Taxation denial: The truth distortion that is crippling the world

Richard Parncutt

May 2016

Richard Parrncutt ICMPC 2012

Introduction: The simple truth about climate 

Before considering the phenomenon of taxation denial, let's think for a moment about about a remarkably similar modern "post-truth" phenomenon: climate denial.

Climate denial is not so much about denial the reality of climate change and human responsibility for it - it is about confusing the public in an attempt to prevent governments from taking concrete steps to counteract climate change. The basic message of climate denial is "the science is unclear" and "the jury is still out".

This was always malicious nonsense. It has been clear since the 1960s that the concentration of CO2 in the atmosphere is gradually rising due to human activity, and in the long term that can only result in higher global mean temperatures. You can't change the laws of physics. Of course climate is complex and there is a lot of detailed research about climate change. So you can always say that
"the science is unclear" and "the jury is still out" about the details. But the same applies to any academic discipline.

The motivation behind climate denial is financial. A lot of people are making a lot of money out of the fossil fuel industry, directly or indirectly. They stand to lose (or no longer make) a lot of money as the industry is forced to move into renewables. For many people, being honest about climate change is a very expensive business, or it seems that way at first glance. But that is hardly a good excuse, because climate change is destroying the future for everyone's children, and causing hundreds of millions of future deaths, especially in developing countries. These things are obvious, but in their selfishness people go to great lengths to deny them, as if they were stupid and evil. And perhaps they really are.

The simple truth about taxation

Taxation denial is remarkably similar to climate denial. Taxation denial is not so much about refusing to pay tax, or claiming that taxation is highway robbery. Arguments like that do not go down very well. They are too obviously wrong. It is too obvious that the rich only became rich because of the infrastructures that they used, which in turn were made possible by taxation.

The taxation denialists are more cunning than that. They want to confuse the general public about the role and importance of taxation. Their basic message is: "the economics are unclear" and "it's too complicated for you to understand". They like to roll out complex theories about the relationship between taxation, inflation, unemployment, economic growth, and so on. Once you start yawning, they know that they have won.

But taxation is very simple. Governments need a lot of money to provide essential infrastructure and services for everyone: water supply, electricity supply, roads, public transport, welfare, hospitals, schools. All kinds of very expensive things. The money can only come from taxation, and it will only be paid fairly if people are required to pay it by law, supported by strong, fair taxation departments. Moreover, the system can only work if individuals pay according to their means, which includes their income (or capital gains) AND THEIR WEALTH. The basic principle of progressive tax is that the more you have, the greater percentage you pay. Capitalism tends to make the gap between rich and poor grow wider, because the more money you have, the more you can make; progressive taxation can be used to counteract this tendency and maintain some semblance of democracy.

These things are simple and obvious, but taxation denialists like to pretend that they are not. Their tools of trade are complex, uncertain economic theories and terminologies that most people don't quite understand. Their motivation, of course, is to pay less tax, and who cares if that means millions of people of dying in poverty? The main thing, for them, is: When can I buy that second car? And after that a second house, then a vineyard and a yacht, and so on.

The most important social problem today is the gap between rich and poor, which is steadily and apparently inexorably growing in most countries. The best and most obvious solution to the problem is to raise taxes for the rich. Since being rich is more about wealth than income or capital gains (that's what the word rich means: wealth), it is obvious that wealth has to be taxed directly, and if it is already being taxed, it is probably not being taxed enough. It is obvious that most of the 20 000 children who die in developing countries every day (20 000! every day!) of hunger, preventable disease, curable disease and violence could be saved in the long term if the international community finally took decisive action to stop tax havens and force the rich to pay a reasonable level of tax on their wealth, such as for example 1% per year. So why aren't we doing it?

The response of taxation denialists to the previous paragraph is to laugh and say how ridiculous. Of course things are much more complicated than that! Of course you can't introduce wealth tax, it is not going to work! How are you going to implement it? What about all the problems that you cannot solve! And it won't make any difference anyway! The amount of money that you make will be too small! And besides there is the trickle down effect! You just have to wait for the rich to give jobs to lots of people and the economic problems will be solved! And so the nonsense goes on. And on. And on.

The simple, obvious solution: Wealth tax

There is a very simple solution to our economic woes, including chronic poverty in developing countries (such as the UK and the USA, but also the others), "austerity" as the rich get richer, a global economic crisis after which the global rich were even richer than before, growing national debts, lack of finance for basic public services, lack of finance for urgent projects to tackle climate change and so on. The solution is called taxation, and nothing could be simpler. Everyone (including the multinational CEOs, if they have a passport) submits a statement every year of their income AND WEALTH to their local taxation office, and those offices independently decide which statements to investigate, because they could be fraudulent. In the end, the more people have, the more they pay. It's as easy as that.

Of course there are lots of complicated schemes out there to evade or avoid tax, especially by taking advantage of differences between laws in different countries. But there is an easy solution to that too. There is an urgent need for taxation laws to be simplified and internationally harmonized. It is up to the lawmakers to do that, and not respond to pressure from taxation denialists to keep things complicated so they can take advantage of the loopholes. One possibility is to phase out tax deductions altogether. Just imagine: a world without tax deductions! Another is to stop people avoiding tax by putting their money into hedge funds, foundations and so on. The general principle is simple: if people have access to their money, it is theirs and it should be taxed, regardless of where it is being stored away. They should pay tax according to the amount of income and wealth, regardless of how they are making their money, which is none of the government's business. The tax denialists like to claim that it is not possible to enforce such things. They are generally either lying or distorting the truth. The truth is that if governments really want to solve these problems, they will do so.

It follows, incidentally, that rich people should be kept out of government, otherwise these fundamental problems will never be solved. But I digress.

When the world wakes up to the truth distortion that is constantly going on in the area of taxation, and the secret collaboration between the rich and the discipline of economics that is behind it, we will at last have the courage to stand up and say: just tax the rich and get on with it. Because it really is that simple.

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