In this article, we argue that certain taxes force the contributor to be the victim of a violation of privileges previously obtained and unjustly derogated. We will not go as far as some who say that all taxation is theft – and shall explain why this is our position. To this end, we will propose an alternative method of taxation tailored to modern needs, to replace something which is really the forced breach of priorly existing contractual rights. In no way is it to be understood that we are speaking about an actionable event, but that we wold like to hold it as such.
The Root Term Contract as Used in This Essay
For the purpose of the following, a contract, or contracted amount should be understood as the amount that one either expects to receive or not needs to pay, so as to make that sum available for use in any type of financial planning. We can then consider that gross income includes taxes in the budget, while net income and property appraisals (as defined later) consider tax as having been paid beforehand. This meaning of the term makes it possible to show how taxation, in effect, voids the proper functioning of contracts.
The above definition is the result of the writer’s education, something which is, the reader can understand, the product of government. Therefore, if government inculcated ideas in the past which undermine the concepts which it would prefer to be understood as at present, the writer holds the Leviathan responsible for breach of promise, and restitution goes to the fleeced, and not the shearer. To the cognoscenti, we hasten to add, the author’s traditions do not exempt him from being considered as a sheep, in a certain metaphorical way, but he does not want to be part of the sheeple.
The two principles which lead to the writer’s understanding of contract are: (1) the social contract, and (2) the statement that taxation is the price for living in society.
Both of the above ideas have their critics, but one cannot, or should not, imagine that by living in society, one owes nothing to it. However, based on what has been stated about what taxes are intended to achieve within society, namely, protection of ourselves and our goods, one sees news reports daily, of persons, groups, and entire nations despoiled by crime or war (leaving aside the argument that unjust war is a crime).
It may therefore be said an individual’s expectations that both one’s person and property are safe and secure; and that society, narrowly defined according to its most positive attributes: friendship – and, through the term “polite society”, courtesy (the only non-socialist or criminal attributes our dictionary definition would allow); plus the idea of the advancement of common interests of making the world less ugly – concepts to which only a deformed soul should object – are in most cases, not permitted to be realized, since government action is found wanting in these respects.
Based on this latter consideration, not only is one less protected in many “societies” than before, but when one sees crumbling cities, whether through vandalism, neglect, or war, the social contract is not functioning. And were one to claim that no social contract was made with the community at large to war with another country, that person would more often than not be right at present. Times have changed from when going off to war was the thing to do (at least as portrayed in the movies).
We add a point from a book of moral theology, with which anyone can agree: consent to a contract must be by both parties, and manifested explicitly.
A Further Consideration on Fairness in Taxation
Before looking at some specific taxes, and after having looked at how, in effect, many people in the world are unduly punished through taxation for a rather broken-down society, let us look beyond the fairness of taxes, but at the justice of its system.
We have read, in a weekly newspaper edited by an economist, that to be fair, a tax system must be complicated; and if it is simple, it will be unfair. By no means should that imply that complication will necessarily be equitable.
By fairness, we mean that one group is not charged disproportionately. This creates a special problem of definition, for some say that the progressive income tax was a concept in the Communist Manifesto, from which this author wishes to disassociate himself. Some consider the poll tax, or flat tax to be fair, but it brought down British Prime Minister Margaret Thatcher. It can thus be seen that a just system of harvesting money by the government is in the eyes of the beholder, and since it can hardly suit those who pay, the one who is sheared of his money might well agree with the assertion, “All taxation is theft”. There are eminent libertarians who would probably not have their constituents understand this too literally, such as the American Ron Paul, and the British Boris Johnson.
Types of Taxes
In the following, no distinction is made between personal or corporate taxation. This is justified from the point of view that companies, in the end, are made up of people. Each person expects to be able to live in an accustomed style, and ideally, to improve. The listing should not be considered exhaustive, as we are writing for an international audience, and even the rules for the same tax may change from one place to another.
Federal, and State or Provincial Level
This article will focus on the types of government revenues listed in this and the following subsections, but primarily on the almost universally-applied income tax, as it comes within the immediate scope of our argument. We believe the same to be true for inheritance tax. Likewise, the argument can be made for the little-understood VAT or value-added tax, common in Europe, and known in Canada as GST, Goods and Services Tax. For certain countries, at certain periods of their existence, inflation induced through government policies should be considered as a system of hidden taxation.
While the United States of America has still been spared of value-added tax, from the point of view of the consumer, luxury or sin taxes, such as those on cigarettes and alcohol work in the same way – the buyer pays the state its share, without knowing what the untaxed value of the product is. From this point of view, it might be argued, that no economic harm falls to the purchaser, but we will look at this in its proper place. After waffling on the question, we have decided to consider sales tax to be almost equally nefarious, although are original intention was to give it an “exemption”.
While the definition of turnover tax at our disposal does not ring any immediate bells per se, we do know of its application in a way we consider unfair in one country. From one point of view (but not by definition), its application is like that of sales tax. We leave it in this separate paragraph, because of our acknowledgement that the government needs to obtain revenue from somewhere.
The VAT may be considered a contractual violation for the following reason. Imagine a neighbour, who lives between a farm, which sells produce directly to the public, on one side of his property, and, one fine day at a future date, a grocery store on the other side. The farmer can sell cheaply, VAT or not, because it would be a percentage applied at one stage only. Imagine the sale of a box of apples at $10.00. The neighbour is a faithful customer. One afternoon, when apples are needed, the farmer has died, and a trip is made to the store, where because of the application of VAT at several different steps, the price is $50.00 for a similar box. Of course, there are other factors, such as transportation, storage, the taxes the grocery store must pay, etc. We have read of a case of the original price of apples as sold by the farmer as being only 10% of what people paid in a big city.
Withholding tax is an item not even listed in a business dictionary owned by this author. The Merriam-Webster Collegiate Dictionary defines the term as originating in 1941. If, by a withholding tax one understands the deductions made on earnings made in or by a firm, we consider it a convenience in a non-inflationary society. We would have the same abolished in the case of the average self-employed individual – broadly defined – because income does not necessarily come in at a constant flow.
We do not just speak of property tax, meaning real estate, but also the recurrent charges on other property, such as the licences on automobiles, yachts, aircraft, and even gifts. Our philosophy on licences has not yet been thoroughly considered, so we limit ourselves here to taxes on land and buildings.
While this writer believes in free enterprise, there is a certain element involved here, which through the hands of an investor is a tool by which a property owner can become the victim of unjust taxation.
This author has suffered what he considers the particular vile insult of having been given a ticket to see a movie for free, but at the cinema, he was expected to pay a 13% tax towards an association for the production of nationally-made movies. The ticket was torn up.
Contract Violation through Income Tax
It may not be in keeping with the spirit of the times to mention the Bible, but their is a story there which lends itself handsomely to what we would like to show. [Matthew 20] There are these men, looking for a job, and they get hired by the owner of a vineyard at a certain wage. At certain intervals during the day, the landowner finds some idlers, and offers them a chance to work – for the same amount of payment as those who started working early. Here is an example of property rights in its fullness, those labourers who started late get the same lump sum as those who worked all day under the hot sun. The latter complain, but it is argued, that was the contract. The property owner is not condemned in this story.
Let us modify this a bit. We will add an element of modernity, and agree that the workers get an hourly wage. We will contract all the workers, found through an advertisement in a newspaper, in November, and offer a wage of $20.00 an hour, even though that is high in the year of the writing of this article. Some of these workers start on a two-month contract at the beginning of December; others on a one-month contract in January. Let’s say the employer enjoys the same discretion – non-unionized, non-state interference – at setting the amount paid as in the biblical story.
Because the legislation existing at the time of hiring, in our hypothetical story, puts an income tax rate of 10 % for the first year and in the second year, government need pushes this up to 20 %. Any other deduction, for the sake of simplicity, is ignored.
If December has 23 working days of 8 hour days and no overtime, our workers will earn $3,680 gross, $3,312 net.
A January following a December of 23 working days (Monday through Friday) will have 21 working days. To add insult to injury, the workers will have $3.360 gross, and $2,688 net.
Not only will the workers of the two-month contract have a pre-tax decrease of income over the previous month of almost 9 % (which, of course, can’t be helped), but an after-tax decrease of about 18.8 %, or, using this somewhat biased method of measurement.
In a fairer evaluation, the net hourly wage of the December workers is $18.00, but the January worker is getting $16.00.
Fortunately for the revenue service of the nation, most workers would never even notice, we suspect. However, some cleverer employee under a one-month contract for January only might have realized that on the basis of his contract, signed in November, net income was 1/9 (2/18), or approximately 11.1 % less than what was expected.
In some countries, an hourly wage is not paid even to the factory hand, rather, a monthly lump sum, adjusted for any absenteeism. Let us, then, suppose the offer is $3,680 gross per month. After tax income in January comes to $2,944, or 11.1 % less than in the previous month. Under this scenario, both sets of workers can claim to have been paid less than the contracted amount.
Let us now assume that the employer is willing and able to show largesse, and compensate the worker for the loss of income. In order to maintain the equivalent of $18.00 net per hour, January wages would have to be raised to a whopping $22.50. To keep monthly earnings at the equivalent of $3,312 net, the gross amount would have to be $4,140. A 10 % increase in taxes resulted in the need for a 12.5 % additional compensation.
An employee now, who started working later than another, like the grape-picker of our example, might have reason to carp, if the employer did not adjust for the loss in salary. However, this time it was not the fault of the payor, but of a forced interference in that person’s business practices. As this would be just one such example of intrusion into the business affairs, such a job provider is just as much as, if not more of, a victim as the labourers contracted.
Things get much worse for people living in an inflationary environment. In recent memory, such has been the situation of Argentina, Russia, Venezuela, and Zimbabwe. Perhaps the reader will recall the hyperinflation of the Weimar Republic from history lessons, and how one got paid at mid-day in order to buy bread with a wheel-barrow full of cash. This author has on article on this web-site on the hyperinflation which occurred in Shanghai in 1948.
A further distortion enters the picture when an increase of a small amount launches the payer into a higher tax bracket. In the United Kingdom, we see the results to be potentially devastating.
Problems with Turnover, Withholding, and Value-Added Taxes
In order to avoid repetition, this section is based on what was said about income tax, as far as a sudden new imposition by the government goes. The contractual problem is that if a company offers, in the hope that things stay stable, a competitive price for goods or services, especially in the case of long-term contracts, the sudden irruption by the government with an increase in these taxes would have the same or worse negative effect as previously outlined, because bankruptcy might result. Our definition of free enterprise allows for “acts of God” to disrupt economic activity, but not for an event in which one business is left floundering because of what then becomes a rigged wheel of chance.
Contract Violation through Inheritance Tax
It might be asked how there is a contract in the case of the law of inheritance. Basically, it has just been stated. Assume that the author expects an inheritance, either by fixed law, as that which was granted all to the first-born in olden times, or through a bequest. The law established that there was no tax, or a fixed amount. Along comes government and decides that the tax must henceforth exist, or be increased. Any heir’s plans may now be shattered.
In this case, we consider the new law to be a violation of a contract, in that any future plans will now have been limited, whether they be in terms of investment in business, securities, family, etc. It was not enough that taxes are paid out annually, which, in the case of fee tail, may eventually exceed, if it has not already, the value of the property itself. Should the property have been used agriculturally or industrially, there exists the additional insult of all the taxes paid on the raw materials used, business taxes paid, etc., without considering possible benefits to society beyond those which taxes provide.
All Taxation is not Theft
In order to justify taxation, it would be best to forget that it is the price for living in society, and necessary for the social contract. At least, those, who have never had the fortune of hearing of such justifications, have less chance of using the argument of a supposed violation of agreements as an excuse for evasion (or, would that be avoidance?)
Nevertheless, as bad as some governments may be, as corrupt as they may be in some countries or local communities, they usually do provide something. The question then is whether the government is providing sufficient for its revenues to justify the amounts assessed.
Libertarians may argue that most, or all of the services provided by government should be either abolished or privatized. Granted, but there are some things that a local community, run down by lack of any education, might refuse to see the need for, such as contributing to a system of sewers or potable water.
In such a scenario, a breeding ground of stagnant water may exist, and breed vermin – which would affect the population beyond the immediate vicinity of these recalcitrants. What then, is to be done?
One time, in the Canadian city of Hamilton, Ontario, a restaurant owner came up with the idea of allowing patrons to pay for their meals according to their opinion of what it was worth. The experiment was a failure.
The point of the preceding is that the beneficiary just might not want to pay a fair share.
Another example of private enterprise failing in the same city was a Formula Atlantic race. While they used public streets, thus denying access to pedestrians, they provided the continuing buzz of the vehicles on what should have been a quiet Sunday afternoon, and the promoters ended up, not only with a debt to the city, but bankrupt, if memory serves the author correctly. We ask, how would privatization of the streets have changed anything, and who would have been affected, the promoter only, the pedestrians, or the people who wanted to rest?
It might be possible to privatize the upkeep of sections of city streets, but again, the unwilling, the cheapskates, or the poor sections of town would not be able to contribute to the same level of quality as the better parts of town. Indeed, this author believes that residents should manage their own property frontage (excluding the street itself), but some exceptions must be made for those who incapable of doing what is necessary.
Clearly, the best way to ensure quality in cases such as the above, is by a governing body, with authority to tax. Refutations welcome!
Where government is most needed is in education. What kind of education is a different question. We speak here only of such things as making sure that everyone understands the risk of running around spitting and throwing garbage onto the streets, not washing, dumping certain items into to sewage system, drag racing on public roads, etc. It should further be evident to all, that failure to understand common forms of courtesy and language, and an effort to make or be employable, is a ticket to misery. If such misery impinges on the health of one’s neighbour(s), if all else fails, a governing authority might need to be empowered to take measures. We are thinking especially about buildings which need to be condemned or quarantined.
We would be tolerant of luxury taxes, because those who buy such sumptuous goods have the luxury of being able to pay. “Sin” taxes, in theory, are the result of good intentions, and are much more benign than prohibition.
The larger a company, the easier it would be for them to have an economical system of having its taxes paid, especially the withholding taxes that must be paid for all its employees.
Our Own Proposal for a System of Taxation
Our system of taxation would not eliminate luxury or sin taxes, but would not worry about people who wanted to avoid payment of the same. After all, some already get the benefit of duty-free shops, so why not just extend the benefit?
Our system of taxation would tax those who would best be in the position of paying without a significant burden on their time and record-keeping, without the need for hiring an accountant or other tax-expert where this would be in effect another imposition. No sudden or untimely increases must be demanded of those remaining to pay.
In keeping with the spirit of the times, we would institute a special tax, with an appropriate acronym, which could replace all others as a truly socially beneficial one: Easy Application Social Environment Tax, or EASE-Tax. It would work like VAT, like this:
- Case in point, an industry which is either a heavy polluter or causes change to environment which is in the public interest (think rain-forest) has a quota absolutely in proportion to the value of the damage it will cause. This quota is offset by necessary investments in not causing such damage, though some will always remain. For example, mercury into the environment must not be allowed, but there may be some permissible, but taxable, acid-rain causing emissions into the atmosphere. The tax is included in the value of its product, as is the value of all supplies it ordered, which have suffered the same levies.
- Imagine the above was a logging operation, separate from a paper mill. If the two are rolled into one, all the better, but the paper mill is not destroying land per se, but produces more pollution. The tax is applied at this step. If the trees and the pulp and paper operations are all done by the same company, then it pays both for deforestation and contamination. Vehicles owned, leased, or perhaps even hired by them would also be evaluated for their environmental impact.
- Large sheets of paper are sold to newspaper publishers, wholesalers, etc. They cut the paper to required sizes. An assessment is made for waste and any incidental industrial contamination. Vehicle considerations as above. In the case of newspaper publishers, there will be additional contamination factors to consider, as a result of inks used, health risk to employees, etc.
- Retailers and others capable of buying wholesale obtain the finished product. This would be the final step in our taxation process. They are charged for their potential environmental impact, and collect for the same which may be caused by the final consumer. For example, at the stationers, unbleached paper would cost less than whitened paper (of course, that may be true already, but the point needs to be emphasized). They would charge proportionately more tax on inks than on wooden rulers.
- At the supermarket, household bleach would thus be taxed at a higher rate than ordinary laundry soap. At the hardware store, anything made of steel would go up much more in price than a galvanized bucket. Lead, should automobile batteries still require it in a few years, would zoom in price at the final stage.
These taxes, it might be argued, and perhaps rightly, induce market distortions. Yes, but at least the intent is, the author hopes, a noble one. And he leaves non-corporate lawyers, teachers, and most others in the self-employed category free to pay no more than a possible sales tax, in addition to our EASE-Tax. Those self-employed individuals who potentially contaminate the environment, such as painters, should pay a deposit on the cans they purchase, which should be returned empty or not, but never cleaned or reused, as a proof of having been environmentally conscientious.
Our tax serves the consumer, in what we hope is a relative simplification of existing systems, society, in that it protects the environment, and assuming that the environmental impact is correctly calculating, manufacturers and others have a fixed charge which can be budgeted into their ventures.
© May 3, 2016, Paul Karl Moeller