Wednesday, 2 April 2014

'Taxation = Government Investment' : Each Time, Every Time

Once again we're seeing articles published across the progressive sphere that bang on endlessly about taxation.

And they always make the same mistake - which is to conflate the total amount of taxation collected with the distribution of that taxation amongst the population. Usually because they see taxation as income, rather than the air-conditioning process it actually is.

The two arguments are completely separate, and confusing the two is, once again, playing away from home at Neo-liberal United.

It's important to realise that when government invests it will always generate the same amount of taxation for any positive tax rate. Pound for Pound. Each and every time.

So why is there a government deficit you are no doubt screaming. Well that's because you've missed the other bit of taxation.

Taxation is about reducing spending. That is its primary purpose, in aggregate, - to stop the system overspending its capacity.

Once you understand that, then you quickly realise that people actually tax themselves. It's often called saving. That reduces the amount of spending an individual does - which is the primary purpose of taxation. So we can call saving - specifically saving in excess of investment - Voluntary Taxation.

And that gives the simple equation:
Voluntary Taxation + Compulsory Taxation = Government Investment
which simplifies to:
Taxation = Government Investment
for those with a correct understanding of what taxation actually is.

Therefore to increase the total amount of Taxation, you just push up Government Investment - once you've assured yourself that there is real space in the economy to take the extra investment. If there isn't enough Voluntary Taxation, then government can up the Compulsory Taxation or encourage more Voluntary Taxation to make space - should it so wish.

The distribution argument is completely separate from this. It is about who gets to do Voluntary Taxation and who gets to do Compulsory Taxation, and whether that distribution is considered fair by the population. The government investment is already done at that point and the total amount cannot be affected by the distribution algorithm. It's just arguing about which end of the water ballon should be the highest.

Yes it's an important debate, but it has nothing to do with whether we have public services or not.

We will get nowhere until we get it across to people that governments are about deploying people and stuff to achieve a vision that all of us have signed up to via the democratic process. And by doing that we have given our government sovereign authority to bring it about.