What are taxes for? A lesson from the global health crisis

Tax
2 min

Anybody who may wonder “where their taxes go” should not have any doubts under present circumstances. This pandemic and how health services fight it should provide a salutary lesson. 

Author: Giulio Allevato, Professor of Tax Law at IE University

“The national healthcare system is public, but not free.” This message has been increasingly posted by Italians on social networks during the past two weeks. It perfectly captures the sense of the relationship between taxation and the current coronavirus emergency.

A government’s power to levy taxes—one of the fundamental elements of state sovereignty—is often perceived as an appropriation of citizens’ wealth that should be minimized as far as possible. This idea is strengthened by the libertarian economic theories after which our free-market economy is modeled.

Based on such theories, social wealth is maximized only if market dynamics are left free to operate. Therefore, any intrusion by governments in market dynamics, including taxation, is seen as something that should be kept to a minimum. Hence why the last few decades have seen politicians and their parties base their electoral campaigns on the promise that taxes will be lowered.

However, this libertarian thinking and approach simply doesn’t work when applied to healthcare during a crisis like the coronavirus outbreak. Today—and hopefully for years to come—no reasonable person would claim that market dynamics and private players could cope with such emergencies more effectively than governments. In particular, we are all appreciating the outstanding work and titanic efforts of our public healthcare workers.

And now, we are all regretting the numerous cuts to our healthcare systems which have been made during the past few years. The reason why no privatized healthcare system would be able to efficiently deal with an epidemic is very simple: by definition, it is not a profitable business.

Governments must design their tax systems carefully and efficiently, in order not to provide counterproductive incentives to the taxpayers and to comply with the redistributive function of taxation.

That said, it’s important to be aware that efficient healthcare systems require lots of funding, and that most of that funding is provided by tax revenues. So it’s self-evident how taxation cannot simply be considered a seizure of the wealth of taxpayers—the levying of taxes is much more than that: it is a contribution made in the common interest.

Of course, this does not mean that taxes can be indiscriminately increased and applied. Governments must design their tax systems carefully and efficiently, in order not to provide counterproductive incentives to the taxpayers and to comply with the redistributive function of taxation. But in general we should all be proud of paying our fair share of taxes.

 

Shows the picture of the author, Giulio AllevatoGiulio Allevato is Professor of Tax Law at IE University in Madrid. He is also Affiliate Professor of Tax&Law at SDA Bocconi School of Management in Milan. Before joining IE University, he was Hauser Global Fellow at the New York University (NYU) School of Law, Lecturer of Tax&Law at SDA Bocconi School of Management, and Ernst Mach Scholar at the Institute for Austrian and International Tax Law of the Vienna University of Economics and Business (WU). His research mainly focuses on the regulatory function of taxation, the tax compliance legal framework, the tax issues related to the Digital Economy, and the legal implications of tax risk management.

Note: The views expressed by the author of this paper are completely personal and do not represent the position of any affiliated institution.