All that is Certain

“What’s it like to have a job?” the son asks his father. “Well son, go clear the snow from the driveway and tidy up your room, and I’ll show you”. When the child returns triumphantly, the father shows him a $10 note, and then gives him $5. Taxation, an idea as old as history itself. “Stealing” people’s money for “important stuff” has been done in a dizzying number of ways for all imaginable purposes.

Feudal tithes often took a quarter of your crops away, or required you to work one day of the week on your lords’ lands. Taxes were also collected to fund specific events like wars, crusades or large construction projects. In many European kingdoms, it is these sort of universal (excepting the clergy) tax drives that eventually became yearly, permanent sources of government income. It is these taxes that eventually became the modern income tax. Such taxes were greatly despised and touched off many revolts and even revolutions.

What a touchy lot! A large war tax would top out at 10%. A feudal tithe of 25% also is not so bad when compared to modern income tax levels. Effective income tax levels of close to 50% are common for many people in the western world. It is amazing that we accept such high levels of taxation. What is even more amazing, is that the income tax is only the beginning.

Sales taxes, VAT and tariffs add to the tax burden when we spend our money instead of when we earn it. This can be as high as a 25% VAT in Europe. That’s not all, wealth taxes, inheritance taxes, property taxes, capital gains taxes and license fees create a complex indecipherable system that attempts to hide how much you are actually being taxed.

Add to this corporate taxes. These are politically popular: don’t tax people, tax those evil corporations. Truth is there is no such thing as a corporate tax. Corporations cannot pay taxes, only people can. Corporate taxes are borne by the owners and shareholders. Instead of paying taxes, the money could have been spent on lowering prices for consumer or hiring more people.

You would think that this would be enough to pad the government coffers. Another, more sinister tax is levied on us: inflation. By creating inflation, governments diminish the real value of their mountainous debts and tax everyone, not by taking our money away from us, but by taking the value away from our money. This tax has a very broad base as it hits everyone, the rich, the poor, the old and the young. It even taxes the hidden money sloshing around the black economy. It’s a politically popular choice as it a tax that doesn’t need to be voted in.

Officially the inflation tax rate is very low, consumer prices increasing in the western world by less than 1%. Removing all the gimmicky hedonic substitutions, using government formulae from the 80s or earlier put inflation closer to 8%. All this assumes, of course, that consumer prices are the only ones that count. Anyone trying to buy real estate, stocks, fine art or commodities would find that inflation has imposed a very real and very steep tax on investments.

Just when you think the government has taken enough, mandates put their hats out for more. By forcing us to buy health insurance, seatbelts, fire extinguishers and hundreds of other goods and services the government taxes us. Although the government doesn’t receive this money (apart from any sales taxes on our part and income and corporate taxes on the part of the provider of the good or service) and we might well want to have airbags and smoke detectors for their own sakes, we are no less forced to part with our money, money that we could have spent elsewhere. On the corporate side mandates are even worse; standards, regulations and compliance reporting impose a burden on business that must result in lower wages, fewer jobs, pricier products or less investments.

So, what is your tax rate? How much more money (or rather, value) would you have with less government. Sure, you’d have higher expenses. You’d have to pay for all the things that government pays for through your taxes. Well, at least only those things you want to pay for. And let’s be honest, you’re not likely to spend your money quite as wastefully and stupidly as governments do.

Through the myriad of mandates and revenue streams it is completely impossible to calculate one’s tax burden. The easiest way to see how much a government taxes is to look at how much it spends. Governments don’t have any money. They can only spend what they collect in taxes. They can borrow the money, but that can only be repaid through future taxation. Creating inflation is not a substitute for taxation, it is taxation.

During the golden age of Queen Victoria, the British government spent no more than 10% of the national income. That paid for the running of the biggest empire in world history. The bureaucrats, the navy, social programs, everything. The United Kingdom’s government today spends about 40% of GDP. The USA does little better at 37%, up from less than 1% in the middle of the 19th century.

So if a 25% tax on tea in 1773, or a tax of four pence per person in 1377 can lead to the Boston Tea Party or the English Peasant’s Revolt, what is in store for us today? It is hard to draw a direct connection, but along with ever increasing taxation we are witnessing a widespread disenfranchisement in the west. From the Occupy movement to the Tea Party, Syriza to Fidesz. Are we witnessing the inevitable collapse or progression of market socialism?

Are you sure you want to go out Kitty?