Published On: Sun, Aug 26th, 2012

Romney does not like paying taxes. You don’t like paying taxes. What if we all did not pay taxes?

Mitt Romney, the Republican US Presidential candidate, does not want to reveal how much he has paid in taxes over the past few years. Either he is embarrassed that it shows that his income is not as high as people expected, or he pays very little tax, far less as a percentage of his income than the average American. This is a potential problem as it suggests that only “little people” pay taxes. Not a great way to win votes from the millions of “little people” out there.

Mitt Romney does not want to pay taxes. Neither do you. What if we all did not pay taxes?

It is not just Romney that does not like paying taxes. You don’t like paying taxes either. Who does? What would happen if we were all like Romney and also decided not to pay taxes? This is not a crazy future, but rather the historic norm. Throughout history, taxation has been significantly lower than it has been over the past 50 years.

History, Future. Now. first looks back at a world before taxes, then looks at what we spend our taxes on and they asks the question – do we think it is nicer to live in a world with taxes, or without taxes?

US taxation history

In a previous article, Renewable Energy: Victim Of Subsidy Discrimination?, History, Future. Now. highlighted the fact that government spending used to be on three core activities: defence of a country’s borders, maintenance of peace at home and provision of a reasonably fair judicial system. As a result, the amount of tax needed to fund these activities was relatively low compared to today. Everything else that the government spends today was either never provided for by anybody, such as unemployment insurance, or was provided by the private sector, such as schools. As new forms of taxation were invented, more money became available for activities that were additional to the three core activities.

In colonial America, taxation was very low. The French and Indian War from 1753-1763 had proven to be very expensive to the British crown and in 1765 a Stamp Tax was imposed on the colonies to help defray the costs of British military involvement. This tax was on most forms of legal literature, such as contracts, wills etc. This proved very unpopular and was repealed shortly after its introduction. In 1767 an import tax was imposed on products at the dock, which was augmented by the infamous Tea tax in 1773, which sparked riots and acts of rebellion, cumulating with the “Tea Party” in Boston harbour which helped start the American Revolution.

After Independence, the United States quickly rediscovered the merits of import taxes, now in the form of tariffs, and these remained the primary source of tax income up until the beginning of the First World War. Tariffs are relatively easy to administer, as they can be collected at ports, and can be popular as they penalise foreign goods over domestically produced goods.

The US constitution made it extremely difficult to impose an income tax and it was not until the 16th Amendment to the Constitution in 1913 that it became possible. Personal income taxes were used to help pay for the First World War and quickly became a popular way for governments to raise taxes. When Republican politicians talk about “Repealing the 16th” this is what they are talking about.

In the 1880s the US started to also introduce estate, or inheritance taxes. This was clearly a redistributive tax, and many objected strenuously, deeming it theft. In the 1930s, New Deal legislation introduced payroll taxes, under the Federal Insurance Contribution Act, which was designed to pay for social security measures such as retirement income and disability insurance. Over time, this was added to with Medicare, in the 1960s. In 1921 Capital Gains taxes were introduced to distinguish capital gains from ordinary income.

What we spend our money on

We looked at what the UK government spends it money on in a previous article, and start by noting that the historic expenditure of defence, law and order and safety is relatively low.

If we look at the UK Government’s £683 billion 2012-2013 budget, however, it becomes clear that defence at £39bn and public order and safety at £32bn only represent about a tenth of government spending. From a historical perspective, all of the other expenditure is unprecedented and provides services that were never offered by the government historically, or may never have been provided by the private sector either. All government expenditure is effectively a subsidy on that activity.

What are these expenditures, exactly? The UK government budget for 2012-2013 has provided a convenient chart, below:

The biggest expenditure, a whopping 30% of the budget at £207bn, is social protection. Since the Budget does not provide an easy breakdown or explanation as to what “social protection” is, and an electronic search of the entire document only results in one hit – the table above, we have to make some assumptions as to what this, and other terms, mean. Our best guess is that this is unemployment insurance and benefits. As we have established, none of those benefits existed historically, but it is likely that they have been around since the end of the Second World War.

Next up is the £130bn spent on health care. History, Future. Now. is a firm advocate of government funded health care where citizens are covered for their health needs. The actual services can be privately supplied, based on lowest cost bids, with quality thresholds, by the private sector. Japan has an excellent model which follows this system. The UK’s National Health Service came into being at the end of the Second World War and despite its occasional criticism is generally highly regarded in the UK.

Education takes up £91bn of the budget. An educated population is in the long term interest of a country and is an investment in the earning potential of future tax payers. Unlike most other expenditures, which are for maintaining the quality of life of this year’s taxpayer, education is arguably a capital expenditure as the benefits (except for paying for someone else to look after your children all day) will be realised decades in the future.

Payment of interest on government debt is next up, at £46bn. This is clearly one to watch. As we borrow more the interest will go up and we still need to repay the capital.

Other, whatever that is, follows at £43bn. Then come the two historic government expenditures: Defence at £39bn and Public order and safety at £32bn. Transport is £22bn, Housing and the environment is £21bn, and Industry, agriculture and employment at £19bn.

So what would happen if we did not pay our taxes?

What is immediately clear is that many of the services that we take for granted would no longer be provided for by the government. It is unlikely that governments would ever stop spending on defence, police and the legal system. They are what protect society from complete anarchy. But if we stopped spending on other activities we would be doing nothing more than living in a society that existed over 100 years ago, in a world without income taxes, payroll taxes, capital gains taxes and the like.

What would we miss? Clearly, there would be no more publicly funded schools. Hospitals would go. Forget about roads and rail infrastructure. Public pensions and state pensions would go. Subsidies for farmers and the energy sector would go. Environmental protection would disappear.

You could argue that this would be a good thing. The private sector would step in for services that were genuinely needed and everything else would be dropped.

Even if you did argue this, there would be no debate that society would be radically different and significantly less equal that it is today. It is the poorer elements of our society that benefit the most from these forms of spending. If you are rich, anything is possible. Free education ensures that all members of society have an equal chance to get ahead in the future. Free health means that an illness will not wipe them out financially. Subsidies for farmers and energy ensure that the bulk of their household budgets are not spent on food and heating. A pension means that their final days are not borne out in penury.

Social classes would be more distinct, with the rich even richer and the poor even poorer. Social mobility would become very difficult, especially in populated countries. Crime would go up and civil unrest would simmer, waiting for some event to bring it bubbling over.

So, what future would you prefer?

  • http://twitter.com/tristanfischer/status/239798199961923585/ @tristanfischer

    Article. @mittromney does not like paying taxes and neither do you. What would happen if nobody payed taxes? Find out.
    http://t.co/mIgSTg6K

  • http://twitter.com/tristanfischer/status/239989720115990528/ @tristanfischer

    Article: Even though you don’t like paying taxes, you might like not paying taxes even less. The reason why is… http://t.co/mIgSTg6K

  • Brett Newman

    He may have some political liabilities in his tax returns, or maybe not. No one really knows. But what do we really know about our Manchurian Candidate President? He’s been in office nearly 4 years, and we still know nothing. Big Media, which fell all over itself to elect him, and continues to fall all over itself to reelect him, has shamefully asked no serious questions of this man.

    Where are his tax returns? College records? Law School Transcripts? Articles penned as Editor-In-Chief of the Harvard Law Review? State Senator Records? Financial Aid records? High School Records? Passport Applications? Personal drug use history?

    Romney should offer to disclose all, if Obama does so first.
    Posted by Brett Newman

  • Kome Chris-Ukoko

    The fact that he’s refusing to release taxes, even though the democrats have already said that they simply want to see 5 years worth, makes me believe that the fallout will be a lot worse than it is if his taxes are revealed.

    I don’t think it has a lot to do with his income (although it is substantially more than normal Americans make), but more to do with the tax rate he pay. He claims to identify with normal Americans and goes out of his way to belong but all that will be shown as absolute nonsense the moment people realize that his rates are unfair.

    He’s simply protecting his chances of winning by keeping it hidden. He’s got nothing to gain by revealing it.
    Posted by Kome Chris-Ukoko

  • Ovidio Graziano

    “What would happen if we ALL stopped paying taxes” = and how would America pay for its military power? More debt? Who will repay it back?
    Posted by Ovidio Graziano

  • Paul Lewis

    peace

    I think I see a way out of this mess
    Posted by Paul Lewis

  • Paul Lewis

    1913 no income tax and no central bank

    but they had some planned human sacrifices coming up so they needed some way to finance them – hence the central bank was created and the income tax
    Posted by Paul Lewis

  • http://twitter.com/tristanfischer/status/241588326807777282/ @tristanfischer

    Friday Read: Romney does not like paying taxes & neither do you. What would society be like if nobody paid taxes? http://t.co/mIgSTg6K

  • http://twitter.com/tristanfischer/status/254475300799381504/ Tristan Fischer (@tristanfischer)

    Saturday Read. Nobody likes paying taxes. What would happen to society if we all stopped paying taxes? Read on http://t.co/mIgSTg6K

Categories

Recent Comments

Powered by Disqus

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 47 other subscribers

November 2014
M T W T F S S
« Oct    
 12
3456789
10111213141516
17181920212223
24252627282930

Tags