Purposes and effects of taxation
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Funds provided by taxation have been used by states and their
functional equivalents throughout history to carry out the functions
such as:
*military defense,
*enforcement of law and public order,
*protection of property,
*redistribution of wealth,
*economic infrastructure — roads, legal tender, enforcement of
contracts, etc.,
*public works,
*the operation of government itself.
Most modern governments also use taxes to fund welfare and public
services, such as:
*education systems,
*healthcare systems,
*pensions for the elderly,
*unemployment benefits
*energy, water and waste management systems,
*public transportation.
Colonial states and moderning states have also used cash taxes to
draw or force reluctant subsistence producers into cash economies.
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Governments use different kind of taxes and vary the tax rates:
*to distribute the tax burden between individuals or classes of the
population involved in taxable activities, such as business,
*to redistribute resources between individuals or classes in the
population. Historically, the nobility were supported by taxes on
the poor; modern social security systems are intended to support the
poor, the disabled or the retired by taxes on those who are still
working,
*to influence the macroeconomic performance of the economy (the
government's strategy for doing this is called its fiscal policy)
(see also tax exemption),
*to modify patterns of consumption or employment within an economy,
by making some classes of transaction more or less attractive.
The resource taken from the public through taxation is always
somewhat greater than the amount which can be used by the
government. The difference is called compliance cost, and includes
for example the labor cost and other expenses incurred in complying
with tax laws and rules. The collection of a tax in order to spend
it on a specified purpose, for example collecting a tax on alcohol
to pay directly for alcoholism rehabilitation centers, is called
hypothecation. This practice is often disliked by finance ministers,
since it reduces their freedom of action. Some economic theorists
consider the concept to be intellectually dishonest since in reality
money is fungible. Furthermore, it often happens that taxes or
excises initially levied to fund some specific government programs
are then later diverted to the government general fund. In some
cases, such taxes are collected in fundamentally inefficient ways,
for example highway tolls.
Some economists, especially neo-classical economists argue that all
taxation distorts the market and results in economic inefficiency.
They have therefore sought to identify the kind of tax system that
would minimize this distortion. A theory is that the most
economically neutral tax is a tax on land. A government's primary
duty is to maintain and defend title to land, and therefore it
should collect most of its revenues for this unique service. Since
governments also resolve commercial disputes, especially in
countries with common law, this doctrine is often used to justify a
sales tax or value added tax. Others (e.g. libertarians) argue that
most or all forms of taxes are immoral due to their involuntary (and
therefore eventually coercive/violent) nature. The most extreme
anti-tax view is anarchy-capitalism, in which the provision of all
social services should be a matter of voluntary private contracts. |
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