Okay let’s face it, nobody really likes paying taxes. Taxes mean goods and services cost more and we see less in our pocket at the end of the day. But rather than viewing taxes as a negative, we should view them as a positive investment in the current and future state of our country. While savings and investments can hurt us in the short term, over a longer period of time they bring us many positive and important benefits.
Let’s start with an easy one: excise taxes. These are taxes on specific goods usually with the aim of discouraging use. They help overcome the problem of market failure caused by negative externalities. One example is petrol. When a buyer and seller agree to a price for this good they are taking into account the personal cost and benefit of exchanging a certain volume of fuel for a certain price. What they are not taking into account is their negative impacts of the rest of society. Using more petrol means the buyer and seller are contributing to pollution, global warming, traffic congestion, and negative health effects like higher asthma rates. By leveling an excise tax, the government makes sure more transaction costs are paid for and not passed on to unwilling third parties, including future generations. Even better, the government can take this revenue stream and use it to help mitigate the effect of excise taxes of poor citizens and to start developing alternatives so the negative consequences of the market are eliminated entirely.
So what about property taxes? This will depend on your view of property rights. I find it rather difficult to believe in absolute property rights because I do not see how a legitimate ownership assertion can be made over a non-owned resource in the first place. If the original ownership claim is illegitimate then any sale or inheritance of that resource is insufficient to continue asserting absolute ownership. On the other hand, it would very be difficult to run a functional economy without the convenient fiction of property rights. These rights allow stability and development, taking them away completely would allow resources to change hands so many times that nothing could get done. But the cost of allowing these property rights has to be paid by the people who gain the advantages. Property taxes are the compensation owed to the wider community who are giving up their claim to your resources in order to allow you to benefit. These taxes can then be used to support others who missed out on the appropriation of resources or to develop public property such as roads and parks that benefit everyone who wishes to use them.
Finally, income taxes. Wealth is not earned in a vacuum; it is instead the result of a well developed and functioning society. Taxes pay for education, health services, transport networks, safety inspections, police, fire-fighters, and the justice system – all the things that keep a modern nation a vibrant place to do business. An income tax is a fundamental part of this system allowing the provision of all these services – it is the cost of earning a living in this type of society. If you are not paying for the services you use, then you are not doing your fair share. Income taxes are not imposed, but are agreed as part of taking on employment. They are part of your employment agreement and, as everyone knows a priori income will be taxed, there’s no excuse for calling it coercion. Further, income taxes can be made highly progressive helping to increase equality within a society. Benefits can even be given to those with low pay packets boosting their incomes. With higher wage equality comes higher levels of employment and a sustained demand for goods and services in what is called ‘wage-led growth’. This is the Scandinavian model of development and has proven itself to be one of the fairest ways to organise a growing economy while maintaining a healthy, happy population.
The results of a sensible tax investment can be seen in more efficient markets that take account of externalities, as compensation for allowing some unequal access to resources, and producing a vibrant and egalitarian economy with a happy population. I for one am happy to invest in this kind of future.