TAXATION 101: What No One Seems to Understand About Taxation
By Dr. D. Turner Givens
Listening to political hacks, journalists, effete intellectual snobs and Joe Sixpack discuss taxation convinces me that no one in America, or the world, understands the basics of taxation.
In America we have a "progressive" income tax because that is "fair."In many other parts of the world they have value added taxes because they are "fair."For many years, Malcolm Stevenson "Steve" Forbes, Jr. has advocated a flat tax because it is "fair."Leftists want to "tax the rich" because it is "only fair that those who have more should pay more."All of these claims demonstrate the fundamental ignorance of taxation that the world shares.
The fair taxation crowd, in all its iterations, doesn't understand the First Axiom of taxation.
There is one and only one "Axiom of Taxation."That Axiom is:"The consumer pays all taxes."This Axiom is both counterintuitive and obvious.We would all, it seems, like to see William Henry "Bill" Gates III pay a much more tax than we do. He already does because he consumes more than we do.Many would like him to pay a higher percentage in taxation.This is impossible because Gates doesn't pay his taxes -- you do.
Let's use Gates to illustrate the obvious.Gates has certain needs, appetites, and desires.He is in the fortunate position of being able to pay himself any salary he wants.He decides what his salary will be.He looks at his needs, appetites and desires and determines that he needs $thismuch.00 to attain or maintain this life-style.He realizes he will have to pay a certain percentage of this in taxes so he boosts his salary to $this much.00 plus $that much.00 to cover both.
Of course, everyone at Microsoft cannot set his own salary but everyone can refuse to accept the salary he is offered.When deciding whether to take or keep a job an employee calculates what it will cost him to satisfy his needs, appetites, and desires plus the taxman.If the salary will, he takes the job.If it won't, he looks elsewhere.
Meanwhile, in another room, the bean counters at Microsoft calculate the cost of production for Microsoft's products.They add in the cost of plastic for the disks, cardboard for boxes, paper for instruction manuals, legal fees, salaries, and all of Microsoft's other expenses they then add a certain percentage to it for profit and taxes and determine the price of Microsoft's products.
When the consumer buys a Microsoft product he pays for the plastic, cardboard, paper, legal fees, salaries and everything else used by Microsoft to manufacture the product -- including Microsoft's taxes and the taxes of everyone who works for Microsoft.
So the fairest way to tax is as a consumption tax.The consumption tax is on everything the consumer buys and consumes.Things purchased for investment, business use, or resale, are not taxed.Then the consumer can see every time he buys something what the government is taking.
A consumption tax has another advantage.Since people would be paying the sales tax in America, it would go to the American government.Now we are paying tax to the government of whatever country manufactures the goods we buy.If we buy French wine we pay taxes to the French governments.It's the same for German cars and Japanese cameras.
If the consumer paid a sales tax on everything he bought and American companies paid no tax at all, he would be paying taxes to the American government that he now pays to the French, German and Japanese Governments.Since the American producers would pay no taxes, American goods would be cheaper.What could possibly be more fair? Readers are encouraged to comment and respond to this article or submit an article to at our blog.