Sunday, 31 May 2015

Tax Freedom day

Every year right-wing ideologues and libertarians declare a particular day ‘tax freedom day.’ I am firmly of the belief that this is nonsense that serves a very pernicious ideological agenda.

Tax freedom day is not a complex thing to calculate. You can simply take the percentage of the economy that goes through the government’s accounts as a percentage of the total economy and apply this percentage to the 365 days of the year.

Of course, it is assumed that people will be unhappy at having ‘worked’ so long and presumably got NOTHING in return. Ignoring of course the fact that people will have gained all sorts from the government spending, and also that those who are very fortunate might be happy to be contributing to their societies and the lives of those who are less fortunate than them. 

People get things in return for their taxes, and some people benefit from government spending more than others. Hopefully those with greater needs will be those who benefit the most. This is the first problem with the idea of a ‘tax freedom day’ – everyone’s tax freedom day would be slightly different from everyone else’s.

The fundamental flaw in the whole concept is that in elevating private earnings and denigrating government spending it ignores the fact that these are both part of a whole system. If the tax system were radically different then the entire economic system and society as a whole would be different—people would be in different positions and make very different decisions.

To illustrate this point think of David Lewis’ possible worlds or science fiction storylines involving parallel universes within the “multiverse.” If the tax system were different this would mean a different economic system. The important question is which of these possible worlds has the most just distribution of the resources of society and how we can move to this scenario.

The important issue is the counterfactual policies that are available to government and which will be better and worse. The proportion of the economy going through the treasury in a given year is of no real relevance; what matters is whether the system is working as well and as fairly as possible for the members of the society.

So the idea of tax freedom day is nonsense. However, I do think that one good thing has come out of this nonsensical “event.” It was my anger at this led me ten years ago to think of a better way of calculating tax than on an annual basis.

It seemed to me that working out an annual average amount was unhelpful and that if you wanted to work it out it should be done on a personalised basis and then compared to the amount that you should be paying given your position in society and your ability to contribute.

Indeed, rather than work it out on the basis of one’s income per year it would be better to work it out on the basis of one’s income for each hour worked. This led me to develop my hourly averaging system which I explain in my book. After all, (most) people are offering their time to the economic system and yet some get a lot more in exchange for this time than others.

In summary, I would suggest treating with suspicion any “think tank” or news outlet which peddles tax freedom day. They show their intention is to impose a particular kind of attitude to taxation and state spending rather than (what would be legitimate concerns regarding) the effectiveness of the tax system or government spending.

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