torsdag 28 februari 2008

Taxes should be based on "ability to pay"

Next year's Council Tax charges will be announced soon and there are already complaints that it should be replaced by a tax based on "ability to pay".

Which means Local Income Tax. The only trouble is that Income Tax is not based on "ability to pay". Far from it. If you can afford it you will pay for advice on how to exploit all the loopholes. Because taxes payable by individuals or companies, based on something called "income", inevitably contain loopholes.

Moreover, definitions of "income" are ultimately arbitrary. It cannot be otherwise, partly because the boundary between the formal cash economy and the informal family and community economy is blurred. I fix my plumber's computers and he fixes my central heating system and, roughly, it balances out, give or take the odd bottle of whisky at Christmas. Then again, I can ask friends to give me a bill now and again so that they can claim expenses to set against their other income.

All this is before beginning to think about tax havens and all the other ingenious dodges that lawyers and accountants can come up with by going through the small print covering expenses, allowances and all the incentive schemes that governments dream up to mitigate the harm to the economy caused by levying taxes on wages and on the return to capital.

At some point, legal avoidance shades off into criminal evasion. But, as is demonstrated by the recent news about wealthy Germans exploiting the secrecy of Lichtenstein's banking laws, enforcement is difficult and costly, and involves relying on informers to breach confidentiality, or on assuming totalitarian powers to force private companies to disclose information about their customers.

In the meantime, investment and expenditure by the taxpayer turns up in land values which those who own it, the wealthier and privileged sector of society, can keep to themselves and become ever richer and more wealthy on the backs of the poor.

The end result of "ability to pay" taxation is to soak the poor and further enrich the rich.

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