Taxation in Crisis by Dimitrios D. Thomakos & Konstantinos I. Nikolopoulos

Author:Dimitrios D. Thomakos & Konstantinos I. Nikolopoulos
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

9.1 Introduction

The recent events of the, so-called, “Panama Papers” are yet another example of the, very much en vogue, attacks on tax evasion, tax avoidance , tax corruption , taxing the wealthy, addressing the need for more government revenues, etc. Should we not be in favor of resolving such important, economic, social, and legal, issues? Of course, we should be. While there is an underlying fundamental importance of having a properly functioning and fair tax system , one is, however, left with certain lingering questions: questions of a more deeper nature, related to the timing of the events and to the pervasively consistent global effort in pushing forward a fervent redistribution agenda. Note that taxation has reemerged into the limelight of the global economic stage only after the “sudden death” of fiscal profligacy across the world—the chronic ailment that is keeping many countries prisoners of their own past fiscal mismanagement. Without being able to lead a regeneration of economic growth to the pre-crisis levels, and having exhausted the instrument of public debt, policymakers are embracing the other end that can refuel massive government spending : increasing tax rates and taxes for all, not just the wealthy. Is this new fiscal path, of higher taxation, going to be the final deathblow to global economic recovery?

To understand the critical issues involved, we should understand the structure and aims of a tax system . We collect tax revenues as funding for the provision of necessary public goods—goods that the whole of society can have access to and cannot, perhaps sometimes should not, be produced by private enterprise. Tax revenues should clearly not be directed for the generation of private wealth for part of the society , as this implies a biased approach that favors tax evasion, tilts the economic playing field and puts the brunt on those that year after year accurately report their income . Marginal tax rates should be set at levels that are such so as to maximize tax revenues while minimizing allocative inefficiencies—that is, without creating distortions in both the incentives of people to work and report their earnings and in the actual economic production of output. Taxation is distortive by its very own nature so eliminating these distortions is not possible but minimizing them is.

What is important to point out is that we should be concentrating on reforming the tax systems so as to minimize revenue leakage but not by using regulatory failures as excuses for imposing higher taxes. Tax havens operate on incentives and based on these incentives attract their “customers”; however, not everyone with an offshore account is a branded criminal. The question is what kinds of incentives should the tax systems be giving to citizens and enterprises so that they find no reason to flee to tax havens . Answering this question requires that we should carefully think about taxation in times of crisis: “copy/paste” a tax system of one country into another, imposing a uniform increase in tax rates, ignoring blatant local tax evasion, and promising redistribution will not work in providing the right incentives.

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