Tax Principles

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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