“I’m like tax. You’re going to pay one way or the other.”
Taylor Branch, Author
Advantages & Disadvantages of Taxes
Taxes are involuntary charges that are imposed on taxpayers by governments or municipalities in order to fund government spending and to raise money for public infrastructure projects.
Although taxes have a variety of advantages, there are also some problems related to them.
In this blog post, the pros and cons of taxes are examined in detail.
Advantages of Taxes
- Money to fund public infrastructure projects
- Better public education
- Childcare facilities
- Improvements in public transport
- Better healthcare
- Technological progress can be accelerated
- Income tax usually increases with the income of a person
- Assurance of security
- Politicians have to be paid
- Court system has to be financed
- Money for military services
- We need firefighters
- Social duty to contribute one’s part
- Assurance of social security schemes
- Mitigation of the wealth gap between the poor and the rich
- Instrument to ensure the financial stability of a country
- Tax cuts in crisis times to foster the economy
- Governments can tax unhealthy products at a higher rate
Money to fund public infrastructure projects
One important advantage of taxes is that tax income can be used to fund a variety of important public infrastructure projects. For instance, among others, our roads have to be repaired on a regular basis.
If there were no mandatory taxes, the government would not have any money to finance those projects and the overall quality of our public infrastructure would be quite poor.
Better public education
The tax money a government collects from its people can also be used to improve the overall public education system. Many schools are still quite basic and lack basic things in order to teach school kids well. Thus, tax money can be spent in order to provide equipment that is necessary for kids to learn fast and efficiently.
This is especially important when it comes to learning with digital media, since digitalization will be one of the main challenges in this century and we have to prepare our children for that in order to assure good job opportunities for them.
Tax money is also often used to support childcare facilities. Especially in families where both parents work in demanding jobs, it is crucial that they can bring their kid to childcare so that they are available to work long hours in a concentrated manner.
Without childcare facilities that are supported by tax money, parents would have to pay for private childcare, which can be quite expensive and would only be affordable for the upper class.
Therefore, through the collection of tax money, we can provide childcare also for low and middle-class families at a relatively affordable price.
Improvements in public transport
Another upside of taxes is that they can be used for improvements in public transportation. Although in some big cities, public transport is already quite good and reliable, there are many cities and regions which have a quite bad public transportation system and people are not able to rely on it to go to work or for other important things.
Hence, it is crucial to improve our overall public transport systems, especially since we have to reduce the global warming problem somehow and public transport can reduce greenhouse gas emissions to a certain extent.
Depending on the country you live in, your healthcare system might be quite poor. This is especially true in poor countries since they often lack money to improve their healthcare facilities. Thus, especially in those countries, it is crucial that the government finds ways to provide better medical infrastructure.
One way to finance those healthcare projects is to increase taxes for the rich so that also the poor people will get access to proper medical treatment in case they need it.
Technological progress can be accelerated
Through the collection of tax money, also our technological progress can be accelerated. It should be clear that the more money is spent on research and development, the higher the chance that there will be technological breakthroughs in the near future.
This is crucial since we have many important environmental problems to solve, including global warming and we will run out of time sooner or later.
Therefore, technological progress supported by government money is crucial in order to mitigate those problems and to ensure a livable future for the next generations.
Income tax usually increases with the income of a person
In most countries, the tax burden is higher for people that earn good money than for people who work in low-wage jobs. This can be considered to be kind of fair since the rich can afford to give away more money than the poor.
In turn, the tax money that is collected from the rich can be used to finance projects that support the poor part of the local population. By doing so, the chances for those poor people to get out of poverty increase.
Assurance of security
Without tax money, it would also not be possible to ensure the security of the general public. For instance, imagine a state where there is no police on the streets since nobody is willing to pay them. In this case, you would have to take care of yourself.
This also means that if someone will attack you, you have to defend yourself somehow. Therefore, taxes are crucial to ensure the overall security in a country and to employ enough police to protect the general public.
Politicians have to be paid
Our politicians also do not work for free. Someone has to pay them so that they are willing to do their work since they also have expenses like paying for their house, their car, their food and so on.
Thus, the money for the wages of politicians has to come from somewhere. The collection of taxes is crucial in order to pay politicians so that they can do their work and to represent the wishes and needs of the general public.
Court system has to be financed
Another benefit of taxes is that they can be used to finance our court system. For instance, if you have differences or disputes with other people, the court is there to determine how to solve your conflicts.
Without a valid and objective court system, people could not be punished for unlawful behavior and chances are that whole regions would experience dramatic levels of chaos.
Hence, it is crucial to have an intact court system in place, which has to be financed by taxpayers’ money.
Money for military services
Also our military needs money to finance their operations and to defend our country. Without tax revenue, this would not be possible at all and our country would become vulnerable to attacks from other countries.
Therefore, also to protect country borders, it is crucial to have intact tax schemes in place in order to finance military operations in case they are urgently needed.
We need firefighters
Taxes are also crucial to finance our firefighters. Imagine you come home from work one day and your house is burning down right in front of your eyes. If there were no firefighters, you would not have any chance to save your home.
Thus, it should become clear how important it is that we have firefighters around in case of emergency. However, those firefighters do not work for free and have to be paid with taxpayers’ money so that they can carry out their important tasks for our society.
Social duty to contribute one’s part
As part of a social community, you should also feel kind of obliged to contribute your part in order to assure a working public infrastructure system.
For instance, if you earn good money and have a good life, you might also want to make other lives better. You can do this by paying taxes so that projects can be financed that help other people to get out of poverty and to fulfill their dreams.
Hence, our inner voice should also tell us that a certain amount of tax payments should be reasonable in order to assure a high quality of life for all of us.
Assurance of social security schemes
Without tax payments, there would also be no social security at all. Many people think that social security is unnecessary and that everyone should take care of themselves.
However, there are certain events in life which can put you in difficult spots and you might not be able to solve all of your problems by yourself.
In such a case, it might be crucial that there is a minimum level of social security in place which prevents you from getting homeless. Thus, a minimum level of social security that is financed by taxpayers’ money should act as a safety net for all of us.
Mitigation of the wealth gap between the poor and the rich
In many regions of our planet, there is also a huge income and wealth gap between the poor and the rich. While this leads to prosperity for a small minority of people, it leads to plenty of financial problems and starvation for the general public.
Therefore, especially in those countries with a huge income and wealth inequality, taxes can be used to redistribute part of the wealth in order to assure at least a minimum level of financial means for the majority of the population.
Instrument to ensure the financial stability of a country
Taxes are also a tool to ensure the financial stability of a country. For instance, without taxes, governments would have huge tax deficits and pretty soon, they would no longer be able to finance any public infrastructure projects.
Also, other countries would likely refuse to trade with those countries. Hence, taxes are crucial to ensure enough money for the government in order to operate in a reasonable manner.
Tax cuts in crisis times to foster the economy
Taxes can also be used to control economic development in a country. For instance, if the economy is quite good, governments may collect high amounts of taxes from the general public.
In contrast, if there are financial crisis times, governments could lower the tax rates so that people have more disposable income which they can spend. In turn, the economy can be navigated out of the financial crisis sooner.
Thus, varying the tax rate in line with the present economic conditions can be a great way to ensure the financial stability of the local economy and can be crucial to overcome crisis times as fast as possible.
Governments can tax unhealthy products at a higher rate
Taxes are also a great way to steer the general public in a certain direction. For instance, in our nowadays society, many people eat quite unhealthily and consume large amounts of fast food.
This is not only quite bad for the individual, but also for our society as a whole since overweight and obesity that are connected to this kind of nutrition also impose high costs on our healthcare system.
Therefore, governments could tax those unhealthy foods with higher tax rates and therefore lower the incentive for people to buy those foods, which in turn would also lower the financial burden on our health care system.
Disadvantages of Paying Taxes
- People have less money to spend
- Less overall savings in bank accounts
- Investments for the future might suffer
- Taxes may discourage people to work hard
- People may try to avoid tax payments
- Tax schemes may be considered to be unfair
- Big corporations often try to avoid paying taxes
- Money may be spent in an ineffective manner
- Politicians may act opportunistically
- Lobbying may lead to waste of government funds
- Confined freedom
People have less money to spend
As we have seen before, there are many advantages to taxes. However, the levying of taxes on the general public also implies some problems. One disadvantage of taxes is that they lead to a state where people have less money in their pockets since part of their income has to be spent on taxes and the disposable income decreases.
In turn, people can consume less, which in turn can lead to a smaller growth rate of the national GDP.
Less overall savings in bank accounts
Less disposable income due to taxes also implies that people tend to have less money in their bank accounts. Everyone of us has basic costs, like rent, food, gas and water and so on.
These costs cannot be cut significantly and if there is not too much money left after those basic expenses, people cannot put too much on their bank account.
In turn, this may result in serious problems in case your car has to be fixed or you need money for other things that you haven’t expected.
Therefore, taxes can lead to a state where people will not accumulate enough savings that can be used in case they urgently needed it.
Investments for the future might suffer
Also the level of investments people make for their future might suffer due to high tax rates. For instance, if a significant part of your income is deducted for tax purposes, you will have far less money left for your daily life. In turn, chances are that you will not invest enough money in retirement fonds or other things that could be beneficial for you in the future.
This may result in a state where many people might suffer from poverty once they get retired, especially for people who worked in low-wage jobs and who were not able to save and invest enough money.
Taxes may discourage people to work hard
Another problem with taxes is that they may discourage people from working long hours in order to make a good income. For instance, if you have to pay significantly higher tax rates for high incomes, chances are that many people will lose the motivation to work hard since they know that a big fraction of their income will be deducted for tax purposes.
Thus, if taxes become too high, they might also result in flawed working incentives and governments should make sure that the incentive to work hard is still there and not taken away by inappropriate tax schemes.
People may try to avoid tax payments
Many people might also even try to avoid tax payments. If you have good tax advisors, chances are that you are able to find loopholes in the local tax laws and therefore, you may be able to save significant amounts of money. This is especially true for people who have significant wealth levels since they may be able to relocate their residency to countries with lower tax rates.
Thus, this kind of tax avoidance may lead to a state where the hard-working general public would pay most of the taxes while the rich could avoid paying taxes, which in turn would lead to a high level of frustration for the general public.
Tax schemes may be considered to be unfair
There is also a high level of discretion regarding the details of the tax code of the respective country. Depending on whom you ask, you will get very different answers regarding who should be taxed more and who should benefit from tax exempts.
Therefore, it will not be possible to make everyone happy with a single tax code and there will always be plenty of discussions with people who feel that they are treated unfairly by the local tax scheme.
Big corporations often try to avoid paying taxes
There are many big corporations out there who pay little to no taxes at all. This is possible since they constructed a clever corporation infrastructure that allows them to avoid taxes by founding subsidiaries that are located in tax paradises. Thus, while the general public is forced to pay their taxes, big corporations are able to avoid paying their taxes.
Sooner or later, this injustice may lead to serious protests of the local population since the general public may no longer want to pay their taxes if corporations do not contribute their part at all.
Money may be spent in an ineffective manner
It has been shown by many studies and projects that governments often spend taxpayers’ money in a rather inefficient manner.
Therefore, plenty of unnecessary projects that will not benefit the general public too much might be planned and executed by governments.
Thus, if the taxpayers’ money is not used for the benefit of the general public, it is questionable whether those taxes make too much sense.
Politicians may act opportunistically
Politicians might often claim that they represent the wishes and preferences of the general public. However, they might often act in a way that is not in line with this promise.
For instance, many politicians might act opportunistically and might rather support small interest groups instead of projects that would be beneficial to the general public.
Lobbying may lead to waste of government funds
Another big issue with taxes is that lobbyists often try to influence the decisions of politicians. When it comes to important decisions that affect everyone of us, lobbyists from big corporations often try to change the political outcome in their favor.
Thus, quite often, the taxpayers’ money is used for projects that benefit corporations rather than the general public.
Apart from all the other disadvantages of taxes, the level of freedom is significantly confined through the levying of taxes. People have no choice whether they want to pay taxes or not.
If you do not pay your taxes, you might be sent get fined or even sent to jail. Thus, our human rights of freedom are confined through forced tax regimes.
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Top 10 Tax Pros & Cons – Summary List
|Pros of Taxes||Cons of Taxes|
|Funding for public infrastructure projects||People have less disposable income|
|Taxes are crucial to ensure medical supply||Less money for savings|
|Firefighters have to be paid||Less money for long-term investments|
|We need our police to stay safe||Less money for education|
|Speeding up technological progress||Taxes may discourage people to work harder|
|Financing of the court system||Confined freedom|
|Politicians have to be paid||Opportunistic behavior of politicians|
|Assurance of social security||Waste of tax money|
|Taxes as instrument in crisis times||Lobbying is a problem|
|Money for military services||Big corporations avoid paying taxes|
Do We Need Taxes?
As we have seen in the previous argumentation, there are many advantages and disadvantages related to taxes. While taxes are crucial to fund important public infrastructure projects that benefit everyone of us, they can also be harmful in several ways.
Thus, it is crucial that governments all over the world make sure that the tax code is in line with the interest of the general public in order to improve the living conditions of as many people as possible.
About the author
My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.
As I went to university and got my Master’s degree in Economics, I did plenty of research in the field of Development Economics.
After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.
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