Taxation In Recent

Taxation In Recent

Taxation In recent years arguments against progressive taxation have been urged by some economists. They claim, first, that it complicates the structure of the tax system, encourages avoidance, creates problems of equity between taxpayers and impairs respect for the law. Secondly, it can encourage political irresponsibility, because in a democracy the higher rates of tax on the minority are fixed by the majority. Thirdly, progressive taxation, if taken far, lessens productivity: it increases the attractions of leisure, reduces the willingness to embark on risky enterprises; it may increase economic instability by encouraging investment in safe ventures that do not respond to general economic change, and reduces savings and the capital required to raise living standards. Fourthly, by discouraging the creation of private wealth based on work, energy and enterprise, it reduces the scope for economic, social or cultural initiative independent of the state. Fifth, as incomes are equalized by the spread of opportunity, the case for progressive taxation becomes weaker.

In Britain progressive taxation had increased the proportion of net national income paid in taxes, national insurance contributions and rates to central and local government to about 40 per cent by the early 2000's. This is a higher proportion than is raised in taxation in some other western countries. A British economist, Colin Clark, has argued that when taxation exceeds about 25 per cent of the national income it inhibits production by impairing incentives, it is inflationary, because taxpayers react against attempts to reduce their spending by dissaving, it weakens the inducement in industry to keep down costs, and politicians are tempted to raise revenue by increasing the supply of currency and thereby debasing it.

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