Many of us were born and grew up in a world that includes income tax. So, it’s hard for us to imagine a world without one. But the reality is, income taxes weren’t always a thing. At least not in the way it is now.
I strongly believe that societies can run without income tax. It is a valid question to ask how will government function without taxes. But how will we know if we never try? Asides the fact that very few societies still function today without income tax.
GOVERNMENT FUNDING
A government that cannot function without income taxes probably shouldn’t exist. Because it’s clearly too expensive for the territory.
The government is put in charge of the territory’s resources. They’re responsible for money made by the territory from trading with other territories. For example, custom duties or sale of weapons. Most territories have 1 or more natural resources that they extract and sell within and outside the territory. Of which the government is usually primarily responsible.
Most government institutions also generate revenue. Not necessarily profit, but revenue regardless.
Now, if a government is unable to function despite all these multiple source of income, they’re clearly doing something wrong.
SOCIAL SECURITY & INFRASTRUCTURE
One question that’ll typically pop up in one’s mind when you consider how the government can function without income tax is how will they cover social security – unemployment benefit, pension, etc.
But it’s simple, there’s already insurance for that. Of which citizens and residents are made to mandatorily pay into. The funds from inform tax is not what pays for unemployment benefit. There’s a separate deduction that covers that in form of insurance.
What about roads? Pipe borne water? Electricity? The above still applies. The government is supposed to be generating enough money to be able to provide these for its people and the people pay for using it. Hence the reason governments take loans. But why take loans, take mutlipe taxes, but still unable to provide all of these things reliably to your people?
MULTIPLE LAYER OF TAX
One of the fundamental problems with income tax is that it’s essentially double taxation. For every amount you make, legally or illegally, you’re already paying multiple taxes on it as long as you spend it.
At the base level, you’ll pay VAT (Value Added Tax), which is a tax that’s applied to most items you purchase. If you buy a car, there’s specific taxes. If you buy a house, theses specific taxes. So, that same income you already paid income tax on, you’ll at least pay 2 extra taxes on later. Asides the fact that the company that paid you already paid taxes too. VAT and specific tax applied to what you spend the money on.
NEED FOR INCOME TAX
Income taxes as they were introduced originally were meant to be temporal. As pointed out earlier, government already has several ways to generate money. However, sometimes, government expenditure has to exceed their income. In such time, citizens can residents can be taxed to generate money for that period. For example, if the territory is at war and needs more fund for weapons and military personnel.
Such measures are meant to be temporary. But what we’ve seen is that government is being structured such that it’s constantly spending way more than it makes. And whenever the government is “broke”, the first thought of politicians is to raise taxes. Not figure out a way to cut government spending. But a way to extract more from its own citizens and residents. It’s an unsustainable model.
If a government cannot stay functional without continually taking more and more from its people, despite being put in charge of the territory’s resources, perhaps it’s time for a rethink of the effectiveness of the government and how government should be funded.
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