BASIC TAX PRINCIPLES AND CAREGIVING
The hurdles of traditional caregivers are not just lower social status but nearly always also financial penalty. Though economics looks only at the flow of money and traditionally ignores contributions of unpaid work, unpaid workers nonetheless are citizens subject to tax laws. They are strongly affected not just in their dignity but in their ability to be caregivers at all, based on tax regimes.
This page gives a timeline of the development of tax principles and their effect on the care role. It then looks at basic tax principles, and comments on their application to the care sector.
A. TIMELINE
early societies- taxes were imposed on goods brought into the community- import duties
Persia and Egypt
There was a tax on land that was based on size of the land
Greece and Rome –
There were taxes on consumption- you paid a bit to government as you bought food or products you consumed
There were taxes on imported items- custom duties
Rome
There was an inheritance tax of 5%, later raised to 10%
There was a tax per citizen, called a tributum- paid per person – a head tax
There was a tax on real estate holdings- land tax- based on the fertility
of the land, or how much produce came from it
Under Julius Caesar a 1% general sales tax was imposed
Middle Ages
There was a tax on goods as they passed through a country- transit taxes
Everyone had to pay tax – including consumers, producers and trades people
1189 – Britain -An income tax was for the first time imposed to raise funds
to fight the Crusades
Germany and Italy
There were taxes on land, taxes on houses
There was a tax on a person’s ‘net worth’ which was declared by self-assessment
with an oath before a civic commissioner
1600s
John Locke and Thomas Hobbes in England said that taxes should be based on
what is spent (consumption tax) not on how much you earned, so that only those
who used a product had to pay tax on it.
1773 American colonies objected to paying a tax to Great Britain because they were
imposed by a government in which they had no voice. Theydeveloped the
principle “No taxation without representation”
1776 – Adam Smith wrote “The Wealth of Nations” saying a tax system should be
fair, predictable, convenient and efficient as 4 basic principles
1787- US- constitution permits government to impose taxes and levies on the general
public. The states collect the tax, usually excises taxes on goods like alcohol
and tobacco.
1789- In the French revolution a key issue was the inequitable way taxes were
imposed
1797- US first imposes an estate tax to help fund US navy
1799 – Britain- William Pitt the Younger imposes an income tax as a temporary measure
to help raise funds for the Napoleonic wars
1800s – Governments taxed income without any goal of ensuring the poor had enough
money to live on and were helped by the rich
1860- India- first income tax imposed to cover costs of the Military Mutiny of 1857
1865- US -Federal government imposes income tax after incurring costs of the Civil War
1900s- Governments started to tax based on adjusting income disparities between rich
and poor so the poor paid less and the rich paid more
1909- US- first imposes corporate income tax
1913- US first imposes its federal income tax in current form
1915- Australia -first income tax imposed to help raise funds to fight world war I
1916-1917- In Canada Prime Minister Robert Borden imposes a temporary measure
of a business tax and then a personal income tax to raise funds to
help fight world war I
1918 – Germany imposed a tax on sales – a turnover or purchase tax
1921- US – first time US has sales tax Most but not all US states create this tax.
1924- US- first time gift tax is imposed
1937- US first imposes social security tax (payments of citizens to a social
welfare fund. Other nations call this social security deductions
or compulsory contributions)
1940- Great Britain imposed a tax on sales- a turnover or purchase tax
1960- Many countries tried to create a neutral tax so that people did not adjust
their buying patterns just to avoid tax
1960- Canada -the Royal Commission on taxation recommends taxation
based on household income not individual income so that when
income is spread over several people there is lower tax on it.
1970- Canada- The Royal Commission on the Status of Women recommends
a change to the tax system to value unpaid work saying “Married
women make a major contribution to the family through the provision
of housekeeping and childcare services. These services have an economic
value..The housewife who remains at home is just as much a producer of goods
and services as is the paid workers.. ..We consider the present tax system unfair”
1980- Many nations impose a new tax which is imposed at several points along
the supply chain – with a tax on the increased value at each point- a value
added tax VAT. The baker buys wheat from the farmer and pays tax,
the supermarket buys bread from the baker and pays tax on it, and the
consumer buys bread from the supermarket and pays tax on it.
1990s – In order to not discourage citizens from hard work and trying to earn more,
some nations move away from a principle of higher taxes on the rich
2000- With e-commerce it is harder for government to trace purchases and tax
them. Governments cannot monitor easily the sale of digitized products.
Some companies operate business from a country that imposes lower tax-
an offshore tax haven.
2021 -Some international companies operate globally
online but often avoid paying tax in some countries where the operate.
These perceived tax losses become a subject of international legal action.
B. BASIC TAX PRINCIPLES AND APPLICATION TO CAREGIVING
1. Government has a right to collect tax.
2. Tax is collected in money not goods. Citizens cannot pay their tax by
a chicken or cow. They also cannot pay their tax by working
for free for government. Their work done for others that
benefits society is also not counted as worth money or equivalent
to revenue for government. This means that unpaid labor
is not recorded as useful in the economy.
3. People have a right to input into tax laws that are imposed on them.
(when consultations are held about caregiving and tax policy
if unpaid caregivers are not consulted, they are deprived
of this right. When a government funds a national system
of 3rd party care of children exclusively and does not equally
fund care by parents, relatives, babysitters or nannies because
it did not even consult them, it violates this principle. When
government forces all citizens to pay for a 3rd party childcare
system preferentially and does not permit them to opt out
of this payment, it may be seen to have deprived taxpayers
of input into how they pay tax)
4. Taxes should be based on ‘ability to pay”. Those who have more
ability to pay should pay more tax. Adam Smith said that citizens
“ought to contribute towards the support of government as nearly
as possible in proportion to their respective abilities, that is in
proportion to the revenue which they respectively enjoy”
-Many nations have a progressive tax system as a result
so that for instance the poor pay a tax rate of 10% of income
while the very wealthy pay a tax of 35% of income
-An earner whose income is shared with a spouse has less
ability to pay tax than a single person, so some nations
reduce tax for households that share income (income splitting,
household based tax)
-Having children reduces ability to pay tax . In some countries
tax is lowered for those experiencing costs of childrearing
by giving the opportunity to be taxed as a household, to
income-split, and have each earner pay tax at a lower rate,
or with benefits for children such as a birth bonus, child
dependant deduction, or family allowance
(countries that preferentially fund 3rd party childcare
but not other care styles such as parental or family based
may claim to be subsidizing additional necessary costs
of childrearing but if they ignore the costs of care
at home they could be seen to violate the principle
that those with an adult foregoing iucome to raise
a child also have less ability to pay tax)
5. Taxes should be predictable, transparent, not arbitrary. People
have the right to be clearly informed about what they
have to pay, why, how much and when.
(when governments fund 3rd party childcare directly
and subsidize costs parents using it pay out of pocket
in addition, those governments may claim that this
helps keep childcare ‘affordable’ to families. What is less
clearly pointed out is that such a funding plan increases
the bill for the state. The fact that making 3rd party
childcare less costly for users makes it very costly for
taxpayers to subsidize is not made as clear to the public.
In some nations like Sweden, tax rates increased dramatically
when the state decided to fund a universal 3rd party daycare
system)
6. Taxes should be convenient for the taxpayer. The process of collecting
the tax should be simple
(A single rate tax or flat tax for all taxpayers is easier to calculate
than is a graduated tax. If the poor pay 10% of their income and
the rich pay 10% of their income, the rich still do pay more money
in tax than do the poor)
(If government permits some costs of caring for the young
or sick or elderly to be deducted, but not other costs, some
sports classes not others, some arts lessons not others,
the taxpayer has the inconvenience of collecting and submitting
detailed accounts and receipts. A universal system of deductions
for care with trust in the caregiver to use the funds wisely
would be more consistent with this tax principle of convenience.
Similarly to how employers pay a salary and do not tell workers
how to spend it, it could be argued that governments that recognize
the situation of someone needing care, create a convenient system
best when they have a deduction that does not require numerous receipts)
7. Taxes should be collected efficiently so the cost of administration is kept low
for government.
(A universal benefit for children is less costly to inspect, calculate
and adjust than is one that changes based on age of child, or income
of parent or location of care. Family allowances that have many conditions
on them cost more money for government because they require more staff
and more hours to administer)
8. There should be a match between the tax a person pays and the personal benefit
they derive from that government expense if it only serves one
group- eg. only those who drive a certain highway should have to
pay toll on it . This is a user pay principle.
(There is no societal benefit were government to fund preferentially all
pizza restaurants and no other type of restaurant. It is more consistent
with fair taxation that only those who eat pizza pay for the pizza. In the same
way there are many styles of childrearing. Those who use 3rd party childcare
choose that style but any government subsidy to that style only would be
unfair. Those who use 3rd party care may well deserve government
subsidy but only because they are raising a child, and any subsidy they
get should be matched by subsidy to the other care styles people use also)
9. There should be equal chance or risk when governments require societal
funding of a service. The right of all citizens to basic education,
road safety, attentive health care is recognized by most governments
and all taxpayers are required to fund these. However if pregnancy
is not universally funded, but government benefits go only to pregnant
women with paid work history, this unequal funding could be seen
to violate the principle of equality of the value of pregnancy
to society. If maternity benefits are based on previous income,
this larger benefit for the rich than the poor may be seen to violate
the principle of equal value of pregnancy to a society.
When governments preferentially fund 3rd party care of
the young, or handicapped or frail elderly without matching
funding for family based care, this preferential funding could
also be seen to violate the principle of the equal value of care
of those people in society)
10 . Taxes should not lead to behavior. A tax should be based on what
people are already doing by choice and the cart should not lead
the horse so people make decisions mostly to avoid tax or the
tax is said to distort the market.
(Governments that preferentially fund care by 3rd parties
over care by family members, often claim to do so to enable
people to do paid work instead of being caregivers in the
home. This tax policy that claims to enable could also be
seen as pressuring women to do paid work instead of caregiving
and therefore as a violation of the principle of tax policy
directing behavior. When polls show that people want choices
and that some do want to be caregivers but cannot afford to
be, this could be read as evidence of a violation of the tax ]
principle and of government favoring and pressuring certain
lifestyle decisions)
11. People with the same financial situation should pay the same amount
of tax. This principle of horizontal equity says that equals should
be treated equally.
(If 3 households each earning $60,000 and each have two adults
and two children, the principle implies they have the same ability
to pay tax and should each pay the same tax. However when goveRnments
do not permit household based tax but only individual based tax,
household A that has earners of $30,000 and $30,000 pays one
rate of tax. Household B that has earners of $45,000 and $15,000
pays a higher rate of tax. And Household C that has one earner
at $60,000 and a caregiver who is not paid, pays the highest
rate of tax, sometimes over 40% higher than household A.
This tax plan then deprives the taxpayers of horizontal equity)
12. Taxes are sometimes reduced to encourage behavior deemed
of public and universal good such as university research
or charitable contributions.. Many governments reduce
taxes for business start ups or product development.
However if a business start up is not successful or a product
is not marketable such tax encouragements need adjustment
Governments sometimes make it easier for people to save
money for their own retirement by having lower income tax
and notice that if the raise income tax, people can save less.
Governments to encourage buying may reduce consumption
and sales tax.
Governments may encourage contribution to political parties
by allowing deductions for them.
In the same way, governments could encourage births
by a birth bonus, family allowance, household based
tax and pensions for caregivers. When governments do
not set in place such benefits for those raising children
they therefore could be seen to be discouraging births.
13. Taxes are sometimes adjusted to meet the principle of fairness.
Government may give money back to the poor who had
to pay sales tax. It may remove tax on children’s clothing
or essential food items. It may imposed extra tax
on some nonessential items as a luxury tax.
(Since tax systems do intentionally show biases
the issue then is not if the system does but whether
it does so fairly, for societal benefit. When the state
preferentially funds 3rd party care of the young or
frail elderly rather than funding care by a family member
this could be seen as a bias chosen by legislators and is
subject to the same criticism of whether it is a fair bias)
14. Taxes should be high enough to give government leeway to
handle emergencies such as flood relief or vaccine distribution
during a pandemic. Many governments intentionally tax so
that their revenue is a little higher than needed for such contingencies.
In that way governments try to ensure economic stability and that
they still can provide the necessary services people depend on.
(when legislators plan tax rates however the desire to ‘balance
the budget’ is weighed against this principle . When governments
think long term and plan not year by year but long term, they
may incur short term deficits comfortably with some costs of a given
year seen as unusual but recovered from over time. However when governments
consistently collect too little money to cover their commitments or too
much money more than they spend, the public becomes concerned.
(A tax bill of billions of dollars commitment to fund a 3rd party childcare
system is sometimes argued to eventually pay for itself with more earners
and taxpayer adults and with more childcare workers. The concept of
investment spending $2 now for the child with $7 payoff later is sometimes
given as a reason to fund 3rd party care this way. However what is less often
pointed out is that children well raised anywhere also provide the benefit
of lower costs of health care and criminal justice . What is also not often
pointed out is that increasing taxes and pressuring people to use 3rd party
care of the young may reduce the birth rate as it has done in many jurisdictions
and the cost to the economy of fewer taxpayers in a generation is a significant
15. Taxes are sometimes adjusted to keep in mind the tendency of costs of living
to go up, cost of materials and products to go up, salary demands of
workers to go up, and then costs to go up even more to cover those
salary demands. Governments often increase taxes easily on income
or sales tax or valued added tax but find it harder to increase taxes
on property.
(What might be noticed is that the assumption of continuous growth
in the economy, in the cost of living, food, housing, cars,
can easily spiral into inflation however. That value system is not
the same in nations where workers only aspire to earning just enough
to have the standard of living they want and where they cannot be enticed
to do a long work week because they also value time with the family
and they value rest and recreation. Governments that aim only at increasing
productivity could be seen to put people at risk of burnout, mental exhaustion,
anxiety and medical health problems. Such effect could lead to low job
productivity, absenteeism, and many claims for disability leave.)
16. People will tend to try to avoid tax and if taxes vary widely depending
on behavior, national economies may be affected. If people move
to live in a region with lower housing costs and property tax,
or to set up business in a place with lower business tax, this
may affect number of taxpayers in a region. It is common for
governments recognizing this, to offer low business tax rates
to entice businesses to come to the area. However to balance the
books governments then ask for higher personal income tax rates,
showing a government bias for business over personal life. The
rationale usually given that businesses create jobs that then support
families may neglect the fact that people have more motivations
than just the paid job, that the environment has a value that is not just monetary
and that natural resources from the land are already attractive to
investors and business and do not have to be just given away.
Quality of life is being noted by some economists as a factor
often overlooked in earlier economic systems and the ability
to provide care of those we love is part of that quality of life)
17. That people in like circumstance should be taxed equally.
The Aristotelian definition of equality is:
Things that are alike should be treated alike while things that
are unalike should be treated unalike in proportion to their
unalikeness ( equal treatment of equals)
18. The accommodation of those with special circumstance beyond their control is respected in the tax system.
Extra costs to raise a handicapped child to purchase a wheelchair or for special diet are recognized. Costs of a wheelchair ramp to enter a building give the person assistance to gain access to the same benefit others already have. Such accommodation is unfairly applied when it is given for arbitrary choices not ones beyond control, such as favoritism for those who dye their hair blonde but not for those who dye their hair red. Accommodation becomes unfair preferential treatment when equally positioned individuals are given extra funding for some arbitrary behaviors they have chosen.
Accommodation of special circumstance is often claimed when the dual
earner household is favored with special tax breaks, on the assumption that
two earners require two cars, two business wardrobes, two purchased lunches
while the household with a parent at home has no such expenses. However
the recognition that it takes money to earn money, though often true, ignores
also that it also takes money to be home tending a child. It ignores the income loss of having a parent at home and ignores the costs of tending children at home in outlay of money for their food, toys and travel. The preferential
lower tax on the dual earner household that pays a 3rd party to tend the child
compared to the household using parental care is therefore unequal treatment
of equals and not just accommodation but favoritism.
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Equality and Caregiving 