Taxation and justice - again

Prompted by yesterday's discussion with a fellow blogger on the donation tax, I settled on revisiting the topic of justice in taxation, once brought up here... This time the aspect of effectiveness will not be touched upon, but instead I will try to focus on justice.

From my short research done while cycling around I conclude there are four main bases of taxation.

1. The mere being or existence, as in the case of poll tax. The concept can be traced back to middle ages and assumes that everyone should pay the same amount of tax, regardless of their income and wealth. Today this form of taxation is generally deemed to be unfair, as people's and entities' ability to bear the burden of taxation varies, depending on their income or wealth, and is hardly ever used by local or state governments to raise revenues.

2. Consumption, with the most popular VAT. I have to say I would struggle to provide you with a rationale of this form of taxation, but it surely can be categorised as an effective way of collecting money, as value added tax, or sales tax is hard to avoid. When it comes to justice, here it is quite possible to adjust the tax rate to taxpayers' ability to pay taxes to their capacity to bear tax burdens. Basic goods, such as bread, diary products, medicines, utility services can be taxed at lower rate, while cars, petrol, foreign trips and other luxurious goods can be taxed at the higher rate, as their consumers can afford to spend more on them. The state can tamper with VAT rates to affect the structure of consumption, e.g. merit goods may have a low tax rate levied, while demerit goods will have not only higher VAT rate, but also another tax, especially for sinners, imposed. The tool is effective and no wonder Polish government, when at a pinch, decided to raise VAT rather than income taxes.

3. Wealth. I don't even know if there is a Polish equivalent of 'wealth tax', as this tax does not function in Poland at all. This form gives much room for tax avoidance, as the wealthiest people would move their assets to tax havens. The concept behind this is that the well-off should somehow share their wealth with the poorer. I am generally against it, as people should be taxed as they are coming into wealth, not as they are already wealthy. A proper property tax is not used in Poland. I would be glad to see it levied, as it would bring prices on property market into balance. Prices would surely fall and better reflect real values or properties.

4. Income. The broadest issue, so I'll take the liberty of omitting corporate taxes and focus on four forms of personal taxes.

A) Personal income tax. It is generally accepted that flat and progressive taxes are said to be most fair. Tax rates and brackets are supplemented with tax deductibes items and tax allowances. My own take on the best personal tax system has been laid out in the post linked at the beginning and has not changed since then.

B) Capital gains tax. Is a standard in all civilised countries. There have been proposals to scrap it in Poland, as when it had been introduced in 2001 it had been meant to be a temporary measure to bring people on spending in economic slowdown, then in stayed on. My sense of justice incites me to a strong disapproval when I hear proposals to lift it; for two reasons. Firstly, I live in an area when lots of ex-farmers sold their plots of land for millions of zlotys in 1990s and 2000s and now they don't have to go to work every day and toil away nine hours a day as I do, but they sit on their arses and live off interest of the money their got from selling the land. If my work was taxed and their income not, that would be despicable. Secondly, I am a stock market speculator. With a bit of knowledge and luck it might be a great way to earn (or lose) quickly a lot of money without much effort. I would be a slap on the faces of all hard-working people, if I and the likes of me didn't have to pay tax on our 'murky dealings'. The main argument agianst capital gains tax is that it creates a 'double taxation', which is wrong, because you once earn some money and you pay income tax, then you invest that money and pay tax only on the interest or gains you earn.

C) Inheritance tax. The government of Law and Justice lifted this form of tax for the closest relatives of the deceased. From my point of view, this wasn't a fairly good decision. An inheritance is a windfall, your wealth increases, although you usually haven't put any effort into working for it. Therefore I think this tax should be levied even on the closest relatives, but they should pay a lower rate than people who have been bequeathed something by a person from outside their family.

D) Donation tax. If you are given some money, property or anything that has a significant value for free, this is also a windfall. As in the case of inheritance tax, this is also a form of coming into some wealth without making an effort. In Poland closest relatives are also exempted from donation tax payments. It is not fair actually, often children get money, flats or cars from their parents, but they haven't contributed to creation of such wealth. This means children form well-off families are better-off in comparison to those who have to accumulate their wealth on their own. Thank God donations from third parties are taxed, but taxation rates are in Poland lower or similar to the ones on income taxes. In my opinion they should be higher, as those who put effort into coming into wealth, should be tax at lower rates than ones who simply get the money.

Voices of disagreement are strongly encouraged! Nothing does as good as exchange of opinions!