life and taxes
Taxes have probably been the most significant driver of human history!
It is hard to overestimate their significance. Some of the greatest empires the world has ever seen including the Roman, Egyptian, Spanish and Aztec were brought down thanks to tax resistance. The American and French Revolution started out as tax revolts. Even in Star Wars the road to the Evil Galactic Empire was paved through the introduction of taxation on trade routes. Tax resistance is not inherently violent. India’s Civil Disobedience Movement rose to prominence when Gandhi defied the infamous salt tax. Lady Godiva rode naked on her horse through the streets of Coventry (UK) in order to protest the taxation imposed by her husband on his tenants.
Hatred for Taxes
Across centuries, continents and cultures one thing remains universal of the human race: we really hate paying taxes. But why such hatred should be levied on taxes? Taxes are merely the price we must pay for a civilised society. Taxes enable the functioning of a country: they pave roads, provide education for children, and ensure anarchy-free streets (most of the time). But we simply cannot accept them. A fervent flag-waving patriot may gladly die for his country but also refuse to pay taxes.
I believe unlocking the puzzle of taxes could bring many benefits. It is important for the future of the European Union. A large part of the resentment towards the EU comes from the fees (a.k.a. taxes) member states have to pay. The fees are perceived as too high while the benefits meagre or even unwanted. At a time when Eurosceptic parties are in ascent we need to understand and counteract these impulses. If we did not hate the concept of taxes so much there would have been more public pressure on tax dodging international companies.
Understanding our negative attitude towards taxes also has important implications for the future of the planet. We currently need to find a way to curb carbon emissions and the depletion of resources. Basically we need to levy a tax on the present in order to pay for the future. But how do we convince others to sympathise with people who are not yet born?
Our dislike for taxes certainly has economical and political reasons. But we are not fully rational actors making calculated decisions. We are emotional beings that have built-in a number of predictably irrational biases. Taxes are indeed unpleasant but they are not as painful as most people believe or perceive them to be. The hatred for taxes is a toxic cocktail of individual perceptual and cognitive distortions. Let’s examine some of them:
1. Taxes are Tangible.
In contrast to most other laws taxes have a clear-cut monetary cost. Obeying the traffic code costs us time that could be spent productively. We are paying a price for traffic laws but it is a less tangible one. That is why people tend concentrate on the benefits of traffic laws (road safety) than on the costs. The attitude is different towards taxes: individuals think about the cost rather than the benefits. The costs of EU membership are more clear-cut while the benefits are often more intangible. Likewise, paying fees for pollution has a price tag today while the benefits may come in some unspecified time in the future. Or they may never come. Our brains are not good at perceiving intangible costs or future benefits.
2. Taxes are Immoral.
We respect non-tax laws because there is a correspondence between the behavioural mandates of the law and society’s moral norms. Non-tax laws punish undesirable behaviour (e.g. do not steal) and thus safeguard society’s morals. We all agree that stealing is immoral and we are glad that such laws exist to regulate human behaviour. In contrast, most taxes seem to punish productive behaviour. The more money an employee earns the more money she has to pay in income tax (the situation is exacerbated when a progressive taxation system is in place). Labour and productivity are seen in all cultures as positive attributes but the government seems to be discouraging us to work harder. In effect income tax punishes desirable behaviour.
People do not get too emotional about levies on tobacco and alcohol because these taxes discourage unwanted habits. When it comes to the European Union wealthier and more developed members pay a higher per capita fee than less developed ones. Many feel that the EU is taking away their hard earned funds only to subsidize less-deserving member states. Likewise the carbon tax imposed on companies and nations seems to penalize productivity. The effects of carbon emissions are not apparent on day-to-day basis and most people still do not see it as an immoral act to be punished or discouraged.
3. Loss Aversion.
“It is better to have loved and lost: Than never to have loved at all” – states a famous poem. In reality people suffer from a bias that makes us more likely to avoid loss than acquire gains. It is worse to win 100 euros and lose them than to have never won anything in the first place. The ex-post application of taxes replicates this pattern: we know how much better-off we would have been if we did not pay taxes. Purchasing items without seeing the VAT is a much more pleasant experience. If employees never knew their gross salary then the world would be a happier place. Eurosceptics are always concentrating on what a member state is losing rather than gaining. They highlight how EU membership fees could instead be used to solve or alleviate national problems.
4. Drop in the Ocean Problem
If a single person stops paying any taxes it would not make a huge difference in the grand scheme of things. The country will still go on to (mal)function as before. Moreover, citizens pay different levels of taxes but get the same services from the government. This creates a feeling of unfairness among taxpayers. It also provides a justification for those who decide to evade taxes: “it wouldn’t make a difference to the country if I don’t pay taxes but it will make a huge difference for me”. With carbon taxes the situation is similar. Restricting the emissions of a single factory would be like a drop in the ocean. But as one writer eloquently put it: “what is any ocean but a multitude of drops?”
5. A Million People is a Statistic
This complements the “drop in the ocean problem”. Tax evaders do not think about the needy people they are depriving of funds. They are not even thinking of their country as a parental entity that deserves to be respected and preserved. What they are thinking of is a big, bloated government that will probably misspent the money thanks to its inefficient bureaucracy (or corrupt practices). Charities have long discovered that if they solicit donations by putting a picture of a single needy child on the brochure they would get more donations than if they put dozens of children. It is hard for us to care for giant faceless entities like the government or EU institutions. In the case of global warming it is difficult to sympathise with people that haven’t been born yet.
6. The Media
These days whatever social ill you blame on the media you are probably correct. There is a severe lack of coverage of wealthy individuals who pay taxes in their country of birth without utilizing any loopholes. We don’t hear about J.K. Rowling paying her taxes in full but we get extensive coverage of Gérard Depardieu accepting a Russian Passport. The media provides no positive role models. This creates the impression that a generous slice of the population are not paying taxes or not paying in full. Why should you pay taxes if everyone is smartly evading this burden?
What I presented here is a Rosetta stone (more of a pebble) that helps us understand our negative behaviour towards taxes. Now we need a Philosopher’s stone that can transform this seething hatred into mild irritation. Suffice to say there are no quick solutions. In a perfect world everyone would read John Rawls. But then again in a perfect there would be no taxes.