That Dreaded T Word and What You Can Do About It
Few words are as feared as the T word. It sends shivers down the spines of the most intrepid CEOs and inspires resentment in the most generous hearts. I’m talking about “taxes.”
Jamaica’s Finance Minister Audley Shaw is in hot water with “the private sector” because he complained recently that the island’s businesses are behind in their taxes. His remarks were immediately branded as an “attack” on the corporate community. But why? Should corporations be free to pay their taxes whenever they feel like it? Should they not have to pay any taxes at all?
Of course not. Corporations – and individuals – must pay taxes if society is to survive. They know that. Everybody knows that. But they don’t like it. Nobody likes it.
In America, John McCain warns that his presidential opponent, Barack Obama, would “raise taxes.” McCain says he would “lower taxes.”
Let’s take a cold, hard look at the issue.
Do you accept the fact that no government can operate without funds?
Do you see any way of generating those funds besides taxes? Before you answer that, I should explain that by “taxes” I mean any charge paid by citizens to a government body. That would include fees for such amenities as running water or recreational facilities. It also includes deficits.
Bear with me as this gets a little complicated. You know, of course, that a deficit is incurred when you spend more money than you take in. And these deficits don’t go away. They accumulate and pile up interest, becoming exponentially larger with time. Somebody, some day will have to pay off the deficit, and when that day of reckoning comes, the money can come from only one source – taxes.
If you never pay off the deficit, the value of your currency will dwindle to the point where it becomes worthless. You will pay the piper through the loss in the value of your assets and the buying power of your currency.
The bottom line is that if you demand services from the government, you must expect to pay for them. You can pay now, or you can pay later. You might even leave some debt to your children and grandchildren if you like. But, as I’m sure you’ve heard, there’s no free lunch.
So the question is not whether the government will raise or lower taxes. The question is what services you want the government to provide. If you want your government to buy bombs and blow up people in faraway places, you must be prepared to pay for it – one way or another. And if you want to provide health care for your fellow-citizens, you must be prepared to pay for that, too.
However, you can decide how you want to pay. You might prefer sales taxes, which are added to the things you buy, or you might prefer taxes on your earnings. Also, you have a choice in the way these taxes are calculated. Do you believe that people who buy more should pay more, for example?
Before you reply, think of large families with modest incomes. Is it fair that they should pay more taxes because they have to buy more necessities, such as children’s clothes?
Do you think that people with higher incomes should be subject to higher tax rates? Or should everyone pay a flat rate – say 10 percent? And should the rate depend on how the income is earned – should profits on stocks and bonds be subject to lower tax rates than salaries, for example?
The way these rates are calculated and the exceptions government chooses to make are what voters need to examine most closely. You might hear, for example, that by lowering the corporate tax rate, government is encouraging investment, which will create jobs. And that sounds pretty good, until you check the details of the proposal and find that an oil company that makes billions of dollars profit would stand to gain another $1.2 billion from the deal.
As I said, it gets complicated. But one thing is clear: Government is going to spend, and you are going to end up paying – no matter who you elect.