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Fairness of Tax

Who pays and who benefits

First its important to remember tax in a "progressive" system, is not for the benefit for the people paying the tax. 
This makes sense in the fact that people who have more money, have more money that can be taxed. 
It doesn't make sense in terms of the people who get taxed, have no say in how much, when and who it goes to.

When are you taxed

Income tax specifically gets taxed at the point you are paid, and gets taken off the total by the employer. There are two main problems with this:
  • Your earnings are taken off you in advance of the end of the tax year, and if you are overtaxed the money is returned to you at the end of year. Basically you can be denied access to your own money when needed most.
  • The employer has become an involuntary agent of the government, incurring the costs of a tax collector. This is not the businesses responsibility.
Income tax is assessed on a 12 month rolling basis. In terms of fairness this would be no problem if the tax rates were the same from period to period, and your income tax bands stay constant between periods. But this is not the case in a progressive system.

A simple example (deliberately simplified)

A set of twins embark on two different careers. One works in a bar from age 18  at a salary of 18,000/year and the other goes to university to become a lawyer, graduating 4 years later  with a salary of 30,000. The tax rate is 10% for earnings under 20,000 and 30% for everything after.

Unfairness of income tax

In year 8, both of the twins have earned 120,000, but one has paid 66% more tax than another???
What's worse, is that twin had to borrow their way through university, making them poorer still than the other twin.
If the situation continues, the one who has paid more will pay even more than the other still.
If in year 9 the lawyer, decides they hate the lawyering business and they wish to become a barrister and earn 18,000 a year, they will have paid more tax for no real justification.



Is theft or taxes better?


"When James B. gives a hundred sous to a Government officer for a really useful service, it is exactly the same as when he gives a hundred sous to a shoemaker for a pair of shoes. But when James B. gives a hundred sous to a Government officer, and receives nothing for them unless it be annoyances, he might as well give them to a thief."

   --  Frédéric Bastiat

Someone else should pay


“You had decided you had a right to your wages, but we had no right to our profits”

   --  Ayn Rand


Quote
"When people say 'pay your fair share', what is someone's fair share? Tax them until it's not worth doing any more? That is what I think will happen if yet more taxes, regulations and rules are brought in, not only with property investors, but business owners."

Links

Fairness of tax http://www.bbc.co.uk/news/uk-politics-19406022
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