August 31, 2011

Where do our taxes go?

Economy

economy taxes - The Alessandro Benetton blog

When he was Italy’s Finance Minister, Tommaso Padoa Schioppa said that “taxes are great”. Of course, what he really meant was that with tax proceeds, we could finance useful works such as schools, roads and hospitals. At the opposite end, we have Winston Churchill who once said “there is no such thing as a good tax”.

Certainly taxes, which are to be paid whether they are good or bad, are a key element of coexistence in a democratic society and, in principle, an important means of rebalancing resources. Nevertheless, in Italy and elsewhere in the world, any attempt to “sing their praises” may meet with very little success. Why? While it is entirely rational to feel upset when a part of our earnings leaves our pockets, the knee-jerk reaction many have regarding taxes is worse than the reaction they have about other costs for the same amount. People behave differently when faced with a cost than when faced with a tax.

Does it have something to do with the name? More likely, it has to do with the transparency of its purpose.

The “tax” is perceived as an opaque expenditure, it is not clear how a particular tax is used to fund a particular service. More transparency would help taxpayers see taxes as something fair, especially in those segments of the population that have always been ideologically averse to high levels of taxation. Therefore, I hope that we can increasingly be aware of where our tax money goes. It might not be enough to make taxes “great”, but I think it would help reduce that unpleasant feeling of an expenditure whose benefits cannot be measured.

Read more on Meir Statman blog

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