Please read the article and take a note of any new vocabulary:
In 1789 Benjamin Franklin, one of the Founding Fathers of the USA, wrote in a letter to a colleague that, “In this world nothing can be said to be certain, except death and taxes.” In these modern times of world economic crisis tax has once again become a hotly debated topic for government, business and workers all over the world. There are many different taxes and many different theories of taxation and how to implement them. Governments need revenue to pay for things like Defense and Health Care and tax is the principal source of this revenue. Let’s have a look at some of them.
Taxes
There are several taxes which directly affect us and the most important of these is the tax on what we earn sometimes known as Income Tax. Usually there is an amount of our salary that we can earn which is not subject to taxation this is sometimes called the Personal Allowance. Everything that we earn over that amount is taxed at a certain tax rate. The government sets the level of Personal Allowance and the tax rate as part of its Fiscal Policy and either the companies that we work for deduct the tax and give it to the government or we arrange to pay the tax ourselves.
Businesses pay taxes too. Corporation Tax and Capital Gains Tax are probably the biggest that they pay. Many big corporations try to negotiate with governments to pay less tax with the threat of withdrawing from the country and moving to another the principal form of leverage that they use.
Tax Systems
Conservatives cite the economist Arthur Laffer who drew a diagram showing how high taxation reduces economic activity and increases tax avoidance. This diagram is called the “Laffer Curve” and this system of taxation has been adopted by conservative governments all over the world. Left-wing economists argue that it is morally right to subject the rich to high taxes especially now in these times of crisis and austerity. There is a fierce debate in the European Union over which system should be employed in its member countries. Some countries have accused Greece and Italy of setting Personal Allowances too high and having systems that encourage tax avoidance. Meanwhile northern countries, like Germany and the UK, are accused of letting high earners pay too little tax. Whatever the rights and wrongs of taxation, the debate is sure to continue.
Discussion
- Do you agree with the socialist economists who say that the rich have a moral obligation to pay a high rate of tax?
- What are the Income Tax and Personal Allowance rates in your country?
- Are you happy with your country’s Fiscal Policy?
- Is tax avoidance common in your country?
- Do you think that your government spends its tax revenue wisely?