Do you remember the bright-colored, shimmering costumes of the ABBA group? The band members recently revealed that the reason they chose this outfit was not only to rivet attention of the fans, but also to reduce their taxes. According to Swedish tax regulations, the costs of workwear were tax exempt.
Not all examples of how taxes affect – or, to be more accurate, cripple – our choices are as shiny as ABBA’s costumes. Yet, people make tax-related choices daily: to save or to consume, to buy housing or to save up for the kids’ education, to work or to live off allowances. If other factors do not count, a lower or higher tax may determine our choices as it is in our nature to seek the most effective solutions.
By distorting choices, taxes affect not only affect individual destinies but also the development of societies and even civilizations. “When we tax,” historian Mr. Charles Adams says, “we are dealing with fire, and without proper control and care, we can easily burn down everything we have built, and our hopes for a better world can go up in smoke.”
Are politicians aware of this danger? Unfortunately, when they discuss taxes, they focus on their very idea, ignoring the enforcement and the impact taxes exert on people’s choices. Lithuania has recently been urged to introduce a sales tax on chips, but its author wants to discuss neither what products would be taxed and at what rate, nor what the implications would be for the industry. The enforcement and consequences of the tax may turn out to be much more important than the original idea as they may actually run counter to the original purpose of the tax. Often as not “spiritual” and “meaningful” taxation ideas collapse when it comes to their realistic appraisal.
A full version of the commentary in Lithuanian: http://www.llri.lt/naujienos/ekonomine-politika/mokesciai-biudzetas/k-leontjeva-mokesciu-nulemti/kaetana-leontjeva