Can the issue of the efficiency of a tax system correlate significantly with the issue of a socially just tax system?
How can a tax system that operates efficiently and generates high revenues for the state budget correlate with a situation in which it is described as socially just?
Among the important issues of the efficiency of the tax system's operation is the specific structure of the introduced various direct taxes, including mainly income and property taxes, and indirect taxes, including mainly VAT, excise taxes and tributes related to the import of certain products or services, customs duties and so on. In addition to this, the effectiveness of the tax system, which is determined by the level of tax revenues that feed the system of state public finances, i.e. revenues to the central state budget and revenues to the budgets of local government units, municipalities is the issue of the so-called tightness of the fiscal system, the effectiveness of the institution of the tax office and customs and fiscal control, the efficiency of the procedures for serving taxpayers' citizens by the institution of the tax office, the level of developed remote service to citizens via the Internet, the scale of digitization of the institutions of the tax system, etc. These issues determine the level of the emerging shadow economy, in which some citizens, entrepreneurs do not register their business activities in order to thus avoid the tax system, not to pay taxes. In many countries, receipts to the central state budget and to the local budgets of local government units account for most of the total financial receipts that feed the state's public finance system with money, which is then used by the government and local government authorities to provide citizens with public services and public goods. A larger scale of tax revenues means more money at the state's disposal and higher-quality provision of public services and/or more investment, which also produces durable economic goods within the framework of public goods. Accordingly, the Ministry of Finance should strive to improve procedures, legal norms, organizational systems, etc., so that the institutions of the tax system operate as efficiently as possible and so that as much tax money as possible enters the state's public finance system. However, this does not mean the need for frequent changes in the normatives of the law, frequent changes in the tax system, changes in the structure of taxes, changes in tax scales, their level determined for particular types of taxes imposed on certain types of economic entities. Citizens and entrepreneurs are unlikely to prefer frequently changing regulations of the tax system, tax law, tax accounting methods, etc. Frequent changes are burdensome for citizens and business entities. On the other hand, the technological advances taking place, the emerging new ICT and Industry 4.0/5.0 technologies are being implemented into information systems for remote data transfer and tax settlements carried out online. Such processes of digitization and Internetization of fiscal system institutions have been developing for many years. During the Covid-19 pandemic, the aforementioned digitization and internetization processes accelerated in some countries. At times, the digitization and Internetization of tax system institutions and information systems that enable remote transfer of tax data and online accounting also make it possible to increase the sealing of the tax system and reduce the level of the shadow economy. On the other hand, the increase in the scale of digitization and Internetization of the tax system, i.e. the increase in the scale of remote transfer of tax data and online tax settlement, also increases the risk of cyber-attacks on online tax settlement platforms. For several years now, cybercriminals have been constantly creating new cybercrime techniques, new types of viruses, including, for example, ransomware viruses spread in fake e-mails imitating the e-mail correspondence of tax authority institutions, new phishing techniques, etc. with the aim of stealing money or extorting ransom payments from a company successfully attacked by cybercriminals. In this regard, it is also necessary to increase spending on the permanent improvement of the information systems of tax system institutions. In terms of the generic structure of taxes, the tax scales applied, the level of tax assessments established against certain types of economic entities, it is the state's over-maximization of these issues that can lead to an increase in the shadow economy. According to the Philips curve, once a certain high level of established tax levels is exceeded, tax revenues, rather than increasing, will decrease due to an increase in the scale of the shadow economy. In such a situation, the tax system does not work efficiently. In addition, tax receipts feeding into the state's public finance system from year to year can change significantly regardless of the tax system itself, i.e. even when nothing is changed in this system. The reason for such changes in the level of tax revenues to the state budget is the issue of cyclicality of economic processes on a multi-year scale, the occurrence of business cycles, within which there can be significant differences in the rate of economic growth, the level of activity of economic processes, the economic activity of companies and enterprises, the level of entrepreneurship, and so on. On a multi-year scale, cyclical changes in the rate of economic growth are usually strongly correlated with changes in the level of entrepreneurship, production, offering of services, income, investment, spending, consumption, savings and also the situation in labor markets, i.e. the level of employment and unemployment. As some sectors of the economy are particularly cyclical, i.e. changes in the level of economic activity of companies and enterprises of a particular sector or branch of the economy are strongly correlated with changes in the rate of economic growth of the economy as a whole, so how the generic structure of taxes with which the aforementioned economic entities are burdened is designed is also important in determining cyclical changes in the level of tax revenues to the state's public finance system derived from changes in the rate of economic growth, changes in the level of Gross Domestic Product, multi-year business cycles. However, in the situation of taking into account all of the above-mentioned factors when designing certain new taxes and/or improving the tax system, i.e. in the situation of striving to create a financially efficient fiscal system, considerations also arise on the issue of social justice relating to the tax system. These considerations often include the search for possible correlations between the efficiency of the tax system and something that could be described as a socially just tax system. In my opinion, the question of the efficiency of the tax system can correlate to a significant degree with the question of a socially just tax system. However, this correlation need not always occur and not always in the same scale and dependence. The question of the scale and dependence of this correlation is determined by what is considered social justice in relation to the tax system, how a socially just tax system can be defined, and whether such social issues are taken into account at all when reconstructing the tax system.
In view of the above, I address the following question to the esteemed community of scientists and researchers:
How can a tax system that works efficiently and generates high revenues for the state budget correlate with a situation in which it is described as socially just?
Can the issue of an efficiently operating tax system correlate to a significant degree with the issue of a socially just tax system?
Can an efficiently operating tax system also be a socially just system?
I have researched and described specific economic and social aspects relating to the tax system in the following article on the plan to introduce a banking tax in Poland:
CONDITIONS FOR INTRODUCING A BANKING TAX IN POLAND
Article CONDITIONS FOR INTRODUCING A BANKING TAX IN POLAND
What do you think about this topic?
What is your opinion on this issue?
Please answer,
I invite everyone to join the discussion,
Thank you very much,
Best wishes,
Dariusz Prokopowicz
The above text is entirely my own work written by me on the basis of my research.
In writing this text, I did not use other sources or automatic text generation systems.
Copyright by Dariusz Prokopowicz
Superficially, efficiency and fairness are separate and distinct. A tax system could be very unfair, unjust and yet very efficient. On the other hand, it's hard to see that waste and inefficiency are in any way fair or just.
You've seen some of my prior responses regarding property taxation. Shifting the property tax off of privately-created building values and onto publicly-created land values would be both just and efficient. It's just because property owners would pay tax in proportion to the public benefits that they receive. It's efficient for several reasons. First, unlike income, land is impossible to hide. Second, land is somewhat easier to assess than buildings. Buildings can be idiosyncratic. (Are the bathroom fixtures made out of nickel or solid gold? One would have to go inside and check!) But land's location value is more generic and can be ascertained without resorting to intrusive inspections of private dwellings or commercial buildings.
So, transforming the traditional property tax into an infrastructure access fee (by reducing the rate applied to building values and increasing the rate applied to land values) would be both just and efficient.
For more info, see https://www.shareable.net/land-value-return-and-building-a-more-equitable-economy/ .
Efficiency and social justice are often seen as complementary goals but they can also be in tension with each other within a tax system. An efficiently operating tax system typically aims to collect revenue with minimal administrative costs and economic distortions. On the other hand, a socially just tax system aims to distribute the tax burden fairly, taking into account individuals' ability to pay and promoting equity in society.
In theory, it's possible to design a tax system that achieves both efficiency and social justice. For example, a system with broad-based taxes (such as income or consumption taxes) that are applied uniformly across the population can be efficient in terms of administration and compliance. At the same time, these taxes can be structured to be progressive, meaning that higher-income individuals pay a larger share of their income in taxes, thus promoting social justice.
An efficiently operating tax system can contribute to social justice, but whether it achieves this goal depends on several factors:
Too strict concentration on the tax system can lead to misleading conclusions. If the tax system is more efficient the added proceeds can be used for expenditures that enhance social justice (whatever definition you use) even if the tax system in and of itself is not designed for that purpose. If the goal is social justice (not necessarily the sole objective) the analysis should focus on the net impact of the tax system and the expenditures made using the increased revenues produced by a more efficient tax system.
An efficiently operating tax system can contribute to social justice, but whether it achieves social justice depends on various factors such as the structure of the tax system, the distribution of tax burdens, and how the revenue is utilized. A tax system that is efficient in terms of collection, administration, and compliance can provide the necessary revenue for public goods and services that benefit society as a whole, potentially contributing to social justice by addressing inequality and funding essential services like education, healthcare, and social welfare programs. However, for a tax system to be considered socially just, it must also be designed to distribute the tax burden fairly, taking into account individuals' ability to pay and promoting equity across different income levels and socioeconomic groups.
An efficiently operating tax system can contribute to social justice by ensuring that the burden of taxation is distributed fairly and supports essential public services. However, achieving social justice requires more than just efficiency; it also involves considering factors like equity, progressive taxation, and addressing inequalities. So while efficiency is important, it's not the sole determinant of a socially just tax system.
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