Do you hate paying taxes?

I am visiting the Philippines this week to meet with the team building the Micah Challenge campaign. With over 26% of Filipinos living in extreme poverty while a minority have extreme wealth, and up to 11 million Filipinos working overseas to provide for their families, there is clear need for advocacy on poverty...

The time may be right. There is optimism here with a new President whose election slogan was  “No corruption. No poverty”.  Citizens want to see if NoyNoy Aquino’s words become concerted action that can turn the nation around. 

One area to tackle is taxes. The Economist (July 7, 2011) reports that ‘good’ taxes could be a solution to many issues in the Philippines. The government’s revenues last year amounted to just 13.4% of GDP, much lower than its neighbours in the region. The Asian Development Bank estimates that the Philippines collected less than a fifth of the value-added taxes (VAT) it was owed, meaning there was much less money to spend on basic services like health and education which last year accounted for only 0.9% of government spending. 

Increasing tax revenue through closing loopholes, simplifying the system and chasing evaders will help. The Economist article says that since the President came to office just over a year ago, Inland Revenue has pursued 51 cases of tax evasion, one a week. Citizens are invited to report on tax cheats and officials guilty of graft, extracting bribes or an excessive lifestyle, so that everyone can be seen to be paying their fair share. 

The government hopes to increase revenue to 16-17% of GDP over the next four years and in the last 11 months, tax revenue has gone up an impressive 18%, so early signs are good. 

The link between taxes, corruption and poverty was made clear by Hillary Clinton in a speech to the OECD in May. She said OECD nations needed to “partner with developing countries on reforms in three interconnected areas – taxes, transparency, and corruption – because focusing on these three will give us the tools needed to enable more countries to fund more of their own development.” 

Paying taxes (or not) is also a hot topic in Greece. Last year as the Greek financial crisis was gaining attention, the NY times (May 1, 2010) illustrated that country’s widespread tax evasion with a story about swimming pools. In the wealthy, northern suburbs of Athens just 324 residents admitted on their tax returns that they owned swimming pools. When tax investigators studied satellite photos of the area they counted 16,974 pools! 

Tax evasion is a way of life in Greece – “Everybody does it” is the classic excuse - and it must have contributed to the current crisis. It is estimated that the government loses US$30 billion a year to tax evasion, a figure that would have gone a long way to solving its debt problems, while The Federation of Greek Industries estimates that up to 30% of the Greek GDP goes missing in the black economy. The government has committed to recapturing 1.6 billion of missing funds this year. 

Surely the right word for such behaviour is “corruption”. Until Greeks stop chuckling about creative ways to avoid tax and decide that everyone is responsible for solving the debt crisis, bribes, cash payments on the side and non-declaration of income will continue to cripple the economy and threaten public services. 

Another nation in deep debt is the USA. The Republicans, with a Congress majority are insisting on at least US$2 trillion in spending cuts over the next 10 years but want no tax increases. Many on the right of the political spectrum in the States believe that lower taxes (and less government regulation) for the wealthy will encourage entrepreneurs and businessmen to invest in enterprises that will provide jobs, thus creating more wealth for everyone. Called supply-side economics or Reaganomics, these ideas are at the heart of the raging dispute over the budget that currently engulfs Congress and the President. 

But figures from the American tax office, the IRS, reported in the press last month tend to show that while the rich have been getting richer, they have not contributed more to the wealth of all. In 2008, when the recession was biting hardest, the top 400 income earners each made an average $US270.5 million - 20 times what the top earners made in 1955 (which was $US13.3 million, in 2008 dollars).

At the same time, unemployment grew, the earnings of middle income Americans went down and the economy shrank: clearly wealth at the top was not trickling down to all. 

In 1955, the top 400 paid 51.2 per cent of their total earnings in federal income tax. In 2008, they paid just 18.1 per cent, mainly because the wealthiest earn most of their income from capital gains on investments which are only taxed at modest levels. They control about 40 per cent of America's wealth, compared with 33 per cent a generation ago. In addition, US businesses (after deductions) pay just 11.1 per cent of their profits in tax today compared with 47.4 per cent in the 1960s (reported in the SMH, June 18, 2011). 

Yet in the last months, conservatives have insisted that the rich deserve greater tax cuts and because of the deadlock between Republican controlled Congress and the President over passage of the Budget, it seems that spending will be slashed and taxes on the very wealthy will be cut. 

Jim Wallis in the July edition of Sojourners is stinging in his summary of the conflict over US debt, tax and spending levels, “It is a conflict between those who believe in the common good and those who believe individual good is the only good. While a biblical worldview informs Christians that they should be wary of the rich and defend the poor, a competing ideology says that wealth is equivalent to righteousness and God’s blessing.” 

Perhaps we need to rethink our resentment of taxes and see them as a way of making society function effectively. After all, Jesus told his critics to pay their taxes even though the money was going to an occupying power – Render unto Caesar the things that are Caesar’s and to God the things that are God’s – by honouring our obligations to the State (Caesar), we are also honouring God. And if we wash our hands of responsibility when the system is failing, rather than putting our efforts into changing it, we are perpetuating injustice. 

Judge Oliver Wendell Holmes is reputed to have told a young assistant, when asked if he hated paying taxes, “No, I like paying taxes; with them I buy civilization.” And President Roosevelt said something similar about why we need an effective and fair tax system: “Taxes, after all, are dues that we pay for the privileges of membership in an organized society.” The Philippines, Greece and the United States are examples of what can happen when people forget that taxes bring the privileges of a civilised society.

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