Economics

Taxes

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‘In this world nothing can be said to be certain, except death and taxes’ Benjamin Franklin, 1789.

Taxes are an unfortunate reality for most people living and working in the modern world we pay them every year we complain about them and then we try to forget about them until next year your taxes are also one of the most important elements of any economy around the world societies can grow from effective taxation and crumble without it taxes are what fund our roads and schools and parks our military emergency services Social Welfare and everything else in between these services are structural elements of modern society we wouldn’t have these without taxes and without them we would have chaos.

Do We Actually Need Taxes ?

well not necessarily they serve an important purpose sure but there are other systems that could theoretically achieve the same thing any alternatives that exist – one of the most important factors in our economies are worth exploring even if some of them are a bit out there before we start trying to prove Ben Franklin wrong it is important to truly understand what it is that taxes achieve and why we pay them taxes are what a government uses to raise revenue to fund its expenditures if a government does not raise enough taxes to fund these expenditures it does what anybody else would do take on debt temporarily to live above its means this is the massively oversimplified cycle of government fiscal policy in our modern economies and it should make sense to everyone if we stop paying taxes the government either has to stop paying for services that keep society going or it takes on more and more debt until it ends up going bankrupt so this is why taxes are levied simple enough but there is more nuance to this argument certain economics schools of thought not to mention political ideologies advocate for raising fewer tax dollars and spending less money their opposition will argue that raising more tax dollars and spending more money is the way to go both of these sides will argue that their way is the right way to deliver the most overall prosperity to an economy they can’t both be right? right well in a sense they can so remember this for later in either case taxes will still exist. so now it’s important to ask why do people pay their taxes? some people have made the argument that taxes are like paying a subscription to modern society .But let’s be honest it’s not out of some of civic duty to keep your nation going or even because you think you will benefit from government programs I mean come on let’s be honest the real reason is that if you don’t pay your taxes you go to prison as far as motivation goes this is about as much as most people need.

let’s look at the alternatives :

the United Arab Emirates Qatar Monaco Brunei these are all examples of national economies that operate without the need for income taxes in fact prior to 1913 the USA did not have federal income taxes so this gives us an easy answer to the question of do we need taxes to which these countries would answer a resounding no but this all comes with one big question or rather two big questions.

the first is that these countries do have taxes they just don’t have income taxes when we explore the economy of Monaco which is a nation famous for being a tax haven we found that a majority of the government’s revenue still came from taxation in the case of Monaco this was a value-added tax or a sales tax this is ideal for these tourist nations because it generates government revenue from people just visiting the country rather than income taxes which require people to work in the country alternative taxes are a common feature for a lot of countries and they have a lot of advantages take Singapore for example it still has income taxes but they are incredibly low what it does instead is levy taxes on things that require government expenditure cars are the best example here roads and highways and traffic lights and bridges and tunnels are all funded by taxes apart from the few toll roads these are expensive and not everyone gets the same use out of them someone who works from home and walks everywhere in a normal country is still going out to pay the roads through their income taxes even if they never use them in Singapore though they wouldn’t really need to income taxes are low but instead the government raises the money it needs by taxing the bejesus out of people that actually own cars depending on the type of car buying and registering a vehicle in Singapore can easily cost five times as much as it does in the United States. this gives the Singaporean government the revenue it needs to pay for these public goods if you don’t need or want to drive a car no worries you don’t need to pay in many ways this is a really fair system you get what you pay for beyond this it helps ease congestion in this tiny nation because not many people are going to drive given how expensive it is however this system is not without its problems when a car costs as much as a house many people are not going to be able to afford it for some people driving is just a necessity they might be in an industry that requires driving and they might have disabilities that require easy transport or they might live in a remote area with no easy access to public transportation remember this for later because that is very very important the arguments back and forth for this type of taxation are fascinating .Singapore still has taxes so it might be fascinating but it’s irrelevant instead let’s look at that second big asterisk the other countries that get away without charging taxes have some alternative form of revenue more often than not its natural resources by substituting tax revenue with oil revenue these countries can still provide all of the amenities one would expect in a regular old tax paying country even places like Alaska do not need to charge state taxes in fact they go beyond this and disperse a share of this oil revenue amongst its residents of the state so you could call this negative taxes or social welfare it depends on your flavour of politics I suppose the problem here of course is that a country needs natural resources to substitute tax revenue with natural resource revenue another big problem is that this kind of is taxation in theory the natural resources of most countries belong to the people of that country taking away natural resources to sell is no different from taking away cash in both instances a government is taking an asset away from the people to pay for public expenditures of course people will feel direct taxation a lot more than natural resource sell-offs but it is still important to consider for our question here so maybe the problem here is the assumption that governments need revenue at all.

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