The Role of Taxation in a Functional Society
The amount of tax that its constituents pay, as well as the process of aggregation, are the main drivers of a functional society. Taxation has a fundamental relationship with the state and society, so having the best Advanced Pricing Agreement is essential for establishing good taxation practices. The economy's taxes and careful audits are what keep a functioning and civilized society going. Taxation, as King and Fullerton (2010) point out, is how the government keeps basic social programs running while also preserving economic growth and development. In order to achieve a functional, orderly and prosperous society, programs such as health, education and infrastructure as well as other amenities are important. This type of a society can only be achieved with appropriate taxation and compliance. Therefore, taxation plays a fundamental role in a functional society.
Importance of Taxation
Imposition of compulsory levies on entities and individuals is important and the government should be very stringent on it as an administrative function of tax. This is because in almost every country, it plays a significant role in enabling the government models the society. The most prevalent idea about taxation during the 19th century was financing the government. However, Brooks in the book Canadian Content points out that the government utilizes tax to achieve its objectives of resource allocation, redistribution of income as well as the stability of the economy (Norton & Waldman, 2011). A variety of taxes are therefore collected including wages and property income tax, indirect taxes on goods and contributions to tax funds. All these objectives of taxation are meant to establish a functional government.
Source of Revenue
Taxation raises revenue for the government to function well. Functions such as provision of public goods, for instance schools, cannot be achieved without taxation. For instance, low payment rates in world-class universities and other public schools is achieved through taxation-generated subsidized academics (Mankiw, Weinzierl & Yagan, 2009). Hospitals that run on collected taxes ensure that the society is able to have medication without consideration of class. Places like public parks and libraries maintain a balance in the society because those who cannot afford private ones are also able to experience social exposure.Consumption tax, value-added tax as well as individual income tax plays a big role in raising government revenue. In fact, in European countries, Mankiw et al. (2009) points out that most of the government revenue comes from these taxes. In developing countries, the revenue collected is very significant to ensure that members of the society can be able to depend on themselves with substantial assistance from the government. The federal sector in the United States is majorly funded by the government revenue as pointed out by Myles (2009).Our income is also spread equitably by taxation, which ensures that our well-being is maximized by transferring it from the high-income years into the time we are supporting our children and times we are not able to take care of ourselves (King & Fullerton, 2010). The revenue collected through taxation helps individuals in the society experience a better share of the income that is collectively generated. As pointed out by Mankiw et al. (2009), in 1990s the Russian government realized that a government would not be able to survive without raising revenue from taxation. Therefore it is quite important that effective taxation takes place to ensure that the society is functional.
Equity and Redistribution of Resources
Another function of taxation is to ensure equitable redistribution of resources, reducing unequal redistribution of income as well as wealth (Myles, 2009). Unequal redistribution would prevent the normal operation of an economy that is usually market-based (free economy). This can range from provision of a safety net to assistance that is temporary to events that are unforeseen. It can also serve the purpose of assisting those who experience low income as well as welfare systems for non-earners. For instance, in the United States, the society benefited a lot from equity and redistribution in order to recover from the effects of the war.After the civil war, the federal government was entirely funded by taxation. The post-war industrialization as well as urbanization shifted the agrarian society to one which was dominated by huge industrial corporations resulting in inequality as noted by Mankiw et al. (2009). This was measured by the distribution of wealth and income. Taxation reforms were therefore put in place to ensure that the resources in society were distributed equally. In a progressive system, citizens with more pay were taxed more to provide equitable public goods to the entire country. The same scenario was exhibited after the Second World War where equitable redistribution of resources as geared by taxation helped many locals in society.From a social perspective, private concentration of wealth to the minority would confer social and political power. In addition, the relationship of the rich and the poor in society would not be good. Therefore, taxation plays a big role in redistributing the wealth from the richest minority to everyone else as pointed out by King et al. (2010). This is done by ensuring that the rich are taxed highly and the poor are taxed according to their ability. This ensures that society is functional and every member is taken care of.
Sustainability and Growth
Taxation plays a vital role in ensuring that there is an effective macroeconomic framework along with the welfare system by ensuring that there is stability in the economy (Myles, 2009). In addition, behavior is sometimes influenced by taxation. This is done by imposing a particular amount of tax to induce good behavior such as high taxation on tobacco and other luxury goods. This helps to advertise for socially desirable performance. It can also be done in cases of market failure, for instance, an externality when it is efficient. This mostly benefits those who did not willingly choose to incur a particular cost.Taxation is also used to support broader growth as well as the objectives of competitiveness. Mankiw et al. (2009) points out that industrial policy can be supported as a result of targeting comparative backing of particular activities such as Research and Development (R&D). In addition, taxation can be framed in such a way that the system is efficient, a scheme which poses an advantage when it comes to comparison with other countries since all countries impose tax. An effective and efficient tax system is one of the principles of a good tax regime.
Conclusion
From the points presented above, it is clear that taxation plays a significant role in ensuring that society is functional to the best level. This is done by the collection of different types of taxes such as Value Added Tax, Income, excise and consumption tax amongst others. Norton & Waldman (2011) point out that although many fail to support taxation, they do it out of their own interest so that they can benefit from offering services as private sectors and markets (tax avoidance). For instance, they would prefer to sell medical care services to the public sector rather than members of society, thus benefiting from the public sector. Therefore, in addition to ensuring provision of services to the nation through using collected revenue, taxation brings a balance in society and ensures that it is not owned by the wealthy minority and that it functions well.
References
King, M. A., & Fullerton, D. (2010). The taxation of income from capital: a comparative study of the United States, the United Kingdom, Sweden and West Germany. University of Chicago Press.
Mankiw, N. G., Weinzierl, M., & Yagan, D. (2009). Optimal taxation in theory and practice. The Journal of Economic Perspectives, 23(4), 147-174.
Myles, G. D. (2009). Economic growth and the role of taxation-disaggregate data. OECD Economic Department Working Papers, (715), 0_1.
Norton, S., & Waldman, N. (2011). Canadian content. Cengage Learning.
