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Peter Morgan

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Tax Greedy?

Posted: 26/03/2012 21:24

I often wonder why so much money is taken in tax. The excuses range from the need to pay for services provided by the government to subsidising the poor. However I am not so sure it is anymore. In at least, it may be causing more poverty than taking less tax in the first place would. The money taken in tax could be used to buy products, which in turn will generate jobs to produce and sell the goods demanded. By taking high percentages of the GDP in tax this free market wealth generation mechanism is damaged. This impacts employment, the skills of the labour force and the level of output in the country or region.

The argument for taking high tax is the money is used to produce goods increasing output. The tax revenue is paid out to civil servants who provide services and create output, switching the economy from a free market structure to a command structure, in which decisions are centralised. In the UK nearly 50% of the national output is taken in tax.

But do they get value for money?

I don't think they do. In a total command structure economy the government will pay for everything you need. They will pay for your housing, health, pension, energy, transport, insurance and even food. The fact of the matter is people in the UK have to provide for their own housing, energy, transport, insurance, food etc. I admit they get their health care for free, but at the price it costs the government a year I would argue it could be provided at a lower cost in the private sector.

In any event the largest expense, housing, is a personal responsibility in the majority of cases. So although there are some benefits provided by taxation the services provided do not cover the bulk of living costs. I personally think the return on investment from tax is very poor in the UK. I certainly don't think it justifies taking almost half of the national GDP. I also think the high tax has created a dependent society with minimal skills.

As almost half of the country's revenue is taken in tax it has reshaped the way income is provided. It is harder to get a job in the free market because there is less demand for private sector goods as a result of the income of the consumer being taken by the government. Therefore workers are dependent on public sector employment, which is dependent on centralised decisions and distribution of tax revenue.

Has this created a culture of dependency?

The other way of receiving income in a high tax, highly centralised system, is to be dependent on the government. The more money is taken in tax, the more people will be dependent on government subsidies. This creates a cycle of dependency because of the need to create more dependency to receive a higher income from the state. A benefit dependency is created by the lack of opportunity in the free market, which in turn creates a benefit maximisation strategy creating more poverty.

Rather than increasing output or reducing poverty, higher taxation will dampen demand in the free market and make people reliant on the state. The only thing that changes is who controls the money in the economy, which is taken from a dispersed group of individuals and received by a centralised body which makes decisions on how the money is spent.

The objective of high taxation is to change the structure of the economy from a free market system to a centralised command structure system. The justification of maximisation of output and the alleviation of poverty is difficult to argue when used as an excuse to take money from the free market through taxation. Especially when the government in the UK is in record levels of debt and there are nearly three million people unemployed.

Is the deficit a justification for taking tax?

Personally I don't think the current argument for taking high tax is justifiable either. The high levels of debt, which exist in the UK, are a result of public sector overspending. The idea that taking more tax will reduce the deficit in a period of low growth is ridiculous. Lower taxes are needed to encourage growth and to create employment in the free market again. This tactic will not only increase growth but reduce dependency and decentralise decision making in the UK.

The argument for lower taxes is just as justifiable as further stimulus. However rather than using the money, which is either borrowed or quantitatively eased, to provide jobs in the public sector the money could be used to pay for tax reductions in the short term. This would switch the economy from an inefficient command structure model to a free market model. This would put an end to the cyclical dependency culture in the UK, which has dominated the country for the last fifteen years.

The current taxation policy and the huge government deficit suggest one thing in my opinion. The central government is greedy for the money created in the free market and will use excuses to control it. The fact that such high levels of debt were generated in a prosperous period indicates a culture of poorly planned ostentatious central government, which is unaccountable to the will of the free market.