Milton Friedman once described his greatest regret -- working on a detail of the income tax system. More specifically, during WWII he worked on the American income tax system and was part of a group that suggested that tax should be taken off salaries before they were paid out.
The logic in one manner is simple enough. If your salary is paid with tax paid, then you can't run away and not pay the tax. Also, the government gets the money earlier rather than having to wait for an annual tax return to be paid. So, perhaps a good idea.
On the other hand, if you do have to pay all the annual tax you owe in one payment, then perhaps this will concentrate the mind on just how much damn tax you're having to pay.
I've never actually checked this -- it's just one of those stories so nice that making sure it's true would spoil things -- but I've been told that the Hong Kong tax system used to insist upon the one annual payment of tax upon income. Payment in cash, at the tax office.
As I say, whether true or not is another matter -- but having to actually count out, in cash, how much you've got to pay is going to concentrate the mind, forcefully, on whether taxes need to be quite this high. In a manner that not even noticing how much tax is being paid, because it gets taken off your wages before you see them, doesn't.
So, those who would like a higher tax society will favour a tax system -- with this withholding -- that partially disguises how much each individual is paying. Or, perhaps, reduces the pain of having to make the payment. Those who desire a lower tax society will perhaps prefer that pain to be immediate and personal and so increase the pressure for less government.
As I say, Milton Friedman was -- at least one of those -- who worked on this system for the US. And later regretted it as he saw that it led the way for a more intrusive, larger government.
It's worth noting that he -- as I -- was not against tax in essence, per se. Rather, he thought it was a price that had to be paid. And like all prices, lower is better than higher.
For those of us who think that small government is a good thing in itself, per se, therefore a tax system that maximizes the pain of having to pay up is going to limit the growth in government. Of course, those who think lots of government is just great are going to argue the other way.
Which brings us to this piece of news: “The Office of the Controller General of Accounts (CGA) has issued a directive making it mandatory to deduct income tax at source from the monthly salaries of government officers and employees whose basic pay exceeds the specified threshold.”
Oh, no, exactly the wrong thing to be doing. These are the people who spend our tax money. We want them to feel the pain even more than we do so that they are economic in their disbursements. We really want them to feel the pain. This is the one group who should not have their income tax withheld at all. This is that one group -- at least -- who must be made to pay it, Taka by Taka, in cash, from their own wallet.
Well, yes, perhaps a dream rather than a likely reality. But wouldn't it be lovely to see those who spend the money having to sweat over paying, up front, personal and direct, their share of the burden they impose? Might it, even, lead to a lower burden for the rest of us?
