07 April, 2015

How Taxes Should Be

There should be only 1 tax. This should be the amount paid to government to use those natural resources which are used directly by the economy. Its easy to identify them because market has set price for them. This is to distinguish them from indirect resources that are in so much abundance that they are freely available for everybody.

Economy uses natural resources either directly or indirectly. The ones used directly are land, minerals, bandwidths etc. The ones used indirectly are air, sunlight etc.

There are 3 factors of production: Land, Labour and Capital. Land, in strict economics terminology, includes all the natural resources, they are free gifts from nature. Labour is human effort, either physical or mental, to utilize those natural resources. Capital is tools, machines, raw materials etc used by labour to utilize natural resources.

Natural resources are for everybody, fruits of labour and capital are not. If a natural resource is going unused, any person should be able to claim its allocation to himself in order to utilize it. Today's world is a disaster because some people have taken all the natural resources: all the arable land, all the mineral mines etc, and left rest of the people with only the opportunity to be employees or slaves.

I have as much right on a coal mine in my country as you. If you are using it, you must pay me something because you are using my share in it. Since there are hundreds of millions of people like me in my country its impossible for you to pay us individually. You can, however, pay the government. The government will then use it on me in various ways such as security, welfare etc.

If you came across an empty plot and built your house on it then the building of the house is yours. I cannot take it away from you. Since its yours the government cannot tax it. The land, however, is not yours. You didn't built the land. The land is a free gift provided by nature to you, to me and to everybody in the country and equally so. Therefore, you must pay rent to government.

Government must never tax the fruits of labour. Its because it discourage labour. Labour must never be discouraged because labour is not only beneficial to the person doing it but its also beneficial to the entire economy, and even to the entire human race as long as the entire human race is connected somehow in the economic system of the country which in today's world we are. Its because a person cannot keep the entire fruits of his labour, some goes to make profits of others. Others such as suppliers and retailers.

A person can keep all fruits of his labour but only in very, very rare and therefore negligible cases. Those cases are always outside the economic system because in those cases a person necessarily get something directly from nature and necessarily consume it himself. When other people are involved some fruits of labour must be shared.

Capital is just stored labour. Natural resources are free gifts from nature so whatever other thing was used to make the capital is labour. The steel used to make a machine was freely available in land in some iron mine in its natural form. Its labour that converted that iron into machine.

Capital is one of the 3 factors of production but its not actually needed. Its just an enhancer. Production will be a thousand times low in absence of capital but will still exist. If all the buildings, machines, tools, furnitures etc vanish today we humans will make them again.

The only necessary factors of production are natural resources and labour. 

As a person should be able to keep fruits of his labour, he should also be able to keep fruits of his capital because capital is just stored labour. If I was catching fish by my bare hands and you made me a net then I must give some of the fish to you. Government therefore should never tax capital. Thats the moral ground of argument. 

Taxing capital discourages making and utilization of capital. This hurts production, by that entire humankind or atleast economy of the country suffers. Thats the material ground of argument.

No comments:

Post a Comment