Why Paying Taxes is Not Reasonable : The Ultimate Robbery of Your Hard-Earned Money

As someone who has lived in three different countries, I have noticed vast differences in tax rates and the social benefits that are provided.

Facts and Figures:

• Germany has one of the highest income tax rates in the world, progressive income tax rate from 14 to 47.5%
• In addition to income tax, Germans also pay value-added tax (VAT) on goods and services, which can range from 7% to 19%.
• German citizens who are members of a church also pay church tax (8–10 percent of an individual income) that goes towards supporting the church.
• In contrast, Malaysia has a progressive income tax rate from 0 to 30%, while Singapore has a progressive income tax rate from 0 to 22%.
• Both Malaysia and Singapore have lower VAT rates, with Malaysia’s VAT rate at 6% and Singapore’s at 7%.

Despite the high tax rates in Germany, the country offers a comprehensive social welfare system that provides healthcare, education, and other benefits to its citizens. However, is it necessary and effective to have such high taxes to fund social benefits? Malaysia has a low tax rate but still provides almost free healthcare and free education. In this blog post, I will compare my experiences living in these countries and explore whether high taxes and social benefits are truly beneficial to society.

History of Taxation

Taxation is the system where governments require citizens to pay a portion of their income to fund public services. Taxes have been around for thousands of years, and the history of taxation is a complex one.

Governments impose taxes to raise money to fund public services such as infrastructure, healthcare, and education. The first recorded taxation system was in Ancient Egypt around 3000 BCE. The Pharaohs would collect taxes in the form of crops, livestock, and other resources from their citizens.

Throughout history, taxes have been a source of conflict between governments and their citizens. In 1765, the British government passed the Stamp Act, which required American colonists to pay taxes on paper goods such as legal documents and newspapers. This led to the famous slogan, “No taxation without representation,” as the colonists did not believe they should be taxed without having a say in the government that imposed the tax. This eventually led to the American Revolution and the formation of the United States of America.

Another example of tax resistance occurred during the French Revolution in 1789. The French government imposed heavy taxes on the peasantry, which led to widespread protests and riots. The people saw the tax system as unjust and demanded change, eventually leading to the overthrow of the monarchy and the establishment of the French Republic.

In more recent history, the Vietnam War in the 1960s and 1970s saw widespread protests against the US government’s taxation system. Many Americans felt that their tax dollars were funding a war they did not support, and the anti-war movement gained momentum as a result.

Taxation is a form of government coercion

Taxation system is often criticized for being a form of government coercion.

This is because taxes are not a voluntary transaction. If someone refuses to pay taxes, the government can enforce penalties such as fines, legal action, or even imprisonment. The government forces individuals to give up a portion of their hard-earned money to fund public services, even if they may not agree with the way the government spends the tax revenue.

While taxes are essential for running a government and providing public services, the system’s enforcement through coercion raises questions about individual freedom and liberty. Some argue that individuals should have the right to choose whether or not they want to pay for certain public services, rather than being forced to contribute through taxation.

Taxation does not guarantee fair distribution of resources

Taxation does not guarantee fair distribution of resources, as the following examples illustrate:

1. Misappropriation of Tax Revenues in Nigeria:

• In 2013, the Nigerian government was accused of misappropriating over $20 billion of oil revenues generated from taxes and other sources.
• The funds were allegedly siphoned by government officials for personal gain and political purposes, leaving the country with inadequate infrastructure and social services.
• Despite paying taxes, Nigerian citizens have continued to experience poverty, unemployment, and inadequate access to healthcare and education.

2. Unequal Access to Healthcare in the United States:

• Despite paying taxes, many Americans still struggle to access quality healthcare services due to the high cost of medical care.
• According to a report by the Commonwealth Fund, the United States spends more on healthcare than any other high-income country, yet has the worst health outcomes and highest rates of uninsured individuals.
• This disparity is attributed to the inefficiency of the US healthcare system and the government’s failure to guarantee universal access to healthcare.

3. Corruption in Tax Collection in India:

• The Indian government has been criticized for the corruption and mismanagement that characterizes its tax collection system.
• In 2017, India ranked 81st out of 180 countries in the Transparency International Corruption Perceptions Index, indicating a high level of corruption in the public sector.
• Corruption in the tax collection system has led to a loss of tax revenue, which could have been used to fund social services such as healthcare and education.

4. Poor Quality Education in South Africa:

• Despite the introduction of free primary education in South Africa in 1994, many children still lack access to quality education.
• According to a report by the Human Sciences Research Council, nearly 80% of South African schools lack basic infrastructure such as libraries, laboratories, and computers.
• The government’s failure to address these issues has been attributed to corruption and mismanagement of tax revenues, leaving many children without access to quality education.

Taxation suppresses individual liberty

Taxation suppresses individual liberty by taking away the individual’s right to control their own resources. The following examples illustrate how taxation can limit individual freedom:

1. Forced Purchase of Healthcare in the United States:

• In 2010, the Affordable Care Act (ACA) was passed in the United States, which mandated that all individuals purchase health insurance or pay a penalty.
• This mandate was challenged in the Supreme Court, with opponents arguing that it violated individual liberty by forcing individuals to purchase a product they may not want or need.
• While the Supreme Court upheld the constitutionality of the ACA in 2012, the debate over the government’s role in mandating healthcare continues to this day.

2. Mandatory Public Education in the United States:

• In the United States, all children are required to attend public school until a certain age, regardless of whether they or their parents believe it is the best choice for their education.
• This requirement limits the individual’s freedom to choose the type of education they receive and how they want to spend their time and resources.

3. High Tax Rates in Sweden:

• Sweden is known for its high tax rates, with some individuals and businesses paying up to 57% of their income in taxes.
• While the tax revenue is used to fund social services such as healthcare and education, some argue that the high tax rates limit individual freedom by taking away their right to control their own resources.

4. Property Taxation in the United States:

• In the United States, property taxes are levied on real estate owners based on the assessed value of their property.
• This can limit individual freedom by forcing property owners to pay taxes on property that they may not want or be able to afford, leading to the potential loss of their property.

Taxation creates a complex system

Taxation creates a complex system, which can lead to unintended consequences, as the following examples illustrate:

1. The Paradise Papers:

• In 2017, the Paradise Papers leak revealed how wealthy individuals and corporations use tax havens to evade taxes and hide their wealth.
• The leaked documents showed how offshore accounts and shell companies are used to avoid taxes, and how professionals such as lawyers and accountants facilitate these activities.

2. The Panama Papers:

• In 2016, the Panama Papers leak exposed the widespread use of offshore accounts and shell companies by wealthy individuals and corporations to evade taxes and hide their wealth.
• The leaked documents revealed the role of professionals such as lawyers and accountants in setting up these structures and avoiding taxes.

3. Tax Evasion by Apple:

• In 2016, the European Union ruled that Apple owed Ireland $14.5 billion in back taxes.
• The ruling was based on the finding that Ireland had given Apple a tax break that amounted to illegal state aid, allowing the company to avoid paying taxes.
• https://www.nytimes.com/2016/08/31/technology/apple-tax-eu-ireland.html

4. Tax Evasion by Amazon:

• In 2019, it was reported that Amazon paid zero federal income tax on $11 billion in profits in 2018.
• This was due to the use of tax credits and deductions, which are only available to large corporations.
• https://www.washingtonpost.com/us-policy/2019/02/16/amazon-paid-no-federal-taxes-billion-profits-last-year/

I don’t intend to promote hate speech towards high-earning individuals and profitable companies, but it’s worth considering that in certain Western European countries, individuals with limited knowledge of taxation are paying almost half of their income in taxes, while these companies are avoiding taxes by exploiting loopholes due to the complexity of the tax system. Do you think this is fair?

Taxation penalizes success and productivity

Higher earners paying more taxes can create a disincentive to work hard and earn more, leading to a less productive society that stifles innovation and creativity. The following points elaborate on this idea:

1. Reduced Incentives to Work Hard:

• When higher earners are taxed more heavily, they may feel that the extra effort and hard work they put in will not be worth the additional taxes they will have to pay.
• This can lead to a reduction in the amount of work people are willing to put in, lowering overall productivity in the economy.

2. Stifled Innovation and Creativity:

• Heavy taxation of higher earners can also result in a reduction of innovation and creativity, as these individuals may choose to play it safe and avoid taking risks that could lead to greater success and higher earnings.
• This can result in a less dynamic and less innovative economy, as entrepreneurs and innovators are discouraged from pursuing their ideas due to the perceived high tax burden.

3. Reduced Economic Growth:

• High taxation of higher earners can lead to a reduction in overall economic growth, as the most productive members of society are disincentivized from working hard and earning more.
• This can result in a less prosperous society overall, as economic growth is a key factor in the creation of jobs and the improvement of living standards.

4. Brain Drain:

• If higher earners are heavily taxed, they may choose to move to countries with more favorable tax regimes, taking their skills and talents with them.
• This can result in a brain drain, with the most talented individuals leaving the country, leading to a reduction in overall productivity and innovation.

Individual Income Tax vs Corporate Income Tax

Take Germany as an example, the personal income tax rates are progressive, with higher earners paying a higher percentage of their income in taxes. As of 2021, the tax rates are as follows:

• Income up to €9,408: 0%
• Income from €9,408 to €57,051: 14% to 42%
• Income from €57,051 to €270,500: 42%
• Income over €270,500: 45%

On the other hand, the corporate tax rate in Germany is a flat rate of 15%, which is relatively low compared to other countries in Europe. However, not all corporations are subject to the full corporate tax rate, as there are various deductions and exemptions that can be used to reduce the tax burden.

This creates a situation where high-earning individuals are subject to a higher tax rate than corporations, which can be seen as unfair. For example:

• A high-earning individual in Germany making €300,000 per year would pay a marginal tax rate of 45%, resulting in a tax bill of €114,525.
• A corporation making €300,000 in profits would pay a corporate tax rate of only 15%, resulting in a tax bill of €45,000.
• In this scenario, the high-earning individual would pay more than double the amount of taxes compared to the corporation.

Personal income tax and corporate income tax deductions are not inherently unfair, as they are often used to incentivize certain behaviors or provide relief for specific expenses. However, they can become unfair when they are used in ways that disproportionately benefit certain individuals or corporations, or when they are used to exploit loopholes in the tax system.

For example:

Personal Income Tax Deductions:

• Deductions for mortgage interest payments, charitable contributions, and other expenses are designed to incentivize certain behaviors and provide relief for expenses that benefit the taxpayer and society as a whole.
• However, these deductions can be exploited by high-earning individuals who can afford to make large charitable contributions or purchase expensive homes to take advantage of the tax breaks.
• This creates a situation where lower-earning individuals who cannot afford to make these types of deductions are subject to a higher tax burden, leading to an unfair tax system.

Corporate Income Tax Deductions:

• Deductions for research and development, employee salaries, and equipment purchases are designed to incentivize businesses to invest in innovation and growth.
• However, these deductions can be exploited by large corporations who use accounting tricks to shift profits to low-tax jurisdictions or claim deductions for expenses that do not directly contribute to growth or innovation.
• This creates a situation where small businesses and individuals who do not have access to these deductions are subject to a higher tax burden, leading to an unfair tax system.This creates a situation where high-earning individuals are subject to a higher tax rate than corporations, which can be seen as unfair. It is important for governments to address this issue by closing loopholes and ensuring that all individuals and corporations are subject to a fair and equitable tax system.

Final thoughts

While it’s unfortunate that we have to pay taxes in this modern and civilized world, it’s smart to plan ahead and avoid those huge losses that come with not doing so. You don’t want to end up like Uncle Scrooge, swimming in his money bin with barely a penny to spare!

So, my advice to you is to ask your trusty tax adviser for some helpful tips and tricks to navigate the confusing and complex world of taxation. And while I may not be a professional, my thoughts are just for reference and definitely not financial advice.

So let’s put on our thinking caps and start happy tax planning! Who knows, with a little bit of know-how, we might even be able to save up for that dream vacation or finally treat ourselves to that fancy coffee machine we’ve been eyeing. Here’s to a successful tax season, folks!

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Last but not least, I want to hear from you! Leave a comment below with your own tax tips and tricks, or just say hi and let me know what you thought of my ramblings. Let’s start a conversation (and maybe even make some new tax-paying friends along the way).