Thursday 27 January 2011

Flat Tax?

My starting premise is that the acceptance of excessively progressive taxation as being somehow 'fair' might be akin to the ethical relativism and moral liberalism that seem to be concomitant with redistributionist, socialist and communist societies.

Where excessive progressive taxation is regarded as fair, very often morals are also 'progressive'.

A restoration of absolutes is therefore desirable. And it seemed to me that such a restoration ought also to be reflected in - and assisted by - reform in our tax system, at least to some extent.

My thoughts centred around an attempt, as much as possible, to apply principles expressed by Moses' Law to a modern sophisticated economy - because although we are no longer required by God to adhere to Moses' Law in its entirety, the New Testament states that the Law is still a valuable source of ethics having something to speak to all areas of society including morals and economics.

Even though Moses' Law included no taxation per se, it did for example include the tithe. The tithe was not progressive in nature: it was a flat 10% for all, irrespective of one's income bracket. The tithe wasn't stepped according to a person's income - and yet God's Law defined that as just and fair. That seems a slightly different value to excessively progressive taxation.

In addition to the flat-rate tithe, the Law also required the payment by individuals of a set amount - the 'shekel of the sanctuary' - regardless of the individual's status or income. Far from being progressive in nature, this payment wasn't even a flat rate or percentage of income - it actually was the exact opposite of progressive because even the least prosperous were required to pay the set amount.

In fact I'm unable to recall a single example in Moses' economic system where anything like a progressive tax was imposed. Payments were made either at a flat rate, or they were a set amount - but there was nothing progressive. The only thing progressive was voluntary giving - which was not enforceable by the Law.

Even the required payments of the tithe and shekel of the sanctuary were not really taxes - because failure to comply was dealt with by God, not by the Judges.

That was in God's Law - taxation only came later once Israel demanded the Gentiles' political system.

In the New Testament however, Paul did say that Government is God's appointed agency and that as such, we ought to pay them appropriate custom and tribute.

The question I am considering therefore is: how to pay custom and tribute in a modern sophisiticated society, in a way that is consistent with the Mosaic (Godly) principles of fairness where nothing discriminatory or progressive was ever enforced - it was mostly a flat rate (although disproportionally sacrificial giving was commended, both in the Law and in the New Testament, when it was voluntary).

So in regard to a flat rate tax, numerous practical considerations came to mind, such as the feasability or non-feasability of redefining 'income' and eliminating deductions, exemptions and other taxes, thus broadening the tax base and maintaining tax revenue while at the same time lowering the tax rate.

The pros and cons of all such considerations have been well-studied by others. Several countries have implemented various forms of a flat tax, with apparent success.

An interesting consideration is that a flat tax - where the definition of 'income' has been broadened to incorporate or eliminate many other existing taxes (such as Company Tax, perhaps) - can have the effect of simplifying the tax system so much that the Government's need for administration and therefore for revenue shrinks considerably.

Not that revenue would shrink though (because of the broadened tax base achieved by the flat-rate). In country's where forms of a flat rate have been adopted, revenue increased so much that in some countries, the tax rate was able to be reduced year-by-year (although it has been argued by some that there might have been other reasons for their rapid economic growth besides the flat tax).

I think that where the adoption of a flat tax gives rise to new problems, if any (such as any disadvantage to the not-so-prosperous) - those problems could then be addressed with different strategies other than progressive taxation - with policies that don't alter the absolute concepts of fairness, of justice, of equality in the way that excessive progressive taxation seems to.

Excessive progressive taxation seems to compromise the absolute of fairness, in an attempt to help the less-prosperous (and progressive taxation can also be used politically, to raise extra revenue from a minority instead of from the majority of voters).

But a flat tax, coupled with other inevitable consequential societal adjustments and policies, might be a way of reinstating and then maintaining the absolute value of true fairness while at the same time giving remarkable opportunities to the less-prosperous.

Restoring the meaning of justice could have many positive ramifications in other areas of society besides tax. I guess that's why I dream about it.

It will be interesting to see what tax reform policies the Opposition Leader Tony Abbott announces. I believe Mr Abbott - like many other politicians and economists throughout the world - may be considering reform in the direction of some form of flattening of our tax system. And admirably so, in my opinion.

Sir Joh Bjelke-Peterson's proposed flat tax might have been a good eventual goal for Australia!

Agreed?

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