Income Taxation is a Failed System
Written by Administrator Sunday, 11 January 2009 20:56
Articles & Blogs - Canadian Commentary
There is nothing “progressive” about our current tax structure
Few aspects of government receive as much continual criticism as taxation. The wealthy claim they pay too much. The middle-class claims it is paying too much. And the poor – or at least their advocates with access to the media – claim they are paying too much.
Obviously, someone is lying, and it is equally obvious that it is the wealthy. For the last several decades, the gap between those at the top of the “economic pyramid” and everyone else hasn't simply been growing, it has been soaring. With taxation as the only economic “equalizer” in wealth distribution, the only way this gap could be growing in such an exponential manner is if the wealthy (or more specifically, the VERY wealthy) are being dramatically under-taxed.
We supposedly have a “progressive” tax system. What this means is that the higher you rank in the “economic pyramid”, the greater your tax burden. In reality, we don't have a “progressive” tax system. While taxation is skewed, it is skewed in a patently unfair, inequitable manner.
To understand why this is the case requires only a little simple analysis. As one's wealth-level increases, the incremental wealth increase each year is based less and less on (taxed) income, and more and more on (untaxed) appreciation of assets, or wealth. For most of those at the very top, income is only a tiny component of their increased wealth.
Conversely, a progressive tax system is extremely punitive to all those in the middle. This large segment of society derives most of its increased wealth through income. If they manage to increase their income through working more hours (or more jobs), or obtaining a better job, they are rewarded by having most of their gains clawed back through income taxation.
It is therefore impossible for any income taxation system to ever produce tax equity. What our supposedly “progressive” tax system actually does is to take a little too much from those at the bottom, much too much from those in the middle-class, and far too little from those at the top – with the very wealthiest obtaining a virtual free-ride from our tax system.
I have no doubt that those with a net worth substantially above the million-dollar mark will strongly disagree. However, the exploding gap between rich and poor completely repudiates their position. Do the rich really believe that it is fair for their own wealth to be rapidly increasing while the rest of society can do little more than 'tread water' in economic terms?
Such an attitude would be expected from Louis XIV or Marie Antoinette. It has no place in the 21st century.
What is so frustrating to me, personally is that achieving genuine tax fairness could be instantly achieved by simply switching to the obvious metric which should be the basis of taxation – wealth. The gap between rich and poor is not based on income disparity, it is based on wealth disparity.
Once this basic premise is understood, it is obvious that you can't address wealth disparity with income taxation. To achieve tax fairness, we must switch from income taxation to wealth taxation.
Once again, we could expect the wealthy to recoil in horror at the very concept of wealth taxation: a tax system where they can't hide the vast majority of their wealth from the “tax man”! Upon recovering from their shock and horror, we could predictably expect the wealthy to protest that such a horrendous policy would drive all the wealthy (and their wealth) out of such a society – leading to economic chaos of apocalyptic proportions.
It is important to understand that wealth taxation is not some Marxist doctrine designed to “make everyone equal”. The first point to make is that in a wealth taxation system, nothing can be hidden or sheltered from taxation. Two conclusions flow from this fact.
First, with everything being taxed, the tax rate would/could be a single-digit number and still be revenue-neutral. Secondly, with genuine tax fairness, we could give the wealthy the “flat tax” system that they have always promoted as being truly fair. There would be no need to skew taxation with progressively higher rates for the wealthy.
Here is the true test of the honesty/integrity of the wealthy. They have always argued that a flat tax is the only truly equitable form of taxation. In a wealth taxation system, they can have it. If the wealthy reject a flat, wealth tax, this is proof-positive that they have no interest in tax equity.
There can be no debate regarding this fact of taxation. Every day we maintain our system of income taxation, the gap between rich and poor increases. It is impossible to alter our income tax system to change that reality. We must have wealth taxation, and we must have it soon.
This is not some terrible “pill” to swallow. With no income taxation, everyone (including the wealthy) can fully benefit from increasing their income, knowing that at the end of the day, only a small portion of their total wealth would be remitted to the government.
For those of us in the Stockhouse community (and investors, in general), the pay-off of wealth taxation is even more obvious and tantalizing. With wealth taxation, there would be no capital gains tax. No more do we have to be afraid to take profits on our investments because our tax-penalty eats away much of that profit.
Whether you hold a stock or sell it, you still only pay a small increment of wealth tax, and no longer have to sit on “paper profits” - and often watch a reversal in the market take those profits away. This is not only tax fairness, it is tax efficiency.
Wealth taxation would not only achieve an overall fair distribution of wealth, it would eliminate countless inefficiencies in investment strategies which are designed to maximize after-tax wealth – rather than simply maximizing wealth.
Wealth taxation penalizes no one, while providing maximum incentive for everyone to attempt to improve their economic status. The overall economic benefits of such a system are staggering. Removing a massive bureaucracy that creates countless inefficiencies, and replacing it with a more streamlined system that eliminates all tax-related inefficiencies would economically benefit everyone – further reducing the wealth tax rate for all members of society.
Income taxation is archaic, punitive, and inefficient. It was never a good taxation policy, and every day it generates more economic harm. Fortunately, this is one problem with an easy and obvious solution. The real issue is: do our political leader have the courage and insight to implement this necessary change?
{rokintensedebate}
TrackBack URI for this entry
Subscribe to this comment's feed
written by samix, July 28, 2010
By the way Wikipedia tells me that he was quite famous among the poor and middle class in Rome.
Returning back to the tax subject, The Islamic zakaat system takes the cash money out of the hands of the rich and instantly places the cash money in the hands of the poor, something that our progressive tax systems around the world only claim in word.
I read in one of your previous commentaries that, stimulus money if placed in the hands of the poor will be spent instantly as compared to placing it in the hands of the rich, where all or most of it will be hoarded, which is true and this system takes care of that.
To the person who just paid zakaat, it will appear as though his wealth has been reduced, but this very act of giving it out and placing it in the hands of the poor will instantly simulate the economy whereby he can take advantage of this stimulus and make more than what he just paid.
I feel that it is a win-win situation, the poor can fulfill their needs and live another day and the one's who payed the zakaat, if smart enough, stand a chance of making a lot more out of the stimulus just injected into the economy.
-
- +0
-
-
written by Jeff Nielson, July 28, 2010
So EXPECT me to steal...I mean "borrow" the great material you've provided - and do some "sequel" to this one!
P.S. Here's a link back at you for another "solution" to a problem from a different culture (and in this case a different time):
"The PERFECT Solution for the U.S. Housing Crisis"
http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=7508:the-perfect-solution-for-the-us-housing-crisis&catid=47:us-commentary&Itemid=132
(Note: this is an equally good "formula" for fixing the debt-problems of sovereign governments - and I've "borrowed" this one too!)
-
- +0
-
-
written by samix, July 28, 2010
Under this system , the government has no authority to tax the people in-spite of how much ever they earn.
The only tax that can be levied is the 2.5% on the net wealth of a person, there are no exemption categories or clauses, except that your net wealth for the past year is less than the nominal limit.
[This defeats the policy of the rich to circumvent paying taxes under various clauses and exemption categories]
Beyond this, once the money is collected, the people who have the first right to these moneys are the poor and the needy and those individuals who are under debt.
[This keeps in check excessive sops for politicians, excessive government spending, baling out the too big to fails]
Apart from this the government can spend the money only for
1) Defense of the land
2) For the people employed to take care of the entire zakat system, and people who have voluntarily devoted lives for essential public services without which the system will break down.
3) To free slaves(this is now defunct as slavery is not there anymore in the world)
4) To help the traveler who is in distress (someone who is in a foreign land and has been robbed or is distressed and has no money to eat or return to his homeland)
Apart from the above causes no government has any right to use the money in any other way, It is Illegal period.
Also, the government cannot take this tax money and invest it under the pretext of making a profit for the good of the people.
[This comes in the way of things like investing pension funds for greater returns]
The government cannot increase the rate of tax from(2.5) come hell or high water.
[Remember the victory tax ?]
Once the tax is paid the government cannot seize the remaining wealth of a person under any pretext it is his sacred property.
[FDR and his seizing of gold]
If there was/is a war or a natural disaster the government cannot enforce any additional tax on the citizens, the government can only request the citizens to contribute and this is totally voluntary.
This request can only be made after it is plain for all to see that the government has liquidated all its assets and there is no way to raise any money(note that under this system, the wealth of the people is not the wealth of the government, what is owned by a citizen belongs to the citizen)
[This circumvents an situation where the little man is taxed to the hilt for the mistakes or adventures of the government]
Regards.
-
- +0
-
-
written by Jeff Nielson, July 28, 2010
That also allows "class mobility": it's possible for average people to become rich - and for the rich-but-incompetent to lose what they have.
Conversely, any and all "income tax" systems (even those, like ours, which pretend to be "progressive") KEEP the wealthy on top - by making it possible to HIDE 90% (or more) of their wealth from the tax-man.
Obviously when the ultra-wealthy have less than 10% of their wealth taxed, while average people have 20% to 40% of their wealth taxed each year (i.e. their annual incomes), then such a system KEEPS "the rich" rich, and keeps "the poor" poor.
-
- +0
-
-
written by samix, July 28, 2010
This tax in Islam is known as zakaat,
This should help you to get started
"Its(zakaats) economic function is revealed in many ways: firstly, zakah gives a strong incentive for investing wealth for the benefit of society and makes us refrain from hoarding it. When the amount reaches the taxable minimum and has been possessed for a whole year, zakah falls due on it whether it has been invested or not. Those who do not invest their wealth expose it to continuous reduction of at least 2.5% annually. Gradually it will be removed from their possession to be used for the benefit of society."
http://www.islamicity.com/articles/Articles.asp?ref=IC0909-3952
There is a organisation by the name of QSSC in Toronto Canada, below is their contact information
http://qssc.org/index.php?option=com_contact&task=view&contact_id=1&Itemid=38
If you call them or write to them they may be able to provide you with good documentation on this topic.
-
- +0
-
-
| < Prev | Next > |
|---|
Latest Commentary
-
Commodities: Hoarding Versus Shorting Given the decades of rampant manipulation of the precious metals...
-
Bullion-Buying in China and India, Part II In Part I, I alerted readers to the problem with using Western...
-
Bullion-Buying in China and India, Part I One persistent gripe I have with media analysis of economic issues...
-
GLD Director Holds ‘Physical’ Bullion – Not GLD Regular readers know that I have a strong appetite for famous...
-
U.S. Government Prepares for ‘Crisis’ Two months ago, I wrote a commentary reporting that “the second...
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
- 11
- 12
We have the FACADE of a "progressive" system of (income) taxation - which we "justify" as being necessary for "healthy capitalist economies". And if you raise the issue of a "wealth tax", you are immediately branded a "socialist".
In fact, a flat wealth-tax is INFINITELY more "progressive" than a "progressive income tax" system. Secondly, not only does a flat wealth tax lead to a MUCH more robust economy, and healthier investment of a society's wealth - but it ALSO does so in a revenue-neutral manner.
In other words, it achieves "tax equity" AND "wealth equity" - without the need to engage in any (formal) "wealth re-distribution".
Beautiful in its simplicity!!