Monday, March 28, 2011

Forced Taxation Vs Voluntary Contribution

Silly Question : Among all the people I know who earn well enough to be taxed, how many invest in tax-saving instruments ?

Answer: Nearly all. Even though we all know that doing so, we're essentially avoiding contributing to our respective country's expenditure on welfare. And the richer people are, the more complete I see the incidence of tax-saving.

Knee-jerk Reaction #1: People who earn money are evil traitors >> Stupid answer.
Knee-jerk Reaction #2: Poor people are evil parasites >> Stupider and insidiously more dangerous answer. (implicit approval of systematic genocide, anyone??)

Reasoning : At the present taxation system coupled with economic scenario, at least in countries like India, the average taxpayer ends up losing his/her future financial security if they pay the full taxes. (now don't quote SRK and Tendulkar to me - I'm talking about the AVERAGE taxpayer!). The yearly raising of slabs and provision of sops and subsidies isn't some favor being done by the governments - they have to do that to stave off popular revolt among the income earners.

There is obviously merit in investing in tax-saving instruments that will give you your hard-earned money back after a period of time, possibly with increments, so that when your child grows up, you can set apart the required capital to fund his/her higher education without dooming them to a debt trap, or for that financial emergency where you simply cannot trust your government for instant assistance. Basically, you have to look after yourself and your family first. If this was not so, then every single tax-free investment - be it mutual funds or insurances or anything - would today not have any reason to exist.

Those who say this is a good and logical balance, don't seem to be looking at the extreme end of the ladder. The richest amongst us are the best placed to really help the country, this important role even finds mention in the world's most ancient religious texts. Yet due to this system, they are typically the ones investing the most in tax-saving (esp since gains multiply as you increase the input capital).

Yes, we have our Bill Gates, Buffets and Premjis, but they are a fractional minority compared to the full quantity that has absolutely no plans to loosen their purses. After all, why should they? They became well off in spite of the system - they've had to fight the system for what they've earned, in many cases being forced to sell their souls just in the quest for their family's happiness. Don't expect them to suddenly turn turtle - you wouldn't. Long-term wisdom isn't as prevalent among the rich as we might be tempted to assume. If it was, we wouldn't see the crap going on around in the name of luxury and high-end lifestyle! :P Therefore, the present system, though seemingly in balance, is screwing us all, by endangering the security of the middle levels while having nothing worthwhile from the top levels.

Note : I'll exclude tax-free contributions from this analysis because in that you're just parting with money that is never coming back to you, for the benefit of your expanded group. There is nothing to be thankful about a donation to a legitimate cause being tax-free - that's like getting surprised at getting wet while having a bath. If such donations were taxed, THAT would be illegal and would amount to outright robbery committed by the state (and don't get me started on taxes on private transactions!) plus it would be willful damage to legitimate causes by giving negative incentive to potential helpers.

Revolver Response : FORCED contribution is bad. If you force someone to help someone else, she/he will do whatever it takes to avoid it. It holds true at any scale. Give a kid a chance to help another and he'll do it willingly. Force him to do it and what happens? It's sort of related to the modern discoveries on what really motivates people, see this Talk+Animation video by Dan Pink/RSA for insight. Not only that, by applying force, the person clams up and won't even contribute the little that he/she could easily have without risk to self. Now apply this trend to the entire earning population of a nation and what do you get?

Available Data : Several organizations across the globe, devoted to doing service to ordinary people (aka, what governments should be doing), are operating successfully and even setting milestones, running purely off voluntary no-strings-attached donations. In many cases they're leading the pack in their sectors.
Examples : Wikipedia, Democracy Now, Greenpeace, Mozilla

The example of Wikipedia (I'm actually referring to Wikimedia foundation that runs it alongside a host of other things) is a case in point. It is Humanity's largest ever resource of knowledge, available for free to everybody. It's got more welfare packed in it than any government measure till date, and is totally funded by voluntary contributions, at a barebones budget compared to its closest competitors thanks to a global army of volunteers constituting simple people like you and me. The constituents of Humanity do not pay any taxes to have its greatest Knowledge resource, yet random humans from across the globe sustain it. Those who can, help, of their own volition, without being forced to.

Inference : When you give someone the freedom to help you, they do. Everyone doesn't need to, but if the cause is worth it then nature will make it happen - benefiting the common good for the inevitable prosperity of your own children is a trait embedded in evolution, not needing any external influence. then how many people you know pay their full taxes, again?

Proposal : Open challenge to any Government in the world: Stop this stupid taxation system for a year and open a Paypal account / any avenue by which your citizen, or any netizen, can contribute of his/her own accord towards the development of your country / state / city. I'm not talking about a relief fund for use in emergencies - no surprises for that again - I'm talking actual, run-of-the-mill operations.

Stop the fear-mongering that you won't get anything - because judging by all the adverts and data we are seeing about tax-saving investments, YOU ARE NOT GETTING MUCH FROM DIRECT INCOME TAX ANYWAY, it's costing you 80% of your effort to run after this less than 20% of input, and you are en route to losing whatever you are getting, over the coming years.

Learn from the successes of the open model. Open your mind to the possibility of no-strings-attached funds flowing in like magic, and schools, hospitals, roads, shelters, infrastructures coming up at a scale that you couldn't even imagine before, and then more funds coming in to whatever department's doing the best work. Imagine a country where the anonymous rich voluntarily help the poor out of poverty rather than avoiding them like the plague. Let's see what happens!

Possible middle path : Fine, keep your bloody taxes, we're all going to cheat.. sorry, Invest! our way out of them anyways. But open that Paypal / donation account and mainstream it, trumpet the results and you'll start witnessing a natural flow of goodwill along with greater citizen participation and resultant transparency, of course (Ah, now we know why the babus will oppose this if at all... no scope for bribes in an open volutary model! But we have to chase corruption out anyways, so this can't be a valid excuse). And if you don't want to open up, be prepared to have non-profit NGOs literally replace you. The writing is on the wall.

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