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Why Taxation Always Becomes Regressive

April 14, 2012 11 comments

Since April is the month for filing income taxes across North America, I decided to write a post or two on the whole topic of taxation. Some of you might be stupid enough to think only something explicitly labelled as a tax (such as income tax, sales tax etc) is actually a tax. The reality is rather different..

Many charges and costs which you do not consider as taxes are precisely that, in everything but their name.

While there are, somewhat obvious but, non-standard taxes such as the payroll tax deductions to cover for social security and medicare- the real extent of taxation requires you to examine many daily transactions through the lens of reason. Is paying more for living in an area with a good school district a tax? You bet it is! What about paying a higher price, and therefore a higher mortgage, for a house in the better areas of your local human termite hill- aka city? What about paying much more to be treated by a doctor in a western country when he, or she, cannot offer a better outcome than somebody from a middle-income country? Do you pay for the use of facilities, services or utilities that are effectively private cartels with the ability to block competition through ‘laws’? What about the ever-increasing rates of spending, and use, of corporate lawyers without a proportional increase in the income of the entities that use their services?

Most forms of taxation are best understood as the excess cost incurred due to the parasitic behavior of people and legal entities with ‘power’ over somebody else. This is also the starting point for my explanation about why most taxation is regressive or become will become regressive as time goes on.

It is important to remember that the vast majority of people who pay any taxes, in any form, have far less ‘power’ than those who collect them. Therefore the potential for those involved in collecting taxes to abuse their power and maximize their collections is omnipresent. Since most human beings, especially those with any amount of ‘power’, also tend to be more greedy and hubristic than those who don’t- it is almost a given that people involved or benefiting from tax collection of any sort will abuse their power. Furthermore, they are more likely to abuse their power and extract proportionately more from the most vulnerable than those who can defend themselves.

In most societies the ability to defend oneself is linked to how rich you are. Consequently a person with lots of money can often avoid paying taxes of any sort by employing lawyers or paying off legislators and enforcement personnel. He or she can also transfer the burden of taxes onto poorer people who are less able to defend themselves. Therefore any society with serious income inequality will always result in richer individuals further enriching themselves by transferring their tax burden onto poorer people- irrespective of the effect of such behavior on the long-term health of that socio-economic system. The ‘socialization’ of tax burden is one of the main mechanisms through which the rich can privatize personal profit while socializing losses and costs.

Regressive taxation ultimately destroys the very socio-economic system that created and allowed it to exist.

What do you think? Comments?