September 28, 2011

Dimensions of Fair Taxation

In the opinion of this writer, there are several Principles to fair taxation.

The Dignity Principle: Treatment of Income from Investments ought to be same as Work Income

Why should investment receive tax props while not work? Isn’t work that we do, and generate work income from, an outcome of the time and money we invested in what we educated or trained ourselves to do? Why an assault on the Dignity of work by providing tax sops for contributing Capital to a business? Why should the possibility of unlimited rewards, even as liability is limited to one’s Capital contribution, not be sufficient? If, further to it, tax sops are needed by the entrepreneur to get spurred to go into business, then he just ain’t one.

The Means Principle: Contribution towards Public Infrastructure & Institutions according to One’s Means

This implies that the effective tax rates paid by people ought to be progressive with income, not regressive.

The Freedom Principle: Taxation Should Not Encourage or Discourage Any Particular Way of Being

For instance, Taxation should neither encourage nor discourage Consumption or Savings. Each man should be free to choose his mix, especially when s/he is already mandated to contribute-participate in the Social Security system. The “Fair Tax” (federal consumption tax) pushed by many to replace the Federal Income Tax is not really fair, for it robs a person of his freedom, while he already bears individual responsibility for his economic choices. Taxation is a way of providing public infrastructure and general security and institutional blanket under which individual talent and achievement can bloom, taxation isn’t a code of economic morality or manipulation.

Likewise, a tax code that encourages home ownership over renting, or buying with debt over buying in cash, too falls short of the freedom principle.

The Engagement Principle: Taxation Should be Bearable

Difficult to quantify this, but you cannot tax people to the point where they lose the desire to work or invest. So taxes need to be equitable, and generally, as low as possible. In this regard, there is a valid point that there are State and Local taxes one bears in addition to Federal taxes. The States collect taxes ostensibly to provide Education, Infrastructure, and Disaster Management.

Perhaps the rationalization, simplification, and loophole elimination in the tax code can be delinked from uplifting of, and immediate job creation in, Education, Infrastructure and Disaster Management. It can, at first, be just focused on reducing and evenhanding tax rates, while contributing towards bringing the deficit to a financial safety point.

A separate program could be later instituted towards helping State Authorities correctly direct their tax collections to truly public interest activities, with limited money help towards it tied to their elimination of waste in their respective Govs and unnecessary activities and procedures, redirecting their revenues to essential public services and activities, and tax respites rendered to their respective residents.

Fair, Bearable Taxation - Robust Public Infrastructure & Institutions - Controllable Gov Deficits are a Foundation for Economic Prosperity - on which Growth Storeys can be built by private venturing - seeking genuinely earned toplines and bottomlines, rather than extracting Gov procurement, special tax treatments and entrenching a handout economy.

The Foundation Elements can be strengthened as a Single Program, or broken out into several.
.....In any case, Fairness needs no growth excuse.

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