Taxation Ethics
March 17, 2009
What is taxation?
Before shedding light on the taxation ethics, it is imperative to first know what taxation is. To tax, in simple terms is to impose a monetary charge or other levies on an individual or a legal entity where by the financial charge can be paid as direct or indirect tax. Tax is paid in monetary form or its labor equivalent. Taxation can be imposed by the government, a sub-national entity or a functional body equivalent of the government. Remember, a tax is not a charitable payment but a compulsory contribution to support the day to day running of the government business.
Moral foundation of taxation
Many political philosophies are in agreement that taxation is justified because it funds activities necessary and helpful to society. Furthermore, it is also in agreement that regular and progressive taxation creates a level playing field in the society by reducing inequality, thus, taxation in today’s states and nations assist majority of the people and communal development.
Arguably, in a democratic system, since the government is the body that imposes taxation, the society in general is the determinant of how the tax system will be organized. According to traditional conformists, payment of tax is an obligation of the citizens, an unspoken obedience of the law by the tax payers to support established institutions. Traditional conservatives argue that no one should be exempted from taxation, unless they prove beyond any doubt that the government is priceless to them and consequently the individuals should be ready to demand more ‘tax worthy services’ from the government.
On the other hand, social democrats advocate for higher taxation to create more funds for providing social services such as education and health care, in addition to providing more funds for welfare benefits. Libertarians argue that the ability to progressively tax income from capital is the fundamental core element of the social autonomous case for a mixed economy. They thus advocate for a minimal taxation level, to be able to maximize the protection of freedom.
Most favorable taxation theory
Optimal taxation theory works towards considering how taxation process can be structured to give the most excellent outcomes in terms of social wellbeing or to provide the least deadweight costs. This is in light to the fact that many governments require revenue in excess of what can be provided through double dividend taxes or non distortionary taxes.
As a result, various detailed theories have emerged. For instance, it is argued that deadweight costs should be minimized since the costs are linked to the elasticity of the demand and supply of goods. Therefore, when high taxation rates are imposed on the goods which have an inelastic demand and supply, it will result to the least general deadweight costs.
Still on point, a number of economists are seeking to integrate the most favorable tax theory with the social wellbeing function. Basically, they are putting across an expression of the idea that parity is important to a greater or lesser extent. This is to say that if an individual experiences diminishing returns from profits, the best society income distribution then engages a progressive income tax.
However, it has been established that if people move from the supposition that taxation bodies don’t maximize society’s wellbeing but the prospects of winning elections, it will mean that the taxation rates in the balance will be lower for the government elites and influential groups in societies, as a replacement for being lower to the poorest population in the society.
By and large, mandatory taxation of individuals, e.g. their income tax is over and over again justified on grounds including social contract and territorial sovereignty.
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