Taxation should facilitate and not constrain economic growth

facilities and all ancillary services leading to incarceration of those who commit that which the State deemed was reprehensible and had to be punishable for became sorely needed.

With the passage of time, infrastructure in the form of wide roads, for instance, became a must have as well to enable farming communities to get their excess produce to the market. The marketplaces had to offer reasonable amenities like ablution facilities and some form of policing to ensure public order was maintained at the markets.

Thieves normally find gatherings to be very lucrative operating environments for them, hence the need for some form of policing of the marketplaces and provision of a certain level of security to genuine traders and customers alike. Somebody had to provide those services. No one was willing to provide those services for free.

Besides, had there been any who would have exhibited sincere interest in providing those services for free, on whose authority would they be availing themselves of the power to enforce law and order?

Central governments were required to provide infrastructure, judicial services, a police force and an army to defend the territorial sovereignty of a community once boundaries between and among communities were created.

Central governments are the best authorised entities to provide public goods. No matter how developed a community can be, barbarians will still be found among its citizenry. Likewise, thieves of all shapes and sizes either practising or dormant will not be absent too.

Central governments provide crucial services like enforcement of law and order through the police which enable husbands of beautiful ladies to sleep soundly in the comforts of their opulent mansions without fear of barbarians pouncing on their women and thieves helping themselves to their property. The law and order enforcers have to be paid. The money has to come from somewhere.

Contemporary society presents many areas where misunderstandings could naturally occur. Public courts are required to settle disputes among citizens of a country. The judicial officers have to be paid also. Passable roads have to be constructed and not many individuals will be able and, even if able, happy to individually fund road construction projects when it will be impossible once constructed to exclude non-contributors from enjoying benefits from utilising the said road.

The inability of a private investor to exclude non-contributors from enjoying the benefits that derive from utilisation of public goods necessitates provision of public goods by central government. Central government, unfortunately, often has to rely on taxes to fund government expenditure.

This is largely because most governments elect to play a regulatory role exclusively as opposed to participating in industry and commerce. The jury will forever be out on whether that is the best strategy or not. One strong argument in favour of that stance is the undeniable and untenable reality that it could prove to be difficult to effect objective self-regulation in the face of cut-throat competition that will be threatening one’s viability if one could tip the scales in their favour through being heavy-handed in regulating competitors.

Taxes serve as a means through which legitimate governments not only acquire needed funds for expenditure on public goods and services but can also be utilised as an instrument by which governments can manipulate the publics’ spending habits to align them to the desires of the government.

For example, a government can stimulate economic growth by levying very low income taxes with the converse holding true for constraining economic growth. Low income taxes result in higher disposable incomes. If we hold everything else constant, higher disposable incomes either trigger higher consumption or higher savings or a higher prevalence of donations of any kind (which are a form of consumption anyway). If fewer and similarly low tax heads buttress the low income taxes, the resultant consumption or savings would collaborate to induce higher investments.