Income tax generates a lot of revenue for the government and is one of the biggest expenses for the working class. What would happen if one day we suddenly decide to abolish it altogether? Is it too radical an idea? Is it even possible?
Income tax is a concept that a lot of people dread. Firstly because it takes away a substantial part of your income and secondly because it is so hard to calculate! Government loves Income tax. It is one of the main sources of revenue for them.
No one likes to pay taxes. We pay it because we are forced. A very number of people would pay taxes if it was not compulsory. We pay it because we think that it is our duty towards the society to pay taxes. It is taken as the cost of all the services that the government provides us for example light, roads, water etc.
Income tax, as they say, has become a way of life!
Now, for some time, imagine if there was no income tax.
Yes you heard that right. No income tax. All your income is yours. Government takes nothing away. You get the entire amount that your pay slip states. It seems so ridiculous, it’s laughable.
I mean, where will the government get the money from? How will they provide us with services? How will they fund other schemes? How will the government build roads? How will the government pay salaries to its employees?
Well, as ridiculous as it may sound. It is not impossible to both abolish income tax and run the country.
You need to understand that government’s biggest expenses are schemes that it has started to ‘level the playing field’. It means that the money that you pay to the government is spent by the government on people who are less fortunate. They give them free education, food, housing and lot of other subsidized things. Money is also used to build roads, provide electricity, maintain law and order and other stuff too but the major expenditure is on subsidies.
Also, here we are just imaging a life without income tax. Please keep in mind that all other taxes will continue to apply. They might even go up!
The thing is that you cannot abolish income tax till you reduce/remove subsidies. You cannot take away a very large of income without cutting back on your expenses.
Now a lot of people would not like the idea of reducing subsidies. They would take it as not doing our bit for the society. Well, if the subsidies don’t actually reach the poor in the first place then we are not doing anything to improve the society anyways.
Picture this. We pay taxes to the government. Government uses that money to fund schemes which give poor people things for subsidised rates. These poor people then agree to work in factories, informal businesses and offices for cheap because they are getting subsidies and hence their cost of living goes down. So in short, we get indirect benefit by paying income tax.
All this seems very rosy and simple but we have not factored in a very ugly aspect in our calculations. Corruption. It throws all our calculations out of the window. There are reports which state that for every 100 Rs that the government spends for the poor, only 30 Rs actually reaches them. 70% of the money is lost to corruption. Why are we continuing with this system?
We could not pay income tax. Government could stop the subsidies which were funded by income tax money. People would not get things at a subsidized rate and would in turn demand a higher wage from their employer because their cost of living would go up. The employer who got the benefit of not paying income tax has to now pay more to his employees.
You might be wondering what is the difference between the first scenario and the second scenario. Well, the chances of corruption in the second scenario are a lot lesser than the chances of corruption in the first scenario. Isn’t that a good enough reason to switch? I think it is.
Now, we are not removing taxes all together. The government does need money to function and if not anything else, it has to perform its police functions. It means that, ideally, I would want the government to not interfere in anything but just take care of the law and order situation in the country. Free market economy will take care of everything else.
Yes, if you have not inferred it already by now, I will tell you explicitly. I am a supporter of free market economy.
So as I was saying, government will need money to perform its police functions and that money can come from the other indirect, consumption based taxes. It means, you have to pay them only when you spend your income. If you don’t spend your income, which is almost impossible, then you don’t pay taxes.
Given how it is impossible for a man to live without spending money, citizens will eventually spend their money on something. Now, the benefit of this system is that here the citizen has direct choice of where his money is being spent. Government doesn’t make the choice for him. The higher the independence from the government, the better it is for a citizen.
Free market economy will make the marketplace very competitive. It means that even though the prices might rise from their current levels, because of competition, they will never become unreasonable. Government will always be there to see that competition laws are followed and that no one forms a group and exploits the customers.
I am personally not a big fan of income tax, as you would have already guessed. I mean, people generally give me the Robin Hood concept as a defence to taxing the rich to give to the poor. Now, one thing that almost everyone forgets is how even though Robin Hood took from the rich and gave it to the poor, which might seems like the basic concept behind our taxes, the money that Mr Robin took from the rich was illegally acquired by them. It was not legitimately earned money. On the other hand, in our case, the money that the government taxes us on is legitimately earned.
So why should I be forced to give away a part of my legally earned income? Why give anything to the government at all when they cannot guarantee that the money will be used for betterment of the society? If at all I agree to the idea of giving away my money, should I not have a say as to where my money is going?
In the end I would just like to say that Income Tax is a concept which, since we are young, has been ingrained in our head as something which is compulsory and sacrosanct when in actuality, it is an imperfect concept.
Youth Speak article by Avinash
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