The following is a personal outlook paper of The Jacksonian Party.
Taxation is one methodology for the State to get the funds to keep itself running so as to protect society. The Nation State has that burden and uses the tool we call taxation to burden the public for its own defense. And yet we hear of all the great 'good' that can be done by taxation, if only we give the government more of our money. Unfortunately government is not a good caretaker of funds nor an able spender of them, as I have looked at before. So when government gets involved in anything, the immediate cost overhead burdens how the money is spent with inefficient bureaucracy, oversight and other compliance mechanisms required within the government. I personally worked at one of the most efficient agencies in the US federal government that only had 35% of its budget taken up with that overhead, and worked with another that only had 41% taken up with such overhead. The functions of defending the Nation, its borders and upholding the common law are all things that cannot be done elsewhere in the bureaucracy or by the people: these are National concerns.
Things like healthcare, education and agriculture are all better suited to local administration, the more local the better. When government gets involved your tax dollars go less far, less efficiently and with less accountability that with State, local or personal expenditures. As you can hold all your recipients personally accountable, you are the best place to spend any funds for things that are best done locally. You pay a premium to get government 'oversight', and that comes in loss of productivity for the system as a whole
Higher taxation is always touted as 'necessary' and 'patriotic' to pay for such things, and yet I remember that when the Goods and Services Tax was first put in across the border in Canada, shopkeepers welcomed me with open arms as I didn't have to pay that tax! It is the strangest dichotomy that something that gets such a 'good' is reviled or even despised by those who have it put on them. What happens is that such taxes are not liked nor do they engender good feelings towards the overall system. In fact just the opposite.
From this article by Pierre Lemieux originally seen in The Globe and Mail in 1994 and reposted by the author, I can see those transition years happening as I understood them, then:
As budget day nears, politicians of all stripes warn us that tax evasion is rampant in Canada. Before he started talking about tax increases, Finance Minister Paul Martin had declared that "hundreds of thousands of otherwise honest people ... have withdrawn their consent to be governed" by escaping in the underground economy.
The problem is that the politicians do not seem to draw the right conclusions. Pressed for money -- actually, nearly bankrupt --, the federal government, as well as some provincial governments, has decided to clamp down on the underground economy. Revenue Minister David Anderson has declared a war on tax evaders.
After shopkeepers defied the law by openly selling smuggled cigarettes in Saint-Eustache, Qué., Bloc Québécois leader Lucien Bouchard came out against what he sees as a new state-cheating culture. He apparently thinks that citizens should always obey the rulers. Indeed, the governing class shows a rare unanimity in bringing the Canadians back under the government's rod of iron.
That is to get the much lauded healthcare system in Canada, that now sees people not liking it all that much as services for what we, in the US, would consider routine tests, like MRI and CAT scans, now have long waiting lists. I remember someone citing that all of Canada has the same number of MRI machines as metropolitan Philadelphia. When government takes more money to provide fewer services than was available without government intervention, the people draw their conclusions on the efficacy of funding government.
Mr. Lemieux then looks at some of the reasons the tax cheat culture started in Canada:
First, how did tax evasion develop among so docile a people as the Canadians? The answer lies, of course, in the tax burden they have to shoulder. Tobacco, on which federal tax rates have increased by 150% over the last five years, is only the tip of the iceberg. The total tax take by all levels of government now amounts to nearly 40% of the Canadian gross domestic product. If we include the deficits, which are just future taxes, government takes close to one half of what people produce and earn in this country. In two words, tax evasion is a response to tax invasion.
Galloping regulations are another factor. Some of them come with taxes: Small businesses now have to perform time-consuming GST accounting, and prepare a complex quarterly report. I don't know if we ever were a nation of shopkeepers, but we are certainly becoming one of tax collectors and accountants. Other forms of regulation -- labor regulations, for instance -- make it much more simpler and cheaper to go underground, for consumers and suppliers alike.
The second question is, How could we ever accept such a tax burden in the first place? One hundred or 200 years ago, the great Western thinkers to whom we owe whatever liberty we have left would never have thought this could happen in a free country.
The third question relates to the state's reaction. Politicians argue that the individuals who do not pay their "fair share" thereby increase the tax burden of other citizens. The main thrust of the coming federal and provincial budgets may well be to increase the effective tax burden under the guise of "fair shares."
This is a naïve cliché which assumes that political and bureaucratic processes naturally lead to the optimal amount of taxes required to finance unanimously demanded public services. What actually happens (at least if we agree with the Public Choice approach in economics) is that the government will take as much as it can, it will charge what the traffic will bear. Governments satisfy minority pressure groups and buy votes through spending. If Canadians in the underground economy were to start paying their "fair" taxes, government revenues and expenses would just increase by the amount of the new taxes. In this perspective, the underground economy is a useful restraint on Leviathan, and a benefit to all taxpayers.
Yes, that is exactly what I remember from shopkeepers when the GST was put in place: they had become the accountants for the revenuers! And loathed it. Some even preferred 'off the books' purchases that were legal, just so they could avoid doing the paperwork on the purchases... anything to avoid the overhead of doing the government's work FOR IT without any recompense.
Looking at Recent social trends in Canada, 1969-2000 on p.468 (via Google Books excerpt), the trend of tax evasion declined from 1969-80, and then steadily increased thereafter. In Taxation in Canada by Janet Shimbashi Denhamer pp. 55-57 (via Google Books excerpt), is a discussion of means to avoid taxes in Canada via planning, avoidance itself, evasion, or putting income into categories that are not directly taxable. Thus when government puts in broad-based taxes that are deeper and more invasive, people lose their adherence that they are for the 'common good' and that the 'common good' is best served by avoiding taxation at all costs.
Germany has one of the highest tax rates for individuals in Europe, and yet it appears there is something going on at the lowest levels. From this report at Marketplace at Public Radio on 19 FEB 2008, we see some of the hints of how people feel about taxes when tax evaders are caught:
Brett Neely: Well, it seems like someone who was possibly an employee at this bank in Lichenstein, the LGT bank, stole a DVD full of sensitive customer information and sold it to Germany's intelligence services for what's reportedly about 5 million euros.
Jagow: Why would the intelligence service pay for this information?
Neely: There's been a big problem with tax evasion in Germany. It's kind of a sport in some ways. And Lichenstein is one of the favorite places for wealthy Germans to stick their money. The German government's been trying to find ways to collect on these taxes for years, but they can't get through Lichenstein's bank secrecy laws. So when this data was put up on the market, it was irresistible.
To put that in US terms it would be the following: the CIA was spying on American's overseas finances to supply information to the IRS.
Mind you, everyone on the Left tells you how wonderful it is to pay taxes and how those in Europe are so glad and pay so readily... and then become tax evaders, apparently. Mr. Neely continues on that it is unusual for people to drive to Liechtenstein with cars full of money, but that everyone gets tax consultants to help expose as little money as possible to taxation in Germany. Everyone does it. Mind you, that is from generally left-leaning Public Radio, and a startling admission that broad-based taxes may not be that well received in highly taxed Nations.
In Denhamer's work, it is pointed out that the ability to misrepresent items leads to the amount of evasion being higher than expected when considering Gross National Income. Lemieux makes that point also, and when comparing tax receipts on income versus GNI, the delta between what 'should' be garnered under taxation and what is garnered is the amount being avoided. Government raise rates to generate more revenue... which increases avoidance as taxation gets more draconian.
In a Business Today article of 20 MAR 2008, Aseem Mahajan looks at some of the coverage of the scandal and what it reveals:
The drama began on February 14th, when police detained Zumwinkel at his villa. The CEO was charged with evading tax payments of over € 1 million ($1.5 million) by channeling money into underground foundations set up in Liechtenstein by LGT Bank (along with Andorra and Monaco, Liechtenstein has been labeled as a tax haven by the OECD). While many German elites tried to stay clear of Zumwinkel and his financial dealings, a deeper probe revealed that more than 1,000 German investors had also channeled money into Liechtenstein’s “foundations” to avoid Germany’s notoriously complex tax code. To add to the situation, in recent years, many Germans have become wary of the gap between corporate managers and average citizens. According to The Economist, “the pay of Germany’s top managers jumped 17.5% in the 2006-07 financial year,” while “globalization and economic reforms have squeezed the wages of ordinary Germans” (“The Disgrace of Germany AG,” February 21, 2008). Although Germans voted to raise the top income tax rate in 2007, this has had little effect on reining in the wealthy. The number of German tax advisers has increased recently, and “tricking the taxman is now widely considered a national pastime in Germany” (“Not so Fine in Liechtenstein,” February 22nd, 2008, The Economist). In a country that delicately balances capitalism with large social-welfare programs, even a few scandals can rile critics of capitalism, which leaves it much more vulnerable than in America.
That is the crux of the social welfare state: any avoidance of taxation demonstrates that the welfare, itself, is not appreciated and that political favoritism goes to the pocketbook, directly. When government takes healthcare and social services out of local hands, it then puts in place the avenues of political corruption that can range on a National scale, not State (or Provincial) or local one, which should be easier to catch and hold people accountable for their actions. At the National scale entire political classes who gain benefit from corrupting the tax system to reward some over others on the public dollar then rally to say 'how good' the tax system is at going after the 'fat cats' while seeing that it is those exact, same 'fat cats' who are their backers across all political parties. More government increases the avenue for corruption, not decreases it. Higher taxes on the wealthy become a facade behind which the decaying State is eaten away by its own politicians. 'Progressive taxation' turns out to be a misnomer as it heavily politicizes the 'progressiviness' of the taxes and allows those who have the means to avoid them, evade them or just not pay them.
Taxation 'progression' leads to political regression.
On 20 FEB 2008 article at Euro Intelligence by Wolfgang Münchau examines the principle reason for tax evasion being... yes... taxes:
Germany has always had a problem with tax evasion, mainly because of relatively high marginal tax rates. Slovakia with its 19% flat tax has no such problem. Austria, which has one of the lowest tax rates of the industrialised countries, has no such problem either, even though, unlike Germany, it has a direct border with Liechtenstein. Nor have the Swiss. The French have a problem with Switzerland and Monaco. The Italians have a problem with Monaco. And the Spanish have a problem with Andorra. But nobody has bigger problems than Germany (which has problems with Luxembourg, Liechtenstein, Switzerland and even Austria). Germany is a country where business elites enjoy among the lowest pay packages, and the highest marginal taxes.
The German government now plans a series of measures to crack down on Liechtenstein. But to what effect? If the German government succeeds to destroy Liechtenstein's business model, this will be bad news for the plucky principality. But then, what stops wealthy German investors to go to Monaco, the Channel Islands, or the Cayman Islands?
Ah, the winds of the next World War, perhaps? Unlikely as Germans are not about to militarize over taxes... yet. But destroying the efforts of small Nations to be financially independent in how they do things so they can address local concerns means that they need to get understanding that their sovereignty matters. When liberty is destroyed or put at threat by outside forces, those doing the threatening need to understand that they are harming the flow of all liberty, not just seeking their 'just due' via taxes being avoided by THEIR OWN CITIZENS. Perhaps if they would lessen services and programs and institute a more moderate and lower tax, the people could find a way to provide for those things that government does in a piss-poor way?
That requires divesting the Nation of internal power over its own people and allowing liberty a greater hand for each individual to determine their own course in life and not seek cradle-to-grave support from a beneficent that has draconian taxes and a tyrannical system of collection that uses spies to find out just where their own people are hiding money. As so many point out how 'good' Germany is in healthcare, the flip side is that their own espionage services are used upon their own citizens to catch them evading TAXES.
I thought the idea was to build up social cohesion and trust in government, not destroy it?
What is even worse is that the entire EU concept was supposed to ameliorate the problem. From Businessweek 27 MAY 1996 an article on Germany's problem then:
Can German Chancellor Helmut Kohl spark a supply-side revolution in Europe? No one would have believed it just a few months ago. But Kohl's Apr. 26 announcement of plans to ax more than $46 billion from government spending and to roll back Germany's costly tax and social security regimes is the strongest signal yet that such a shakeup is on the way. Kohl's proposed budget cuts--the equivalent of 2% of gross domestic product--would slice far deeper in a single year than then-Prime Minister Margaret Thatcher ever did when she launched her bid to reform Britain.
Kohl's plans could mark the start of an economic and psychological turnaround whose effects would soon ripple throughout Europe. While his program aims to revive Germany's economy, his broader goal is to change Europe's economic mind-set. He wants to scrap the long-held expectation that Europe must have big government, high taxes, unbending labor practices, and huge social spending. "Psychology is 50% of economics," says Meinhard Miegel, head of Bonn's IWG Institute for Economy & Society.
A more favorable tax regime would also kill the incentive for tax dodgers who bank their money in Liechtenstein, Switzerland, and Luxembourg. "It would absolutely stop tax flight from Germany," says Martin Hufner, chief economist of Munich's Bayerische Vereinsbank. That, in turn, would help Germany regain an estimated $70 billion in revenues lost annually through tax evasion. Revamping the tax system is also aimed at luring foreign investors away from other high-tax countries such as France and Italy. Says Herbert Demel, CEO of Audi: "It is the first step to correct Germany's disadvantages as a place to do business."
Didn't get anyplace, did it? This downsizing government and giving back liberty deal, just didn't make headway all that much against the 'progressive' interests of unions and business. Those two items working together for their own interest shows a major problem once big government arrives: you have a hard time getting rid of it via 'cuts'. That was back 12 years before the 2008 scandal, and yet that is where you get when you don't give back those things government has taken from smaller concerns within the Nation. By not increasing liberty the government now uses repressive means to squeeze the citizenry, rich and not-so-rich alike, based on 'fairness'. Just like their fellow citizens in Canada, those in Germany see no reason to adhere to an oppressive tax code and obey it. That disobedience engenders an adversarial relationship between the State and the people, where the State flexes the negative liberties invested in it AGAINST its own people.
In the US we see this distrust arise in a different venue one which we know all too well due to past abuses. At The Wall Street Journal on 18 MAY 2009 Glenn Harlan Reynolds has an article on this topic:
At his Arizona State University commencement speech last Wednesday, Mr. Obama noted that ASU had refused to grant him an honorary degree, citing his lack of experience, and the controversy this had caused. He then demonstrated ASU's point by remarking, "I really thought this was much ado about nothing, but I do think we all learned an important lesson. I learned never again to pick another team over the Sun Devils in my NCAA brackets. . . . President [Michael] Crowe and the Board of Regents will soon learn all about being audited by the IRS."
Just a joke about the power of the presidency. Made by Jay Leno it might have been funny. But as told by Mr. Obama, the actual president of the United States, it's hard to see the humor. Surely he's aware that other presidents, most notably Richard Nixon, have abused the power of the Internal Revenue Service to harass their political opponents. But that abuse generated a powerful backlash and with good reason. Should the IRS come to be seen as just a bunch of enforcers for whoever is in political power, the result would be an enormous loss of legitimacy for the tax system.
Our income-tax system is based on voluntary compliance and honest reporting by citizens. It couldn't possibly function if most people decided to cheat. Sure, the system is backed up by the dreaded IRS audit. But the threat is, while not exactly hollow, limited: The IRS can't audit more than a tiny fraction of taxpayers. If Americans started acting like Italians, who famously see tax evasion as a national pastime, the system would collapse.
Or become so infamous at cheating that they would take it as second nature that to avoid government taxation, regulation and oversight meant that one easily disobeyed those laws and any others that happened to get in the way of free exercise of liberty. Taxes are put upon liberty, and it doesn't matter where they fall.
If upon investors, they lack the ability to invest in a robust fashion and build industry to provide jobs and productive capacity for the Nation.
If upon businesses, they are robbed of the ability to to be competitive and unequally put upon by 'progressive' tax loads that ensure big businesses will always survive and small ones never threaten them.
If upon shopkeepers, they must needs spend productive time being the unpaid accountants and tax collectors for the government.
If upon the individual, then the means to sustain personal liberty is directly taxed and, with 'progressive' taxation, the impetus is upon the rich to gain political clout so as to shield their wealth at the expense of the rest of society.
Because government is a necessary evil to give us a space to secure our positive liberties does not make it a benefactor to society. One would think that generations of having demonstrated how 'entitlements' done through government by taxation have had the opposite effect of enriching society. Those that have made the citizenry beholden to government have created those that will evade it and created a cheating citizenry seeking the free exercise of liberty. Moderate and equal taxation with an exemption for the destitute gives each individual a citizen's share: everyone contributes in the exact, same proportion be they poor or mega-wealthy. Each extra dollar earned is only moderately taxed, so there is great incentive for an individual to do more to secure their worldly life and exercise their liberty to their benefit and understand the responsibility of being a citizen to one's fellow citizens.
To do otherwise is to make shopkeepers the tax collectors... and to turn the espionage services meant to defend a Nation against its own citizens who are viewed as cheaters. Unfortunately it is government that cheats by taking liberty in excess of the few things it must do to secure the safety of society and administer laws equally. And when government tries to 'do more' it becomes beholden to the special interests and not the general interest of all of society. That is no good at all.