Tax Non-voting Citizens

Q: The question remained unanswered in the previous show: why does Government need higher and higher tax revenues?
A: Purpose of the Government is to spend as much as possible under any circumstance. The higher is the Government expenditure higher is the value and importance of the Govt. The number of problems afflicting the country is never going down. The Government must solve all these problems like new diseases, new religions, new types of marriages, movement of people across borders, promotion or saving of democracy elsewhere, aid to poor people globally, maintaining external diplomatic policy for alliances and international peace, maintain and grow establishments to regulate the behavior of human beings in so many different areas of their activities, promote education and health care, ensure adequate care for the babies, education for the children, health care for the poor, ensure adequate income for retired senior citizens, care for the mothers, care for the workers, care for the immigrants, care for the wild life, care for the drug addicts and smokers, care for the unemployed, care for the mentally and physically handicapped, care for the sports persons, care for the teachers, care for.. . Such a caring institutions like Govt. needs lots of money because care cannot come without cost. So Government requires increasing amounts of money.
Q: Why can't every one care for themselves?
A: First, many people do not have money to care for themselves. Like children or old people. Second, private care is costly to buy: Govt care comes almost free. Third, many people just do not care either for them or for others and so Government has to enter. Fourth, many people do not know how best to care: this is known only to Govt. because Govt. can buy the best knowledge wholesale at the cheapest cost and make available that knowledge virtually free to all. Finally, what happens when there is bad recession like the one we currently have? Govt. has to spend to raise demand and arrest recession and stop prices from falling to levels at which no producer or seller will be willing to produce and sell. And, when big banks are about to fall, Govt. has to save them by giving them money as otherwise many people will lose jobs and many persons savings with such banks may erode in value significantly. Govt. therefore needs money to bail out big firms and their employees.
Q: Where does the Govt. get all this increasing amount of money from? It just prints currencies?
A: Unfortunately printing currencies does not itself get Government purchasing power to finance its spending. If the Govt. prints double the amount of currency now available and starts using that currency, it results in higher demand for whatever govt. wants to purchase. Given the fixed supply of goods and services available at any point of time, higher demand results in higher prices. So Govt. may buy but some other individual and firm buyers have to be satisfied with lower quantity of purchases than before. Yes, through inflation other people's buying is reduced and Govt. spends with printed currency. Since Govt. is caring and does not like people to suffer from inflation in this manner, Govt. tries to spend by (a) raising tax revenues, (b) charging fees for giving its services and (c) taking loans from the people who save from their income.
Q: Does that mean that govt. takes a portion of the income of individuals and firms in some manner to spend?
A: Correct. Govt. taxes the income of individuals and firms means transferring income of individuals to Govt. by law. When individuals purchase something they pay a higher price than what the sellers keep for themselves because the seller gives a portion of the price paid by the purchaser to the Govt. as sales tax or value added tax. All these are straight transfer of income from individuals and firms to Govt. But such taxes and fees collected by the Govt. seldom proves adequate to meet govt.'s growing expenditure. So, govt must raise taxes, charge higher fees and just borrow from individuals and firms. Most Governments therefore run huge deficits that are covered by taking loans from individuals and firms.
Q: But how will a Govt. always in deficit repay the loans it takes and pay interest on such loans?
A: Simple. The Govt. takes more and more loans again and again. After all there will always be some rich persons who will have large savings and whatever poor people saves goes into banks and mutual funds which in turn gives loans to Govt.
Q: Then, people must get angry with the Govt. taking away their incomes through taxes and taking away their savings that are never effectively returned?
A: You are right, people get angry. So, govt is careful to see that there are more and more people who pay very little taxes and very little direct loans to Govt That is why taxes are high on rich people and low on poor people. In some countries poor people who do not pay income taxes or pay very little are the vast majority. And, that is what democracy is all about. Democracy is the rule of the majority and majority must be least taxed. Then the majority will vote for one govt. or the other.
Q: What happens to the minority of tax payers?
A: They protest for sometime and then try to reduce their income so that they have to pay less taxes. This helps sustain democracy with more and more people joining the ranks of low tax paying class. Those who are unwilling to reduce their income, try to evade taxes or just keep paying high taxes.
Q: But tax evasion is bad and criminal offence.
A: So, most people therefore reduce their work effort and income. Except the corporations. Bigger corporations try to increase their income. Their incomes should ultimately flow down to the shareholders but the Govt. is clever enough to tax away part of the income before they get distributed to shareholder of these companies. And, since there are millions of shareholders they do not really come to realize that the Govt. is taking away a part of their incomes that would come through the companies. Specially, the Government, the media and the intelligentsia keeps telling the people that it is the corporations who create most nuisances like pollution, job cuts, lower wages, higher prices, fat salaries and bonuses for executives to the detriment of the shareholders, flout accounting principles and prudential codes. So higher the taxes on corporations the better are the voters pleased.
Q; But heavily taxed corporations may ultimately get into trouble?
A: They do. But that maybe taken up in the next episode day next time.