Friday, September 18, 2015

Taxes - KISS THIS - Keep it simple stupid

In watching and participating in the discourse around taxation in the election, I became guilty of a very dangerous frame of mind – like the blind man feeling the elephant’s parts and failing to assess the whole – I find myself making comments on the minutia, rather than looking at the whole. At its base, the Canadian tax system, beyond just collecting revenue for the government, is a societal manipulation program. That is to say, the government takes our money and then gives a very small portion of it back if we do what the government wants. We as a people should be permitted to be autonomous agents and when government through coercive means or pecuniary means alters choice, it is an encroachment on personal choice. At what point is government exercising excessive control over us?

On average Canadians pay 42% of their earning in TAXES to the government, that’s average, higher income earners, not the 1%, but people who work hard every day for their families pay more. 42%, plus permits, airport fees, environmental levies & then there is the ambient circumstance of massive government complexity in remitting and reporting income. I remember setting about the task of understanding the Canadian Tax Act, the act is 1200 pages long, I could hardly lift the book. In that book are; tax loopholes, corporate welfare, redistributionist policy. The tax system is a means by which the government attacks our choice as to who and what we want to support under threat of expropriation or incarceration.

I shudder to think what the administrative cost of compliance to the Canadian Income Tax  Act is by itself, then add administrative costs of remitting GST or the multitude of other taxes we pay – what people forget – taxes, in of themselves are a massive cost, but the collection and remittances in the context of such complex regulation eats up millions of person hours – in economics this is often referred as a “transaction cost”. Transaction Costs are like bank fees, they steal capital, they steal food from the mouths of babes, they steal the money for the symphony ticket – they are costs that neither purchase a good nor produce a good. They are necessary, but we must seek to limit them. Take a moment to consider in your life, the time it takes to do your taxes or the cost to have them done - and further your interface with government generally. 

We have the Canadian Revenue Agency, it employs in excess of 40,000 people, an army of people to collect taxes. At $60,000 total cost per person that is $2,400,000,000 of “transaction cost”, I punched that in my calculator – is that right – how much is that – it is a lot of help for families to be sure. These are all good people, smart people, capable people, honest people doing honest work - the real cost is wasted is human capital, this bank of highly capable people could be redirected to productive work – calculate the lost opportunity of their productive work, it is staggering. Worse, however, there is another larger army of people, also highly intelligent, highly motivated and capable, also wasting human and financial resources trying to avoid paying taxes – hours spent finding loopholes and more hours spent fighting it out in court. Think about it and you will begin to see the lunacy in it.

NOTE: I've had comments wondering what these people would do if a policy that government pursues renders their present position redundant, the government would be obligated see to their redeployment is some way. This is in no way a suggestion to abandon people, it is a suggestion to deploy funds better in the interests of people. 

There is good news, however, this is all completely unnecessary. There is another way, a way that promotes compliance and reduces the transaction cost that is the Canadian tax system. No matter what the entity, no matter the place, when that entity generates an income to pays an amount. No tax loopholes, no tax incentives, no complexity. Entity X makes a $1, entity X pays an amount – just that simple. As soon as you do that, you save most of the $2,400,000,000 in wages and other governmental overhead. There are examples of jurisdictions with similar tax systems as Canada opting to collect a flat 10% tax on income, and their revenues increased – why, because of compliance increases. When income tax is low enough no one wants to take the risks associated with tax avoidance.

Simplifying the tax system makes our lives easier and better, this is true of all government systems. There is undue complexity in government, ASK YOURSELF WHY.  

More Thinking on the Subject
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