This is what an economy should be:
A community of people working to supply their own needs and wants that is organised by leaders and entrepreneurs into organisations and companies with tools and equipment to boost their productive capacity.
Monetary systems provide a means of payment to the workers that allow them to convert the result of their efforts into their personal requirements. The leadership will impose taxes and levies on the community to pay for its own expenses and provide community services where necessary.
This definition shows that people should work to earn their living. Money provides them with freedom of choice and allows the business sector and the government to work. If there was no money in the system, the Chiefs would ensure that all the people worked and contributed. There was and is no reason why some should work and others not.
What no one seems to appreciate is that the economy revolves around the spending power generated by the people in the community. This is a very simplified version of what happens, we recognise that there are many other factors concerning trade with other communities but trade should also be balanced.
Who pays tax and when?
Despite everything that tells us we pay income tax, we do not actually pay our taxes at that point. The employers pay their employees more so that they can pay the income tax. It would make no difference if income tax was changed to an employment tax and paid by the employer and the gross pay of the employee reduced accordingly.
The employer passes all of his costs, including the cost of all the income tax supposedly paid by the employees, on in the price of the goods and services that he produces. All business taxes are passed on to the community one way or another.
We all pay our taxes when we buy our goods and services.
Governments have to appreciate how the cost of employment can be reduced and spending power increased at the same time.
This seems a contradiction in terms, but it is in fact possible. The country has to compete in the market place and for capital investment.
The best way is to get rid of income tax, which includes company tax, and bring gross pay down to net pay. This produces huge savings in the operating costs of business and also produces huge savings in government expense. It will encourage new investment and help to create jobs.
Spending power
It is vital to maintain spending power in the economy. Poor people mean poor tax revenues.
There is an onus on businesses to pay their employees reasonable wages to maintain the market place. Without income tax and other overheads it is much easier. The Chinese economy would outstrip America if the employees were paid the same average wage.
Austerity measures reduce spending power and lead into recession. The more austerity, the deeper the recession will be.
Have a good look at the system of taxation. Taxes will basically either increase business costs and consequently prices, or decrease spending power or both. The result is the same – reduced spending power in the economy.
Governments need to know a lot more about how the economy actually works and then they might realise that free health and education is a must for pure economic reasons.
They need to know why the present tax systems make countries uncompetitive and why they need to change. – Peter Bailey is the author of, It’s All In The Price.
Post published in: News