Certainties

Death and taxes are said to be the only two certainties.

So, let us talk about taxes.

Our taxes go to pay for the communal services and benefits which we collectively consider desirable. I’ll name a few: collecting the rubbish, maintaining the streets, staffing a police force, administering government.

There are other things where we pay something like insurance, such as the hospital service, air-sea rescue, maybe we could even say the armed forces. We don’t want to use these services, but if we have a disaster and they are available to help us out, we are grateful. I think it is right that high levels of service in these areas, such as a private ward in a particularly comfortable hospital, are funded by voluntary insurance in the private sector, but that the bare minimum is funded through taxes.

Education falls into another category of socially desirable. I don’t have children, but I’m happy to pay for the education of others, because I received an education when I was young. That is in the best interest of humanity.

My philosophy of efficiency leads me to favour taxes that are easy to collect and deliver the money to structures that are associated with those who deliver the service. Fewer sources of taxation would be more efficient. So what would I tax? And how would I tax?

We have a principle that the rich should pay proportionately more tax than the poor, which inclines us towards a regressive income tax. The downside of that is that it generates an economy of tax avoiders who go about setting up accounting structures to prove that large streams of money should not be subject to the tax. So I’d do away with income tax.

The opportunity in restructuring the developed world economies through reshaping taxes would be huge.

There is a basic level of health care and welfare benefit which should be there as a safety net in any developed economy. The purpose is to help those of us who are unfortunate to get through the difficulty and resume being a productive member of the community as soon as possible. A welfare insurance scheme should therefore be funded out of taxation. It is a common pool and if you are in the system, you should benefit. Begs the question whether living on the planet means you are in the system? As an ideal, I’d like us to think that the answer is yes, and we should structure our global solution to work to that end.

Let me expand on the ideas of the taxes. By resources, I mean anything that nature has taken more than a generation to produce. Hydrocarbons and minerals which we extract from the earth are easy examples. A tree that has taken 100 years to grow is another. However, a field of wheat is not, although I will come onto taxing the field space under property tax. The resources of the earth do not just belong to the current generation, they belong to future generations too and we should only be using them if our economy makes the world a better place for the future. So, I see the need for a premium tax on every transaction that involves a natural resource.

Property tax relates to the house and garden, or factory, or farm, which is the capital base that reflects wealth. This is where the rich should pay more than the poor. Homes beyond the world average should attract a substantial tax premium. Factories and farms should pay a fixed tax every year to encourage their efficient exploitation. If you don’t work the factory or farm, you will need to sell it (or give it or even pay someone to take it off your hands) to someone who will.

Inheritance tax is a one-off windfall that strikes at wealth. I am not convinced it is necessary if property taxes are suitably rated. Two percent property tax every year is more than 100 percent every 70 years, so don’t bother with the inheritance tax collection.

I wonder if these two taxes could be sufficient in themselves. We are used to taxing the transactions in our economy – sales and income. The benefit is that a low perceived rate of tax generates a high volume. If we have to tax the transactions, then sales rather than income would be more efficient. But we don’t really need either.

So how does this work in practice? I can’t go hitting the elderly pensioner. So reach the official retirement age and you become exempt from property tax. (It is silly to pay out a pension and collect tax at the same time). Those who have paid a pile of tax accumulating wealth in their working life deserve to enjoy the benefit in retirement. Now we can have a debate whether retirement age is 65, 70, 80 or 100, but the principle applies. Maybe retirement will evolve to reflect when you are no longer fit to earn a living.

I’ll get into the ideas of who collects the taxes and who distributes the benefits in another blog.
What else would you tax?  I hear some say pollution and that could work well. Any other suggestions?