A taxing question

What are the rights of the civil state concerning taxation? The first consideration is that it allows the state to remove income, capital gains or wealth from people who have lawfully earned their income or succeeded in making profits. What gives it the right to do so? Philosophers have considered this over the ages but there seems to be a broad agreement that in benefiting from the state we enter into a contract in which we agree contribute to provide the benefits of belonging. Thus even the child in the womb is taken as entering this contract, since it is benefiting from the safe condition of its mother – which the state has enabled.

Theology recognises the state as a subject of natural law. Since we are created as social animals, and so live in collective societies, we are bound to obey the proper authorities and pay our share towards the necessary collective benefits. But that does not give the state a free hand. It must always remember that it is the citizens’ funds, which have been lawfully acquired, which they are taking. Notionally, indeed, it should be regretfully apologising for every penny it takes, and it should ensure that this is used for necessary, just, and proper benefits for society as a whole. (See the Laffer Curve, below)

Is this the impression we have? Or does it feel closer to grabbing its money any way it can which is consistent with, or tending towards, the ruling party remaining in power? And there are other considerations:

What happens to a society in which its most successful people lose much of the benefits of of success through progressive rates of taxation?

Is it proper for the state to use taxation as a device to reduce the diversity of incomes? We are often presented with examples where senior executives have salaries and benefits many time higher than their average employees. But if the employees have salaries at the normal market level are we justified in complaining?

Is it just to impose new taxation on long term activities? For example, the removal of tax relief on interest charges for those who entered buy to let projects to build up their retirement funds. A business can treat these charges as costs of business but the individual now cannot do this. Another example would be extra charges on old diesel cars bought at a time when diesel was recommended as avoiding air pollution.

The Laffer Curve. This is attributed to the American Arthur Laffer in the 1970s. He visualised a rate of tax chosen by the state from 0 percent of personal income to 100 percent. In the first case the tax take is zero. In the second case the tax take is also zero (because no one bothers to work when they aren’t rewarded. ) Somewhere between the two is the ideal point where maximum tax take is found. While in practice this ideal is variable and difficult to pinpoint it reminds the government that increased taxes may sometimes reduce the take. For example the high stamp duty on expensive houses has contributed to a reduction in elderly people downsizing, and thus releasing property for the young.

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About Quentin

Science Editor, Catholic Herald. Portrait © Jacqueline Alma
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14 Responses to A taxing question

  1. Alasdair says:

    Quentin,
    your “taxing question” is not in fact very taxing and you have already been very eloquently satirised by Monty Python. I quote:
    “All right… all right… but apart from better sanitation and medicine and education and irrigation and public health and roads and a freshwater system and baths and public order… what have the Romans ever done for us?”.

  2. G.D. says:

    The only obligation each and every individual has to ‘the state’ is to donate what they can afford without impairing their own subsistence. (Subsistence! Decent accommodation, safety, healthy diet and medical health needs).
    The amount, percentage of income, individuals are to donate to each function, is up to the consensus of the individuals in ‘the state’. Not to be imposed by a selected few in ‘the sate’. (A few passing laws and dictates for all to follow under sanctions of punishments and sanctions etc).
    How those contributions are distributed should be agreed by all in ‘the state’. Where differences occur percentages should be applied. That is fair taxation.

    If needs be individual areas to decide what applies to each function in their environment..

    And all processes of ‘proselytising’ (lobbying) should be banned, apart from word of mouth and relating to each other. (Some hopes of that; it takes ‘a state’ of good conscience).
    ‘The state’ is only a reality when each and every individual has freedom of voice in decisions; which hasn’t ever been a reality.

  3. pnyikos says:

    “Is it just to impose new taxation on long term activities? For example, the removal of tax relief on interest charges for those who entered buy to let projects to build up their retirement funds.”

    I have long had a serious objection to a very old taxation on the longest term activity of all: farming. Family farms that provide only modest income should not be subjected to high inheritance taxes. I suspect the ulterior purpose of onerous taxation of this sort is to replace “inefficient” family farms with “efficient” agribusiness, and thus to keep the cost of food low for the city dwellers. But there is a tremendous price to be paid where traditional values are concerned, and in the form of continuing decline of population in Europe.

  4. galerimo says:

    Thank you Quentin but I think the real issue around taxation right now is what the Paradise papers are exposing – tax havens like Luxembourg, the Netherland, Switzerland, Bermuda, Isle of Man, Cayman Islands and others enabling multinationals , Royalty, Media Personalities and the super rich to dodge taxes and effectively rob countries of their wealth more and more while barely remaining within the law and, just as often, well outside the law.

    We should pay people on the basis of the real contributions they make to the well being being of society – like the refuse collectors, nurses and teachers and impose heavier taxes on the the ones that hurt or drain the resources of society the environment included.

    Having apparently thrown off the grasping overlords of aristocracy in our contemporary world we have simply replaced them with big multinationals who have everyone working harder and longer hours. I am wondering where has all the resulting increase in wealth gone – if the purpose of our taxation system is to reduce poverty and increase wellbeing in society then it is obviously abysmally failing.

    We need more and more tax on wealth and better distribution of that wealth and if we don’t have it then we continue the rapid pace of return to the rentier societies of long ago – or alternatively World War III and I am sure that has crossed a few of the many unthinking minds among our present world leaders.

  5. John Nolan says:

    Taxation is a legal matter, not a moral one. The law requires me to pay taxes, both direct and indirect, and I do not have a choice in how the government chooses to spend the money it takes from me. I can make a moral decision to give my winter fuel payment, which I do not need, to a charity which supports the homeless, but I cannot expect the government to make moral decisions on my behalf.

    Galerimo’s model for redistributive taxation suffers from a basic moral, and indeed ecomomic, flaw. If someone by dint of hard work and talent amasses a certain amount of wealth, it is not legitimate for the state to confiscate it and give it to those who are idle and feckless. This only serves to confirm the idle and feckless in their habits and disincentivize the energetic and talented.

    Dustmen, nurses and teachers certainly benefit society, but they are not the primary wealth creators, nor do they employ people. Even inherited wealth, when lavished on extravagant vanities, benefits the poor, as Alexander Pope noted:

    ‘I curse such lavish cost, and little skill,
    And swear no day was ever pass’d so ill.
    Yet hence the poor are clothed, the hungry fed;
    Health to himself, and to his infants bread,
    The labourer bears: what his hard heart denies,
    His charitable vanity supplies.’

    In 1929 Lord Clyde observed in a famous legal ruling: ‘No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.

    A few years ago a government minister said it was immoral to pay a tradesman in cash. From my already taxed income! Piffle, I say.

    Tax is an imposition (French, ‘impôt’); it may be necessary, but it is unwelcome.

  6. tim says:

    H’m.
    The state needs tax money to pay for services the electorate think essential or desirable. Clearly those who have more should pay more. How much more, is not so easy. Tax must be charged in accordance with law. This law should be as simple as possible (but not simpler, as Einstein said in another connection). Leges sunt servanda – but the more complicated they are, the more room there is – for legitimate differences of view about whether they are just – and the more motive for expensive lawyers to find loopholes for the benefit of those who feel they are unjust. It’s impractical to pay people according to the moral worth of the jobs they do (one might – though I won’t – argue that people with morally worthwhile jobs such as teachers and nurses should be taxed at higher rates to compensate for their spiritual benefits). Like John N. I don’t need a winter fuel payment, but unlike him (and my wife) I don’t give it away (not as such, at least) as I pay quite a lot of other taxes.

    Certain taxes are undoubtedly unjust, and others arguably so. Taxes raised to pay for unjust purposes are unjust. Some will feel that taxes that pay for a nuclear deterrent are unjust. It is arguable that tax paid to develop renewable energy is justified I think not – but whether I’m right or wrong about that, the way such taxes are imposed is certainly immoral.. The rich are offered subsidies (they can put solar panels on their roofs – or even wind turbines on their estates – and sell the resulting electricity to the grid at an inflated price). The poor however have to pay for more expensive electricity – and some of the poorest die of cold in consequence.,

    • John Nolan says:

      The tax on tobacco is one of the worst examples of regressive taxation since those on low incomes are more likely to be smokers. A packet of cigarettes which cost 27p in 1971 is now £10.40. Allowing for inflation, it should be £3.80.

      Of course the government wants to deter people from smoking and to punish those who obstinately persist in doing so. But is this a legitimate use of the tax system? I would maintain it is not, and the only reason for taxation should be to raise revenue.

      The same goes for ‘green’ taxes and the way Vehicle Excise Duty has been levied since 2001.

      • tim says:

        Yes – a very good example. However, I’m not sure that it’s easy to put on one side the possible benefits to society of discouraging use of taxed items. In the case of smoking, in particular, one might well get more total tax in by putting the tax rate down. But given the well-evidenced dangers to health of smoking, perhaps the high tax rate on tobacco shows a profit if NHS savings are taken into account. (This is a purely theoretical speculation, I have no figures to support it).

  7. John Candido says:

    “Taxes are what we pay for civilized society.” (Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice)

    “The power of taxing people and their property is essential to the very existence of government.” (James Madison, U.S. President)

    “To tax and to please, no more than to love and to be wise, is not given to men.” — Edmund Burke, 18th Century Irish political philosopher and British statesman.

    “I am proud to be paying taxes in the United States. The only thing is – I could be just as proud for half the money.” — Arthur Godfrey, entertainer

    Taxation is the interconnective glue between every person in a nation-state. Without taxation, no society can progress.

  8. Geordie says:

    John Nolan I agree with both your posts above.

    We have two opposing political systems; namely Socialism and Capitalism. In theory the first is good at distributing wealth but poor at the creation of wealth; the second is good at creating wealth but poor at distribution. If all men acted honestly and with a moral sense either system could work but we are weighed down by original sin and its consequences. Therefore we need laws to control our selfishness.
    In this country in the 1950s, there seemed to be a reasonable balance between the two systems, although the taxation of the wealth creators was too high. If we had one rate of tax for all, the wealthy would still pay more taxes than the poor; 20% of £100 is £20, while 20% of £1000 is £200. The punitive taxes on high earners is a political decision not an economic one.
    No tax relief should be given to high earners who do not wish to use the services of the state. If they wish to spend their money on health or education, that’s up to them. We should all be able to choose how our money is spent but there should be no hand-backs from the state.

  9. G.D. says:

    As long as value and worth is calculated in economic terms, the power to tax or not to tax (whatever) is in the control of them with more economic value (i.e. political clout) . And them of less economic value suffer from unfair laws (i.e. unjust economic loopholes) unjust taxation, and are stigmatised.
    Usually in an economic system (including taxation within it) that keeps the majority of them with ‘middle’ economic wealth happy and content. And the nonsense conviction of the poor are there because they ‘are idle and feckless’ is encouraged to aid the ‘happy & content’ attitude with the ‘system’.

    The majority of the poor are not idle & feckless. The majority of the poor have been forced, because of the unjust economic system, into that situation. And the system is creating more and more.
    There are plenty of families where both parents work long hours for a pittance and can’t afford to subsist in the economic climate created by this unfair system of economic distribution of wealth.

    But there have always been; and you will always have the poor with you because they are idle and feckless, nothing to do with greed & self satisfaction. So it’s fine.
    It is the people at the bottom of the pile (any pile) that bear the selfish grandeur of those above them; unless of course they comply to the whims of the ‘valuable economic rich’ for reward.

    To value life as an ‘economic value’ in itself is a nonsense, and not Christlike – adequate housing, health care, food and water – the basics of living – are a right for all; free. Even the feckless, then they may actually have the energy and gain the self esteem to contribute something.

    …. Have just read that over and it seems like a rant, but i assure you all it wasn’t written in that vain – as far as i’m concerned it’s Truth. I know that because i’ve been both poor and ‘rich’, and suffered both! I do not conjecture i assert.

    …. I will be ranting though if i really get going on this topic, and as i must avoid situations of ‘sin’ i will make no other posts this week. ……. if i can keep a lid on my anger! (lol).

  10. Quentin says:

    An interesting article in The Times today (Monday); it argues that we should value the rich. It tells us that 1% of earners pay 27% of all income tax and the top 10% pay 59%. Consequently the wealthy, notwithstanding the legal ‘cheats’, are of great benefit to the poorer in the population. Owing to the Laffer Curve, when Denis Healey introduced a rate of 83% the top 1% paid only 10%.

    It suggests that those who argue for squeezing the rich are either economically ignorant, or jealous, or cynically seeking votes. Or all of these.

  11. Alan says:

    The discussion seems to be divided between what is legal/legitimate on the one hand (earnings/profit) against what is “right” on the other hand (taxation). It feels a little inconsistent.

    Suppose we modify the Laffer Curve a little and introduce a basic wage that isn’t taxed. Then we test the range of tax rates for earnings above that amount from 0 to 100% again. I wonder how many people, financially motivated to do some from of work at least, would still choose to do the more challenging/high paid jobs that exist in today’s markets – even at 100% tax. Some at least I would guess. Still a maximum revenue to be found, but no longer zero at both extremes.

  12. John Nolan says:

    ‘Adequate housing, health care, food and water – the basics of living – are a right for all; free. ‘ None of these are free, and never have been. Even health care, which was supposed to be free ‘at the point of delivery’ has charges for prescriptions, and a visit to the dentist or optician will cost you money up front. Next time I visit the supermarket, do I demand my ‘right’ not to pay at the checkout? Do I tear up my water bill because I have the ‘right’ to free water? Of course not.

    I happen to believe that there should be access to adequate affordable housing, but even ‘social housing’ (which there is not enough of) requires rent to be paid, and utilities to be paid for. No-one is saying that all the poor are idle and feckless, although the present ‘benefits’ culture can certainly make them so, and more ‘free’ handouts are hardly the answer. It has been said of ancient Rome that the rich were idle, and the poor, thanks to generous handouts, were also idle; the middle group of artisans, tradesmen and shopkeepers were the only free citizens who did any work.

    And poverty is relative; an unmarried mother living on benefits is extremely well-off seen from the perspective of a villager in rural India or Africa.

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