Misunderstood fairness of taxation

Often in the public sphere, elected politicians become the center of attention, talking about the “fairness” of taxation. But is there justice when the net benefits for certain groups of individuals are created as a result of the forcible seizure of property from the rest of society? When support for poorer citizens is achieved by imposing a higher tax burden on their more productive and enterprising fellow citizens?

In public finance, the monetary relations that arise between the government and individuals as a result of the distribution and expenditure of the accumulated resource are relations of inequality. On one side is the financial authority, represented by the state, which acts under conditions of bound competence and is always considered an active subject, and on the other are individuals, remaining subordinate but also active in their role of seeking an ever-increasing volume of net transfers from the state.

Taxation, as a way of forcibly seizing income in order to fill the state treasury, allows the concentration of enormous power in the hands of the rulers: the privilege of spending other people's funds for vague "common goals". And we should not forget that, as Ayn Rand very wisely noted, there can be no such concept as a "public good" or a "public purpose". Society is made up of individuals who often have divergent and even contradictory ideas, morals, etc. When such indefinable definitions, such as "common goals", are used, then the hands of politicians are free to do with the seized money whatever they see fit, since it is they who most often determine the goals in question.

Therefore, understanding the essence of the tax burden in the context of freedom and the role of the state in economic life is of fundamental importance. Through a higher tax burden, the state provides itself with a larger resource that it can spend at its discretion, while the population is left with less free funds to satisfy its needs and wants. However, as we know, the distribution, redistribution and spending of “public” resources through the state budget is neither a means of creating economic growth, nor a method of improving the well-being and living standards of people. The state does not create wealth, it only redistributes the wealth already created and benefits the economic and non-economic entities close to it.

In a system of private property, on the other hand, individuals can decide for themselves how to use their property without violating or restricting the rights of others (because of the mechanisms of punishment that are activated when these rights are violated). [1] Economic agents receive payment from consumers only voluntarily and only in cases where they provide them with a good or service that is valued more highly than the latter. In view of this, they have the desire to maintain and use their property, and in the process of exchange, carried out under market prices, it is directed to its most sought-after uses; a fact that benefits all individuals in a given set.

The topic of increasing personal income taxation has recently crept into the field of view of political leaders and the context of tax policy in our country. The calls of some political forces for the return of progressive income taxation were almost as irrelevant to the sense of justice and the closing of the gap between the rich and the poor as the propaganda of the need for state intervention in market relations and the suggestion of the fallacy that capitalism is to blame for social inequality, which has become ingrained in the minds of many people.

There is no clear logic or objective reasoning behind the belief that the income of the rich should be taxed at a higher rate than that of the poor. Is it fair that the more competitive should be punished by having a larger share of their personal income taken away instead of being encouraged for their thrift, improvement and innovation? Even with equal tax rates, those who earn more pay a larger amount in absolute terms. No matter how we look at it, at a tax rate of 10%, for example, the tax liability of a person with a monthly income of 1,000 leva is twice as large as that of another person whose monthly salary amounts to 500 leva. No one will receive more or less of the inefficient “public goods” because of their greater contribution to the treasury. Taxes are a model of subordination that does not lead to poverty reduction and the elimination of the feeling of injustice, but to a slowdown in productivity, and hence - to a contraction of the dreamed-of economic development.

What does the picture look like from the outside? Bulgaria’s low taxes are often cited as one of its main advantages to foreign investors. According to the Paying Taxes 2015 report by Pricewaterhouse Coopers, our economy ranks sixth in terms of the lowest taxes among EU and European Free Trade Association countries. The total tax rate, which represents all taxes and fees due as a share of profit, in Bulgaria averages 27%, while the time it takes companies to pay their tax liabilities averages 454 hours per year. [2] According to the study, this is a kind of record-breaking achievement compared to other EU countries. In the overall ranking for the lowest taxes, Bulgaria ranks 89th in the world among 189 countries surveyed.

In fact, the cited report becomes a good reference point, reminding that in addition to redistribution, bureaucracy itself and administrative burdens are a key problem discouraging investment activity, well known to Bulgarian politicians and representatives of the business community. And although there is a solution in this context, there is no desire to implement reforms aimed at freeing the market and removing the bureaucratic burden. However, this can hardly be a big surprise to anyone. In order to take such a step, a government must have the courage to take the risk of losing its voters (a large part of whom are employed in the public sector and state administration) and with it its ambitions for a long-term political career.

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