Opinion: Taxes and the Social Contract

The old chestnut about there only two things certain in life....those being death and taxes probably remains true and both have been receiving more than their fair share of attention recently.

Death remains painfully inevitable, at least until Musky finds himself at a loose end for a couple of hours and cracks that one, but taxes are a human creation that could be stopped. So why is there so little discussion on what they are, how they are applied and for what they are used.

I am no expert but I have spent a bit of time thinking about this in a broader context over a considerable length of time so bear with me as I attempt to unload some thoughts.

Taxes are imposed and collected coercively or collaboratively. By this I mean, one group of people, a country or tribe or band of outlaws/freedom fighters, can insist that a.n.other group of people pay them something of value in return for their lives, or safe passage or the ability/freedom to trade, work or settle.

Collaborative taxes, for want of a better term, are those that are applied by some higher societal body on its 'members' behalf in pursuit of a commonly held goal. Think the monarch going to war or the funding of a universal health service. Seems like a leap between these two extremes but they are essentially what has been happening for hundreds of years with some refinement as we have matured as a species (please no laughing at the back!).

But sadly, in many societies, significant taxation was first introduced to finance wars or in the defence from same. If you have the time and inclination to read up on the UK funding the Napoleonic Wars in the late 1700s or the Union funding the US Civil War (yes, funding yourself to fight yourself by taxing the people doing the fighting). This is all compounded (in more ways than one, pun intended) when you add layers and layers of wars and conflicts upon each other and the crippling (!) costs of financing the debt whilst dealing with the aftermath.

And tax is a finite resource, you can literally only have 100% of everything...unless, unless, unless...lightbulb moment....you borrow from the future and/or print money to cover your costs today...thus saddling generations to come with a mountain of probably unsustainable debt.

However, I digress...tax can and is applied to just about anything. Commodities (salt, oil), luxury goods (why? are these things people don't need therefore...?), accumulated wealth (but seriously how much does one person need?), minerals, excisable goods, income - both active & static, earned & unearned, labour/intellect/skill generated or capital intensive (the distinctions tell you a lot about the decency of how they were derived...cryptos, anybody?) so yes, on basically anything.

Taxes can and are applied at multiple levels and sometimes simultaneously. Local, state/province, national, intra-national and international taxes compete and overlap with ease, whilst some are inter-related such as sales or value added tax, a so-called 'indirect' form of taxation deemed to be discretionary...you don't have to buy it...but as the good or service descends down the supply chain and the value add increases so does the tax claimed but that then has to be reclaimed by all but the end user so the yield is maximised.

Taxes can also be used as instruments of national or foreign policy...think increasingly punitive taxation on tobacco products or tariffs on imported goods...both recent examples and both deeply flawed in their application.

Take tobacco for starters. If every person in the world stapped buying tomorrow, the effect on governmental finances would be catastrophic, in the short term because of the loss of income (tobacco companies are incredibly efficient tax collectors) and secondly, in the longer term because neither the health systems nor the pension provision in place could cope with the increase in life expectancy. Let's leave aside for now the phenomena that are a 'tax on the poorest' and that enforced price increases in the proportion of tax per pack actually leaves the manufacturers with higher margins.

Tariffs, whole different topic, whole different day but the essential point here is that once again you are punishing the wrong people, tariffs are paid by the end user, and reducing competition often allows indigenous industries to raise prices! A double whammy!

So, the $750 question! What is it you want your government to do for you and yours with the money they raise in taxes? How much say do you think you should have in what happens? Should there be opt-outs?

Sadly, a lot of this is predetermined to a degree. Countries have certain obligations to their citizens and other countries, pensions, overseas borrowings etc and this can amount to huge amounts committed on Day 1 just to stand still.

Should there be a kind of Maslow's pyramid of needs applied whereby the essential and basic needs of all are funded and covered by the government and all else, all the frills are down to individual patronage and support. I think it's worth thinking about, simple fact is that we are here and now and involved whether we like it or not...we were all signed up for the Social Contract, the joint will of the people long before we even arrived.

Which brings me to one of my least favourite subjects, tax avoidance is the prerogative of the rich and we have all just received a master class in how to do it...or did we? I leave you with a couple of recent news articles and will let you decide.