The morality of profits and immorality of taxation
Government needs to move away from permanent taxation to funding through project-specific cesses and levies
R Jagannathan
The government's decision to pay its own employees Rs 9,300-and-odd crore as extra dearness allowance at a time when inflation is roaring confirms a simple fact: government ought not to be trusted with our money. The more the money it has, the more it will waste it.
Government employees, who have only recently been given a bonanza by the Sixth Pay Commission, are the last people we need to indulge. But when politicians gift themselves huge wage hikes (MPs recently tripled their salaries and bumped up their allowances), they have to reward their co-conspirators — the bureaucracy — too. Hence the DA hikes. This is how they waste taxpayer's money and destroy our savings. With inflation pushing wages and higher incomes pushing inflation, we are now well into a classic wage-price spiral. The only thing that can result is more inflation — which devalues our savings.
The government's munificence emanates from two tax gushers: one is the regular revenue buoyancy created by a booming economy and rising corporate profitability. The second is the huge loot accessed through the telecom spectrum auction, which has made the fiscal deficit crater look like a mere pothole.
When the government overspends, the country does too. We are thus running two deficits: one at home (Pranab Mukherjee's budgetary deficit) and one abroad (the huge current account deficit, with external earnings seriously lagging import spending). But governments do not have to worry about deficits — they can either tax you directly or, if that's not possible, reduce the money they have to pay back to lenders by destroying the value of money through inflation.
The main moral argument for big government spending is the need to redistribute wealth from rich to poor. Governments everywhere — whether in the capitalist west, or communist China or socio-capitalist Singapore or Scandinavia — believe that it is their duty to bat on behalf of the poor by raiding the rich through higher taxation. If taxes are short, then money is borrowed from the same taxpayer to feed the poor.
In theory, this is fine. In practice, taxation becomes an end in itself. Having created a bureaucracy to collect tax and then spend it, the former then perpetuate themselves by dreaming up new ways to spend more so that more even more taxes can be collected. This is not what companies do. They raise capital to start a business, but once the business is self-sustaining, they start returning capital to shareholders — or at least don't raise more of it. They generate profits, which then drives the business forward.
Governments do the opposite. They don't raise taxes for any specific purpose; they just keep raising money indefinitely by making tax a percentage of your salary or profits. Sure, some government do cut taxes — George Bush did so, and so did our government some time ago — but the absolute amounts they raise only keep rising.
I see no reason why governments should be any different from corporations. It is not their job to raise taxes, but to ensure governance. Governance has costs, and each kind of cost can be defined and financed through specific levies or cesses. There is no need for a general income tax that stays constant through rain or shine.
How would this work in practice? Just as companies raise capital for specific projects, government should levy cesses or tolls for each purpose. If the idea is to finance NREGA, there should be a NREGA tax, and all the funds earmarked for it should be separately audited. The bureaucracy needed to administer it should be part of the cost. Once the need for NREGA ends — that is, if poverty is reduced — the cess should be ended and the bureaucrats sent home. This is what happens in the army. When you cross a certain age, or your short service commission ends, you are out there looking for a job.
Another myth is that governments need money to invest in social areas like education or health. Wrong again. Governments have to facilitate skill-building and the creation of healthcare facilities; it does not follow that they have to run schools or hospitals themselves. They just need the right policies to ensure this happens.
In the ultimate analysis, the only part of government which may need to be funded permanently by taxation is probably defense or maintenance of law and order. The rest of governance needs no taxation — only specific, self-limiting cesses. The ideal government is one which exists only when it needs to and disappears when there is no need. Taxes raised without purpose are immoral. Profits are more moral. They are, as Peter Drucker pointed out, the cost of staying in business, and not just a reward for entrepreneurship. Profits retained by companies and incomes left in the hands of individuals serve a public purpose: they create investment and consumer demand — and jobs. Taxes do the opposite.
r_jagannathan@dnaindia.net
from it, you have a moral obligation to share it with others.
" Vande Matharam "
ng.puthoor@gmail.com
Gangadharan Nair N.
When you realize you've made a mistake, please have the courage
to admit it & also take immediate remedial steps to correct it.
www.keralites.net |
__._,_.___
No comments:
Post a Comment