2
Part 1: Taxation as public income
1. Introduction
This article is intended as a contribution to a discussion on taxation in a Proutist economy. Sarkarhas written little on the subject and what there is, is better understood by reference to the existingliterature. As can readily be imagined, the literature is vast and detailed, having evolved overmany centuries. This article attempts to distil relevant principles guided partly by Sarkar'scomments and partly by common sense. The final conclusions are not concrete policysuggestions because too much depends on the time, place and circumstance in which a tax islevied. There is much to learn about taxation and the author hopes that this article offers Proutistsa helpful introduction. The author also believes that the mode of argumentation required todiscuss taxation policy can usefully be carried over to other areas of debate about Proutisteconomic policy.Taxation policy must address simple questions such as "
what to tax?
" and "
how much to tax?
".Therefore such questions partly structure this discussion. Obviously the total of taxation collectedwill depend greatly on the government's role in the economy. Hence this issue is discussed in PartOne. Part Two constitutes the bulk of the article and surveys a range of taxes that could beapplied in a Prout economy - in other words "
what to tax?
". Part Three describes importantconcepts that help to answer the question “
how much to tax?
” and concludes with a broadlydefined taxation policy that Proutists could discuss.
2. The big picture
Taxation represents a government claim on a portion of the wealth produced by a community. Itis useful to know what size that portion is. For convenience we assume that there are threeclaimants on GDP (Gross Domestic Product - the total of goods and services produced within acountry in one year), households, government and the business sector. Typically, around 60% of GDP is consumed by households, 20% is invested in the private business sector and 20% isclaimed by government for the provision of public goods and services. In fact three-quarters of private sector investment (15% of GDP) is required for depreciation, that is to maintain existingstocks, buildings and machinery at their current level of productivity. The remaining 5% of GDPis growth investment – used to expand future production.Typically, governments as diverse as those of New Zealand, Poland, UK and Canada haveexpenditure programs that amount to about 40% of GDP. For some countries it is over 50% of GDP. However half the expenditure is
transfer payments
(to be explained below) whichredistribute income and is not counted as a direct claim upon GDP. These average figures weregleaned from tables and charts in Miles and Scott [2002]. The 20% direct claim on GDP bygovernments is remarkably consistent both between countries and over time. When politicianstalk about small government it is often the income redistribution component that gets reduced.The proportions of GDP shown in the pie-chart below are typical for a developed economy. In
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