Taxation can be of income or of capital. The capitalist system prefers the first. In theory, taxing income does not hinder accumulation of capital. The motivation to acquire fixed capital is one of the cornerstones of private enterprise, by extension, the Western State.
April is indeed Eliot’s cruelest month: on April 15th the IRS expects its due, Revenue Canada is more gracious, allows the taxpayer to search vainly for legal loopholes until the end of the month. The trite but true statement, of the only two certain things in life being death and taxes is trotted out with more feeling. Yet, as the middle class North American taxpayer keeps proving, it is a resigned compliance, we keep accepting the GSTs and their like as inevitable. It offends many to see how the rich have their own rules, how the government cannot be held accountable for squandering tax dollars, but little changes. The Prime Minister’s shipping business operates under a foreign flag to avoid paying Canadian taxes; foreign-born Canadian-made millionaires like Frank Stronach make permanent residence abroad to avoid paying income taxes to the country that enabled them to become wealthy. That is a Canadian gripe.
The Europeans have their kvetches as well. Not surprisingly, given the state of uncertainty in today’s economy, the wealthy are reluctant to give what they see as unfair financial support to the less-deserving. Moral issues aside — does Magna multimillionaire Stronach have a responsibility to assist struggling East Coast fishermen who buy his auto parts as well? — tax questions raised these days have more to do with self-interest than any other issue.
In theory taxation has to respect capital — but socialist systems have allowed the concept to evolve into a system of distribution — state sponsored assistance of those less fortunate. Philosophers have long argued — is taxation an instrument of justice? Or is it a relation conditioned by justice? Taxation can be seen as intrinsically a violation of justice, forcing, as it does, a citizen to “work” for the state for a period of time with no recompense. (I believe that in North America the average employee only begins to make money for himself rather than the State in June. Adding to the pain of filing a return in April…) The Marxist view is even more clear — the worker is compelled to work for the capitalist, is thus seen as exploited. However, in capitalist theory the state returns the contribution in the form of goods and services, evening out the benefit. Still, because taxation is enforced, some argue that the system is slanted in favour of the “givernment”. It all boils down to an equitable system of law — laws allow freedoms, which have to be protected, paid for, thus the redistribution of wealth according to the system, which, in theory, is chosen by the majority.
There are more than a few Estonian-Canadians who receive a pension from Sweden for their working contributions made for that country four, even five decades ago, before emigration to Canada. One wonders what their reaction is to Swedish Prime Minister Göran Persson’s attack on Eastern Europe’s taxation system.
Persson is in the eye of a political storm by criticizing tax policies in the new EU member countries. The Swedish leader said this Tuesday that Sweden resents the thought that it would have to subsidize the new EU states.
At fault: differing tax systems.
Persson claims that in Eastern Europe the “upper-class does not pay taxes”, using Poland and Estonia as his examples. He told the newspaper Hufvudstadsbladet that these countries “must also tax their best earners.” A bogus claim,because they do, but under different systems. And of those, one would believe that Estonia’s is the fairest — a flat rate. Once enforced with no exceptions, it levels the playing field.
Estonia has a flat 26-% income rate; Sweden’s only begins at 30% and goes as high as 60, depending on income levels. In some cases, far higher than 60% (Guess what? Swedish entertainers — musicians and athletes in the salary stratosphere also do like Stronach, live elsewhere to avoid these usurious rates!) Poland has three personal income tax brackets — 19, 30 and 40%.
The point was also picked up on by Germany. Chancellor Gerhard Schröder chose to attack Eastern European corporate tax practices. At a conference in Berlin on Monday, Schröder noted that the 10 new EU countries have slashed their corporate taxes to an average of less than 20 %, while corporate taxes average over 30% in the present EU. Schröder accused incoming states of having a “tax policy which is not adequate to fund infrastructure on their own, but which is aimed at co-financing this infrastructure with transfers from Brussels.”
Germans and Swedes do not wish to subsidize Eastern European standards of living at the expense of their own. Natural emotions, that need to be talked about openly. No one likes to pay more taxes than their neighbour. But if Persson and Schröder are arguing for a common European tax regime, then that is an issue that should be weighed with great care, and discussed with more than local concerns in mind.