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Tax Tyranny

Pascal Salin

Tax Tyranny does not aim to give a description of existing tax systems, rather it provides readers with the intellectual instruments which enable them to understand the role of taxation in the workings of economic systems and to evaluate the fairness of taxes.
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Chapter 5: The cascade of taxes

Pascal Salin

Extract

In most countries, there is a great number of different taxes with different rates, different names and different tax bases. Politicians are in favor of this diversity, contrary to what would happen if ever there was only one tax, possibly with a very high rate, which would induce taxpayers to be very critical of taxation. However, if taxes are different from an administrative point of view, they may not be different from an economic point of view, since many different taxes are in fact a levy on the same resources and the same individuals. As an example, the value-added tax (VAT) is generally considered a tax which is paid by consumers, but it is in fact a tax on the creation of resources by firms and is equivalent to an income tax. However, the individuals who constitute a firm (in particular the owners of the firm and wage earners) do not know the real burden of the VAT they have to bear. Many other taxes are also levied on the creation of resources, but nearly all people are ignorant of the existence of such a cascade of taxes and therefore do not know the real amount of tax they have to pay, which is helpful for politicians. A significant example – among many others – is given by capital taxation with the taxation of the ownership of capital, the capital gains tax, inheritance taxes, etc. But there are also hidden taxes, such as the “inflation tax”.

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