Good Taxes vs. Bad Taxes
by GST Secretary Dan McGuire
Countries and states choose to tax a variety of things and activities in many different ways.
New Hampshire is unique in New England by not taxing personal earned income and capital gains, and not taxing retail sales. While the best tax is always the one that someone else pays, is there perhaps some basis for picking the “ideal” tax scheme? How about the one that least interferes with the pursuit of happiness?
What is happiness in economic terms?
Charles Dickens explained it quite well when he had Mr. Micawber advise young David Copperfield:
Annual income twenty pounds, annual expenditure nineteen and six, result happiness.
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Happiness occurs when income exceeds expenses. I would add that continuing happiness results when people live better one year than they did the previous year, i.e. when real incomes are rising.
What causes rising income? Saving.
Savings become capital to start or expand business, increase productivity and inventions. If income is entirely consumed each year, there would be no new capital to make any more stuff next year.
As the ant wisely knew better than the grasshopper, the key to living well tomorrow is to save today.
Now we all know that when you tax something, you get less of it.
There are fewer smokers than there would be if cigarettes were un-taxed. Without a 9% rooms and meals tax, we would dine out more frequently. Houses are less grand than they would be without property taxes.
The best tax, the one that least interferes with happiness, is a tax on consumption, not saving.
So, the rooms & meals, tobacco, gas and communication taxes, on consumption, are all good.
The interest & dividends tax, as a direct tax on savings, is the worst!
Posted by GST Secretary Dan McGuire