NOT DONE YET
Ah…You believed that we are done, right? Well… we are not. All those calculations above are strictly "compliance" expenses and expenditures. Things that an accountant can measure quite easily. Things such as:
- Individual taxation
- VAT Taxes
- Sales Taxes
- Property Taxes
- Business Taxes
- Corporate Taxes
- Pension Taxes
- Employment Insurance Taxes
And so on.
But what the Fraser Institute did not compute were the "other" expenses incurred by people or business simply because Tax Collection Organizations exist. Some of them are:
- Lobbying
- Dealing with Tax Complexities
- Challenging Tax Codes
- Lost business opportunities because of Taxes
- Business model modifications due to Taxes
And so on.
Some studies indicate that such hidden costs are in the order of 8% of all collected taxes as a minimum and can be as high as 35%. We are going to be overly (i.e. ridiculously) generous and assume that this waste does not go above 5%.
If we now add this 5% to the previous 5% we reach the conclusion that throughout the world at least 10% of the value of all collated taxes are being destroyed every year in apparatchiks' salaries and useless and unproductive taxation paperwork.
Now let's place this number in perspective. The World GDP for 2013 was about 75 trillion USD. The amount of tax collected was about 33% or 25 trillion USD. Of that about 10% (or 2.5 trillion USD) went up in smoke just to feed the tax bureaucracy!
What this means is that the world is forced to waste 3.3% of all the wealth it produces every year feeding tax apparatchiks. And please note that we are talking about tax apparatchiks and tax apparatchiks alone. We haven't even touched the subject of "other" compliance costs (for more information about that subject see The High Costs Of Government Benefits).
Let's go back to this number: 2.5 trillion USD. Let's place this number into perspective. 2.5 trillion USD is equivalent to 3/4 of the US yearly budget or 1.1 Chinese budgets or about 1.2 Japanese budgets or 1.5 UK budgets or 1.6 German budgets or 12.5 Norwegian budgets or 43 Chilean budgets!
Yes. We are talking about the entire yearly budget of those countries, including new debt! All this wealth (because it is real wealth) is wasted every year just to fill-in taxation paperwork.
NOT DONE YET EITHER
And you thought that the bad news ended here. Silly you. When it comes to stupidity and theft the only limit is government imagination. As we mentioned before, because taxation exists we live in a far poorer world but very few people understand just how much of our wealth was (and continues to be) robbed from us. To this effect we would like to introduce a second "paper" titled "What Does it Cost Society to Raise a Dollar of Tax Revenue?" by the Howe Institute (yet another Canadian private organization).
In this paper the institute goes to great lengths to calculate what they call the Marginal Cost of Public Funds (or MCF). The MCF is defined as:
"a measure of the loss incurred by a society in raising an additional dollar of tax revenue from a particular tax source"
Which seems a pretty straightforward definition. Basically, the MCF measures how much the Canadian society pays for every extra tax dollar that the government collects. Consider this. If every tax dollar paid would have no negative impacts on the Canadian economy, the MCF would be 1.0. This is, one dollar is taxed and one dollar is removed from the wealth of the entire Canadian economy. However, if the MCF is above 1 this means that the removal of that dollar from the economy has other negative consequences for said economy that are never -what a coincidence- taken into consideration. Basically, the entire Canadian society loses far more wealth than that 1 dollar. The following table is taken directly from the paper and it is quite illuminating:
On the left side (in blue) we find Canadian provinces and the Federal Government. The rest of the table is self-explanatory. As you can see the MCF is usually quite large oscillating wildly for Corporations and so we will ignore these. We will focus on the "Personal Income Tax" column. As you can see if the Canadian government raises personal taxes by one dollar, the average Canadian will suffer an additional loss of 2 dollars. That's right. The cost of every extra tax dollar collected is the loss of an additional 2 dollars for a grand total of 3 wasted dollars (CAD). What this means is that at the Canadian taxation level the destructive force of raising taxes is equivalent to the destructive force of removing a grand total of three times the tax increases from the economy!!!
Is then any wonder that countries buckle and fold under taxation pressure? Of course not. It is not only the direct damage that taxes make to the economy; the indirect damage which is far, far more destructive must be considered too.
We have chosen the Canadian example simply because we came across this data researching the subject, but the very same principles apply to any country. Furthermore, the more "developed" the country (i.e. the higher its taxation level) the worse it is. And remember that we have only taken the "Personal Income Tax" into consideration ignoring Corporate Tax which in terms of tax paid is in the order of 60%! Let nobody say that we are not overly generous and conservative.
VISUALY
A visual aid is usually a good thing. Tables and explanations are dry but a simple plot usually does the job quite nicely. Take a look at the graph below:
The red line represents the increase of taxes over the years (have you noticed how taxes always go up over long periods of time?). The blue line represents the MCF or real damage that the elevation of taxes has created. The big red arrow shows the difference. See how the higher the tax level the much, much higher the indirect tax destruction?
It is bad enough that we need to suffer the direct economic consequences of taxation, but on top of that we also need to suffer the indirect economic consequences of said taxes. It is this difference that no politician or economic drone or apparatchik wants to talk about. It is bad enough that about 10% of all taxes are being destroyed in useless bureaucracy, but if we now consider that every time a government raises taxes the devastating effect is about two times that rise, this 200% of extra devastation pales against the original 10% of waste!
But even that is not it. Over time the accumulation of capital enables an economy to grow. This relationship is not linear; it behaves more like a compound interest. The more capital there is the faster the economic growth will accelerate (not just grow). By removing or destroying this capital, governments are not only slowing down economies by the taxed or even the destroyed amount. They are destroying the very mechanism that makes an economy grow. They are destroying growth acceleration itself. Yes. This is as bad as it gets. No wonder all economies are circling the drain and are about to be flushed!
CONCLUSION
Taxes are reprehensible and disgusting because they are outright robbery. But there is more, much, much more. It turns out that taxes are far more destructive to the overall wealth of the entire humanity than any tax raise by itself. As we mentioned many times before, some decisions that governments make are positive. The problem lies that in order to have these decisions we need to accept the entire government package, democracy and all. And as we have seen in this article, the package is far more destructive than any potential benefit that we can possibly have. Basically, it is not worth it. The price is too high. And yes, the "not-worthiness" is not about a few lousy percentage points but about several times over! Allow us to put it this way. Let's say that you are shopping for a new fridge. Would you buy a fridge with stainless steel walls for 3 times the price of a regular fridge? Even more considering that you have no guarantees as to how this fridge will behave or even if it would work? Even more considering that you know of people who bought this fridge and the reviews weren't exactly great? Of course you would not! But if you would not buy a fridge in such conditions, why would you support a government in similar circumstances?
Yes. We know. That's how you have been taught. Not your fault. But then again, you do have a brain, don't you? Then think! Use it! It won't bite. We promise. Because you have a choice to make. You may want to think or you may want to ignore reality and believe apparatchik and politicians' fairy tales. That's your right. Just one thing. When you find yourself begging on the streets, just remember we told you so. Repeatedly. With time to spare. In glorious Technicolor. Many times over.
Your choice, your destiny. Make it a good one!
Note: please see the Glossary if you are unfamiliar with certain words.
