"Equity In Direct Taxes"

"Equity In Direct Taxes"

by P.T. Choudary, Chairman IDEAz

www.ideaz4india.com

Quotations for consideration:

  • “In general, the art of Government consists of taking as much money as possible from one party of citizens to give to the other” - Voltaire.
  • “Public policy should not be designed to advance moral instincts that we all reject every day of our lives” – Steven E. Landsburg
  • “A Government big enough to give you everything you want is strong enough to take everything you have.” - Thomas Jefferson .
  • “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself by the handle.” - Winston Churchill .
  • “Government cannot make a man richer, but it can make him poorer.” - Ludwig Von Mises .
  • “Any politician who starts shouting election - year demagoguery about the rich and poor should be asked ‘What about the other 90% of the people.” - Thomas Sowell .
  • “Your moral judgments are valid only if they are divorced from self interest. Is there a moral imperative to tax the rich and give to the poor? The motives of both the rich, who say no, and the poor, who say yes, are questionable… all moral codes (are) variations on a single theme, ‘don’t treat other people too badly’… charity is entirely a personal decision.” - Steven E. Landsburg

Key Concepts:

  1. Tax rate should be equitable and fixed after considering inputs from all Stake holders, not just the untaxed poor (See Annexure - I below for an interesting tale of what happens when the low earning majority seeks to demand more from the wealth creating and high earning tiny minority).
  2. Historically taxes were stable at around 1/6th.
  3. Tax base must be as broad as practicable.
  4. Alternatives such as Flat tax / Negative Income tax / Consumption tax should be considered.
  5. Government should shift the Tax burden from hard earned wages and profits to unearned rents and uncompensated harm (Pollution Tax etc).

Historically all people everywhere gave up about 1/6th of their produce to the Ruler / King. In times of war or emergency this may have been increased to 1/4th but, if the Ruler / King wanted to keep his throne, he had to bring it back to 1/6th soon after the war / emergency. This Tax was applicable to all.

This level of Taxation was found to be universal even across all types of Governments (even in Communist Countries where there was no official Tax, once the Costs and Privileges were properly accounted for) as noted by Economists studying historical systems.

The greed or inventiveness of the tax collector have given us many examples of very peculiar taxes they have come up with in the past. (Some of which are given in the Annexure – II below). Knowledge of such taxes may offer us an indication of what our future taxes might be like unless such trends are strictly controlled. Remember that some sort of

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Total votes: 0

Comments

Dear Sir Congrats on a very nice article. However, have you considered the concept of decreasing marginal utility of money. The assumption that a flat rate of taxation being equitable is basis on the assumption that Marginal Utility of Money is constant. However, it is seen from the everday life that the marginal utility of money decreases. When we assume that marginal utility of money falls, then progressive taxation is more equitable. Thanks and Regards Rajesh

Dear Rajesh, A flat rate of taxation is more equitable because it taxes every one equitably. It has nothing to do with the marginal value of money. A flat tax could be linked with a negative tax also to be more equitable.Thanks for your comments and Best Wishes.. P.T.
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