The theme of death and taxes we gave an evidence argument in a previous post. This one is about the hip pocket.

As a private citizen in Western democracies, you are certain of two famous things: death and taxes.

Except for those independently wealthy, to survive in the system you have to earn income and that income is taxed. Modestly for low-income earners and at a greater proportion as your remuneration grows.

This ‘work for money that is taxed’ keeps going until the inevitable happens and your body can’t fight entropy anymore.

Would you rather pay $20,000 or $1,000,000 in tax per year?

The weird part of this is that, after some thought, most people would be more than happy to pay a million dollars a year in personal income tax.

Obviously, it would mean that earnings are high enough to spend at least 10 grand a week and still have change. Compared to the low-income individual who plays $20,000 a year in tax, your bum is in the butter.

Similarly, a business paying tax is a good thing.

Corporations have many more ways of avoiding the tax dollar than the individual, but the reality is that net profit after tax, NPAT, where profit is the operative word, is the objective of the business, the reason it exists.

The company will have directors who, should they fail to maximize profit for their shareholders, risk prosecution. That NPAT number, the profit measure should be as high as possible.

A business not declaring a profit is very creative in its accounting or has previously made losses or isn’t a very good business.

Either way, the shareholders are not too happy if profit is not declared because that is their reward, their dividend for risking their own hard-earned to invest in the company.

Once the accounting smoke and mirrors are over, paying little to no tax is not a good thing.

Taxes benefit everyone

All this preamble comes before any moral argument about whether or not taxes are for the public good.

Remember that tax pays for collective benefits: roads, schools, police, defence plus a whole raft of services and structures that are hard to pay for as individuals, but that benefits everyone.

Tax is an integral part of the modern democratic system. It supports the social structure and a whole chunk of individual well being. Drive out of your front gate and you benefit from the tax dollar as soon as you hit the tarmac.

Without a tax system, we can say goodbye to the current quality of life that we enjoy. Arguably there is a moral obligation through the social contract for all legal entities and individuals to pay their way.

What is a fair share?

A fair share of tax is designated by the policies and the politics of the day.

And sure there’s no reason to pay more than your fair share according to the rules. As long as the tax system is equitable then everyone at some point in the process will have benefited from the taxes that they’ve paid. There should be a certain pride in paying tax toward the public good.

So to claim that you’ve paid no tax. Or to even hint that such a thing is good does not stack up in any sensible argument.

Paying no taxes as an individual means that you’re either at the very low end of the income scale in need of support or you’ve diddled the books somehow and claimed payments or shifted money around to avoid paying your fair share.

If a company pays no tax then at some point in the process the business has failed to disclose a profit or manipulated the books to sail very close to the wind and, again, avoids a fair share.

There is no doubt that corporations do this. They use all sorts of systems and hire expensive lawyers and accountants to move money around to avoid paying tax and one of the things that society has struggled to do is to reign in that avoidance behaviour.

But when no tax is paid for a very long time then the company is poor at what they do or they’re extremely good at dodging their fair share. Which even if it’s not illegal has certain moral nefariousness.

The graph below can speak for itself.