes.

Taxation will become fair when it becomes minimal.  If I paid 15% of my income in all forms of taxation and that was enough to support the needed government, I doubt I would pay much attention to what is fair and how it is raised.  When the number is more like 50% it crosses my mind.

For my American friends, I have an image of Harry Reid looking through a giant telescope.  Over his shoulder, Obama says, “Anything taxable out there?”  Just as true here, just different players.

If you want fair taxation, start with responsible spending then you won’t need to tax everything but my memory.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

One Comment on “Fair Taxation Is Impossible Without Responsible Government Spending

  1. Pingback: Tax Rates Have Increased | moneyFYI

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