Stephen Smith, author of Taxation: A Very Short Introduction, tells us 10 things we need to know about taxation, and gives us an insight into why we need taxes, how economic processes determine taxes, and how they can make political change. Do you agree with all of Stephen’s points? Let us know in the comments section below.
- We need taxes to pay for public services.
- Taxes are often at the heart of political controversy. Tax policies can win or lose elections, and can spark major political change.
- In most industrialized countries, the level of taxation has grown dramatically over the last century. In European countries taxes now take on average two fifths of national income, and one third of national income in the United States.
- Nearly all countries raise the bulk of their revenues from a small number of very large taxes. These include income tax, value added tax (VAT), and a payroll tax.
- The person who bears the burden of a tax can be very different to the person paying it and these are determined by economic processes. For example, the tax on housing rents is determined by the landlord or the tenant.
- Taxes have the potential to affect economic behaviour. They can influence how much we work, spend, and save.
- Very few taxes raise revenue without distortionary effects.
- Effective tax enforcement is in everyone’s interest. Widespread tax evasion can distribute the tax burden unevenly. Likewise, tackling tax evasion can have heavy costs on honest and dishonest tax payers.
- Taking away the temptation of tax evasion through deduction systems is the most effective route to tax enforcement. Tax systems that rely on taxpayers to declare their income tend to be exposed to greater evasion.
- Tax policy is very political issue, so it is not easy to make the tax system fairer and simpler as there are different opinions on what constitutes as fair. There is no single right answer.
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