Toward Sensible Taxation

Posted on 20/09/2011 by

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Read part 4 here.

The point which I have been trying to make can be summed up briefly. Taxation is the most powerful tool in defining and supporting the most invested and motivated stakeholders in a given economic system. Given the present circumstances, I shouldn’t need to defend insisting that corporations are not the best of stakeholders. My primary intention is to use taxation policy to help construct a more resilient social arrangement. The idea is to improve society, not overthrow it.

It should go without saying that a new, very different class of taxation-defended stakeholders are desperately needed. A return to the former arrangement of the rich holding the zero-tax privilege is frankly madness. An attempt to create a system where there are none who enjoy that privilege is likewise madness. The former is regressive and does not solve the problem. The latter creates a vacuum; the pleasure of filling it will drive various powerful economic interests into aggressive competition. The losers will continue to be the poor and disenfranchised.

Instead, I would like to propose what should have been obvious for centuries: give the zero-tax privilege to the poor and disenfranchised. They will remain neither poor nor disenfranchised, nor even apathetic, for long.

More specifically, and focusing upon the concept of an income tax, give the zero-tax privilege to those people who have no employees, ie self-employed entrepreneurs. Give the privilege to those who are employed, not employers. Give the privilege to family farmers, to family carpentries, to family businesses in general.

In a simple phrase, the zero-tax privilege must be given to those who do not exploit the labour of others for the purposes of expropriating profit. It is this class of entrepreneurs upon whom a healthy economy soundly rests. Their contributions thereto should be duly honoured and defended, not punished by taxation.

Taxation, therefore, should instead be based upon the number of employees a given business employs, and the profit which accrues from the labour of said employees. The more employees and the higher the profits, the higher the taxation rate becomes. However, large business with a low profitability could conceivably have a lower taxation rate than a small business with high profitability.

As part of this new tax policy, taxes on goods and services (ie consumption) would be eliminated. This is for several reasons. One is that such taxes are always regressive: those who can least afford to pay them are penalised the most. A 10% tax on food to the rich is immaterial; the same tax to the poor can mean an austere table. As part of establishing the employees and sole-proprietors as the new zero-tax class, both their income and their expenditures should be freed from taxation.

Consumption taxes also suppress economic activity, something which ironically leads to lower tax receipts. The point of my policy is not to reduce tax receipts, but simply streamline the process and radically alter whence the monies come. Additionally, people should not be made disinclined to invest in local businesses via their consumption. Consumption taxes suppress capital formation for small local businesses and sole-proprietorships by dissuading the purchases of potential customers.

To continue.

I will save more technical analysis of the taxation equation for another post. Suffice it to say, its operation is mostly mechanical. Only two factors of public policy come into play, two decisions which must be made as to the nature of economic activity: how much deviance from the optimum of the sole proprietor is tolerated, and what level of exploitation of labour is tolerable.

Because of the nature of my proposal, the people making those decisions would be the employees and the self-employed. They would enjoy the zero-tax privilege, not the employers. They would have the freedom from taxation which encourages active, intelligent, and involved participation in policy decisions.

In other words, the decisions about what represents acceptable economic activity is pushed down to the broadest number of people possible. It allows for truly democratic and distributed decisions to be made, by the vast numbers of people who actually keep an economy – and a country – running smoothly.

Read part 6 here.

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Posted in: Distributism, Reform