Most people understand the basic reasons for taxation, such as to contribute to the well-being of the country as a whole. However, taxation is not that simple. The primary purpose of taxation is to contribute to the well-being of the country as a whole, but that is like saying adding onion to your soup is done to make you less hungry. There are numerous facets to the taxation method, and all of them constitute parts of the primary purpose of taxation. In my essay, I expose the most important facets that make up the primary purpose of taxation.
(Jones, 1978)
Taxes pay for governments, non-profit services that are required to govern or protect the country, security, and aid to other countries. Sadly, these days, taxes also pay for national debt. Another lesser-understood benefit is the economic development of a country. When speaking of economic development, some people think of massive company bailouts and terms such as “too big to fail,” but there is more to it than that. The act of taxing helps determine where people put their money. For example, if income from savings are not taxed, then more people will save their money, more saving schemes will come into existence, and less money will exist in the consumer marketplace, which will help lower or stabilize inflation.
(Salanie, 2011)
Taxing worker earnings is one way of forcing people to take full-time jobs. Let’s say that you only work 20 hours per week. Taking 24% of your earnings may result in you earning a wage that you are unable to live on comfortably. However, if you work 40 hours per week and the government takes 24% of your earnings, you may then have enough to live on more comfortably. Contrast this with a person who works 20 hours per week and is only taxed 2%, such a person may be tempted to stay as a part-time employee rather than getting a full-time job. If everybody did this tomorrow, then it would almost be like halving the country’s workforce. It is usually preferable to have a country full of people who are working full-time jobs to contribute to the Gross domestic product (GDP) of the country. We must also remember that taxes pay for the people who are either unable to work, who do not wish to work and people who are having trouble finding work.
(Weber, 2018)
Competing with other countries is vitally important because there are many instances where foreign involvements will dramatically affect the economy of a country. That is why things such as duty taxes exist because they help regulate the flow of goods and services going in and out of a country. For example, if a company decided to charge companies taxes of 75% of the value of whatever they bring into a country, then foreign imports would slow to an almost stop, which would increase the cost of goods in a country for a while until companies start producing goods locally rather than buying from overseas. On the other hand, if no duty taxes were imposed on imports, then local companies would always struggle to compete with lower-priced imports.
(Aaron, 2011)
Some people think that taxation is a way of fixing inequalities in wealth and income by taxing people more heavily if they have more money. However, such methods are flawed because it rewards people for working less, which negatively affects an economy, and it removes the incentive for people to strive for excellence or to overachieve. Higher taxes for people who earn more of for people who have more is like punishing people for doing well and working hard. Most right-wing governments will impose higher taxes on people who earn more and have more, but only because they have the means to pay such bills, and not as a punishment for earning more. Taxing people who earn more is also a good way of making them leave the country and have them spend their money in other countries. A classic example of this is from the British musician called Tom Jones, who was paying £0.92 out of every £1.00 he earned under a left-wing government, so he became a citizen of Hawaii. Taxing high earners will inevitably force them to earn less, to move away, or to cheat on their taxes.
(Blundell, 1996)
Conclusion
It seems obvious that taxation is not just about paying for non-profit services such as the emergency services, immigration services, vehicle services, etc. Taxation has a massive effect on a country and its economy. As you saw from my examples, if just a few tax numbers change just a little, then it has a massive effect on people and on the country as a whole. My examples used exaggerated figures to make my point (except the Tom Jones figure), but it is obvious that the primary purpose of taxation is to contribute to the well-being of a country, and that this is not simply done with the collection of money, but is also achieved by using taxation as a method of economic control.
Bibliography
Aaron, H., &Boskin, M. J. (Eds.). (2011). The economics of taxation (Vol. 13). Brookings Institution Press.
Blundell, R. (1996). Labour supply and taxation. Oxford University Press.
Jones, G. (1978). The economics of taxation. Philip Allen, Oxford.
Salanié, B. (2011). The economics of taxation. MIT press.
Weber, T. O., Fooken, J., & Herrmann, B. (2014). Behavioural economics and taxation (No. 41). Directorate General Taxation and Customs Union, European Commission.
