I had posted earlier how cleverly governments have convinced people that any incomes taxed is white and rest black. However, history of nations shows how revolt against some or the other taxes was one of the crucial ingredients to development of the very nation.
Today is Tax Day in America. When April 15th happens to fall on a weekend, the IRS generously permits us to extend the filing ritual until the following Monday. But since Monday was a holiday in the District of Columbia known (without irony) as Emancipation Day, we all enjoyed an extra bonus day to comply. And for the most part, comply we do: the voluntary compliance rate, defined by the IRS as taxes timely paid as a percentage of taxes owed in aggregate, is nearly 82%. Compare this with Italy, for example, where tax evasion is a national pastime. For a nation born out of tax resistance, we Americans tend to grumble but not revolt.
We also tend to view taxes only in terms of personal pain: the financial costs of paying, the compliance costs of dealing with the paperwork, and the psychic costs of worrying about it all. It is precisely this pain, experienced only by individuals, that upends the left-wing rationale for imposing taxes on business entities, estates, and all manner of transactions. Only people pay taxes. When someone talks about raising taxes on “greedy corporations,” they’re really calling for higher consumer prices for those corporations’ goods and services.
But the larger impact of taxation is found in the countless and profound ways it changes human activity. Charles Adams, the great tax historian, devoted his career to examining the enormous sociological and cultural impacts resulting from how states raise revenue. Adams called taxes a “prime mover of history,” from ancient Egypt through the Middle Ages, from Enlightenment Europe to Colonial America and all the way up to our present world of offshore tax havens. Taxes, Adams maintained, are far from the price we pay for civilization. Instead they are mean, petty, and arbitrary, causing existential struggles for the poorest people in societies across history. Taxes not only fund wars and enrich unworthy rulers, but also create crippling distortions in every economy the world has ever known.
The impact of taxes on ordinary people in modern America, including the lengths to which some will go to avoid them, is well-represented in our national psyche. We’ve all heard anecdotal horror stories, usually involving someone’s finances being destroyed by a sudden IRS seizure. Americans also view the IRS as wanton and political in its enforcement actions, which makes sense. Even experts can’t agree how much a hypothetical family owes in any given year.
The distortive impact of taxes on US and multinational businesses is also extraordinary, albeit not as much discussed. While monetary policy causes malinvestment through artificially low interest rates, high tax rates and burdensome complexity similarly cause firms to radically alter their business decisions. And just as interest rates affect the length of production, tax rates (and rules) dramatically affect decisions about the capital structure of companies.
Trying to find ways to avoid taxes is hardly anything unique to India as our media and politicians suggests. It is present across countries though degrees may differ. Places where State shows more efficiency in delivering public services, people could be less averse towards paying taxes. It would be just opposite for less efficient States. Though, people might just say efficient State is just an oxymoron…