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Discussion #41 - Taxes

First introduced in the early 1900's, there is nothing inherently evil about taxes. If they are fairly implemented across the entire income/wealth spectrum, they can actually quickly pull a country out of extreme poverty. The problem is, this rarely (if ever) happens. Even in the richer countries, historically and currently, the ultra-wealthy corporations and individuals rarely pay their fair share of taxes. The scope and magnitude of this situation is actually much larger than most people think. The super-rich in our world are in many cases paying virtually no taxes, and most of the world's assets and income are in the hands of these individuals and companies.

In fact, if the tax laws were tweaked to make them fair, many countries could pay off their entire government debts in less than ten years. Instead, virtually all of the tax burden has been and is squarely placed on the shoulders of the middle class. An economic group that is quickly shrinking in many areas of the world.

The main reasons why this legal form of corruption is occurring is due to the assistance of extremely clever accountants and lawyers, and the common form of blackmail that exists when a company threatens to relocate. They threaten to move elsewhere (taking their jobs with them), and we are politely informed that major tax breaks or incentives are/were required to keep them from leaving. Also, I'm pretty sure that most countries can afford some fairly clever lawyers and accountants themselves.

Most ultra-wealthy individuals or families are earning most of their income from investments, which are subject to capital gains tax and not income tax. Modifying this one tax law would itself make a massive difference. There are a few extremely wealthy people who recently have been begging their governments to tax them more. These are (in most cases) some extremely intelligent people, who know that all of this short-term greed is going to lead to some extremely long-term economic pain very soon.

When you add up all of the forms of tax that the vast majority pay, it amounts to a HUGE percentage of total gross income. On top of the income tax, there is sales tax, property tax, gasoline tax (typically half), sin taxes (alcohol & Tobacco), energy taxes, tariffs (customs & duties which are effectively a pre sales-tax tax), and can be upwards of 30%! The list goes on and on. When you consider that many countries did not even use most of these taxes until World War 2, it seems pretty extreme to most people. Knowledge is power, and creates political will. We musn't assume that we have no say or influence over what happens in the taxation department. Complacency is a very dangerous thing, and ignorance is never bliss.

Thanks to "The Panama Papers", we're taking a huge leap in microevolution as human beings in this area. We're starting to wake up and smell the coffee in how ridiculously naive and ignorant most of us are to the massive amount of financial corruption that has been going on, right under our noses, since the '70's. An incredible number of brilliant and upstanding financial professionals have been enabling, assisting, encouraging & profiting from this corrupt (yet most often legal) nonsense for a very long time. The only reason why the ultra-rich have been getting away with these aggressive tax avoidance schemes for so long, is because we've been letting them.

Added to this, is the harsh reality that as technology/automation, globalization, and the global game of "musical jobs" continue to advance, governments around the world will have only one real tool to use against this massive problem; taxation. Taxes will go up, and eventually way up, as there will be fewer and fewer people working, paying for more and more who will not be. As we all know, but often forget, robots don't pay taxes.

Changing gears slightly, what many do not fully realize, is that trade wars have only one possible victim. The average citizen like us. World leaders and governments will never end up on the losing end of a trade war, like the one over NAFTA in North America. Tariffs & customs duty are simply another from of tax. There are a million different rates, depending on the type of product or material, but this is the simple reality.

A trade war means that more imported products will be taxed at a higher rate, and that means more money for both countries' governments, and less for us, it's that simple. Even though the point of tariffs is to modify business competition, and therefore protect local industries and jobs, we're the only ones who will pay more for imported goods or raw materials. Then, after that, we pay sales tax on it (or what was made from it). Don't kid yourself, tariffs & duties are a massive revenue generator for all countries' governments.

The really big picture on taxes, is that the degree to which people loathe paying them definitely varies. In a very large way, this affects how people vote, and their basic political ideologies or preferences. Those who loathe socialism, generally also despise the idea of higher taxes. We all hate paying them, but some see them as being far more evil than others. Taxes are in fact not evil, they are a huge benefit to societies, economies, and yes, even individuals and families. However, the debate will rage on forever as to what the best balance really is. (More capitalist means less taxes overall, and more socialist means paying more).

Virtually every country on Earth is a mixture of capitalism and socialism, but the mix varies quite a bit. In my own country (Canada), we pay substantially higher taxes than our neighbours to the South (US). We definitely all grumble and complain about it, but at the end of the day, most of us realize that our quality of life is extremely high, so most are OK with it. In the US, many Americans are not overly envious of our higher taxes, but there are definite advantages to our system. One good example would be our free universal health care, which helps to create a much less stressful overall lifestyle. This in turn puts less strain on our health care system. It also creates less "stress release" vice dependencies, such as alcoholism and drug addiction.

Countries like Canada also have a more substantial social safety net, which helps to keep people off the streets. Having quality health insurance tied to a person's job, makes the worry of losing their job that much more intense. At the end of the day, the more people have to worry about, the lower quality of life becomes, and the sicker people tend to get. A more capitalist society produces a more "feast or famine", "do or die", or "survival of the fittest" economy, which does have pros & cons. Generally however, this creates a much better lifestyle for the rich, and not so much for everyone else.

The Darwinistic political ideology (natural selection), that many in this life subscribe to, is adding dramatically to the polarizing of the richer and the poorer classes. Opportunity to climb up from poverty (upward mobility), should be a reality for everyone, especially in the richer countries. This form of equal opportunity for all simply does not happen in a purely capitalistic society. This is why so many countries around the globe, use taxation to inject some socialism into the equation.

This economic system also comes in real handy when times get tough, such as, oh I don't know, a global pandemic perhaps? Without a tax system, countries would spiral very quickly into a deep depression from a crisis like this. A purely capitalistic society (if one even existed), would have a lot of jagged edges to it. Taxation (basically socialism), helps to smooth off these rough edges, and promotes human equality. The proof is in the pudding, as there are currently zero purely capitalist countries in the world today.

Most European countries are also far more socialist than the US. Although this next fact is fiercely debated, when you look at the rock-hard facts & stats, these European countries (along with countries like Canada), enjoy higher quality of life, their citizens live longer, live healthier, and enjoy far fewer people living on the streets. Yes, they (we) also have higher taxes to pay for it, but overall, people are far happier and less stressed out.

Most people with the extremist-capitalist ideology, despise any form of government intervention, until they themselves need it. For example, after a major natural disaster such as a hurricane or flood. When people's homes are destroyed, and private insurance does not normally cover it, there is a disaster relief fund (FEMA in the US). Where do people think this money comes from? It comes from taxes, of course.

There is a lot of confusion in the world, about what socialism really is. It is in fact a spectrum. On one extreme end, is communism, or pure socialism. On the other end of the spectrum, is pure capitalism. Virtually every country on Earth falls somewhere in this spectrum, and every country is unique in this area. It is in fact consistently one of the biggest factors in how we vote on election day. It's also one of the biggest factors in why we lean either to the Left or to the Right in our political ideologies or views.

The bottom line on taxes, socialism, and governments in general, is that there must be transparency, lack of (or minimal) corruption, and efficiency in these governments. If private property and private industry are encouraged, respected, & protected, and taxation is kept to a bare minimum (for that countries' needs to be met), then human quality of life is maximized (economically). Far more, in fact, than without any form of taxation whatsoever.

The other really big fear that people have about too much socialism however, actually has nothing to with economics at all. it's the fear we all have of losing our basic rights and freedoms as human beings. This is definitely something we need to watch closely, and use our democratic tools to fight against. This is where the term "socialism" gets really tricky, as the definition of the word itself is being used in a very broad way, to mean all sorts of different things. For clarity, let's say the word means "how much control our government has over us". And yes, especially now with this pandemic, we do need to pay close attention to what's going on in this department.

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