10 things everyone should know about taxation

Esteban Vallejo Toledo is PhD student in law and society at the University of Victoria.

VICTORIA – Canadian tax history has been fraught with controversies. One example is the racist head tax that was placed on Chinese migrants from 1883 until 1923, demonstrating that taxation can be both political and disciminatory. 

Québec Premier François Legault triggered the most recent controversy when he proposed the idea of taxing unvaccinated citizens. Even though Legault dropped the ethically and legally questionable tax, the reaction to it illustrated just how controversial taxes can be be. 

Ethically and legally questionable taxes aren’t limited to Canada. It’s an internationally recurring practice that affects people in different, and often unequitable, ways. 

Ironically, society’s understanding of taxes could be part of the reason why so many questionable taxes are introduced in the first place. To many of us, taxes are just mandatory payments to government coffers. While this view is technically correct, it doesn’t help us understand why and how taxes are implemented in democratic pluralistic societies. Unfortunately, governments, courts and taxation experts usually overlook key aspects of taxes, leading to hazy definitions of taxes in court deliberations. 

This can play a part in allowing ethically and legally questionable taxes to be imposed. It is much more difficult for unethical taxes to be put into place if citizens know what taxes are designed to do, and the correct way for taxes to be implemented. With that in mind, here are 10 things you should know about taxes. 

Key aspects of taxation

1. Sustain society: The main goal of taxes is to levy resources for government expenditures that keep society up and running. Taxes contribute to everyday public services and social programs like health care, elderly benefits, public schooling, public transportation, fire protection and park maintenance. They can also bolster economic policies aiming to “improve lives post-pandemic.”
2. Social viability: Taxes contribute to the organization of society. Although they are normally associated with contemporary states and governments, taxation is a social practice that is not limited to modern-day states. For example, the Indigenous Peoples of the Pacific Northwest Coast have long practised taxation prior to settler-colonialism. Their taxation systems function according to kinship values, organization, customs and institutions.
3. Social deliberation: Taxes are legitimized when they are created, detailed and applied according to the rules and institutions of society, and can be based on either cultural customs or legislation. Within western democratic societies, taxes are created through statutes approved by parliaments, and cannot be unilaterally imposed by governments. This means taxes require careful social deliberation before being put in place because they have far-reaching impacts on people’s lives and the legal responsibilities of the state.
4. Economics, wealth and resources: Despite their differences, most taxation theorists agree that taxes are justified because societies need to fund the programs and services that benefit everyone. Taxes depend on resources and wealth in order to fund expenditures, which means things like income generation, wealth increments, property ownership, natural resource exploitation, production, sales and purchases are all fair game for taxation.
5. Economic capacity: To adequately design and implement taxes, lawmakers must take personal economic capacity into account. Personal economic capacity refers to the amount of wealth and resources an individual has that can be levied to support society. It considers how taxes impact someone’s livelihood, fundamental needs and essential living standards. As such, it is the key element that determines the burden each person can fairly and reasonably bear in the context of taxation. When lawmakers do not consider the whole scope of economic capacity, taxes can cause harm and, in the case of the infamous “tampon tax,” further discrimination.
6. Non-confiscation: Taxes are not designed to be a means of wealth deprivation, although some taxes were associated with confiscation (the legal seizure of property by the government or other public authority) in the past. As a rule of thumb, ethically designed taxes consider people’s economic capacity and do not jeopardize their livelihood, fundamental needs and essential living standards. As such, confiscation is not caused by progressive and wealth taxes, as some opponents argue; instead, confiscation is the outcome of taxes that are implemented without consideration to people’s livelihood, fundamental needs, and essential living standards.
7. Unrequited payments: Taxes are not payments in exchange for specific services. People pay taxes to promote social viability through public or social goods, which benefit everyone. These goods include health care and are available to everyone regardless of their economic capacity. Consequently, taxes are not payments for the costs of specific services like passports, which are levied through fees.
8. Socially relevant goals: Taxes can also promote or disincentivize certain behaviours for social or political reasons. The main goal of these types of taxes is not to levy revenue, but to pursue “extra-fiscal” objectives like reducing pollution or preventing diabetes and obesity. These taxes are designed to contribute to collaborative social goals, like reducing the effects of climate change, without compromising people’s economic capacity.
9. Not punishments: Taxes are not designed to be punitive and, by definition, taxpayers are law-abiding people. Although taxes can certainly influence certain behaviours, as mentioned previously, they do not penalize them. Revenue can certainly be made from legally controversial activities — like the taxation of sex workers, whose work exists in a grey area — but taxes are not connected to illegal activities. Using taxes as punishment severely affects how people perceive taxes, so most states ensure taxes are not used as penalties for committing crimes or other offences. Otherwise, people will start to view taxes as charges that need to be dodged.
10. Substance matters: Some governments conveniently “forget” that taxes are defined by their substance, not their nomenclature. This substance consists of the previous nine aspects. A tax is a tax, even if it’s given an alternative name like “special charge” or “ad-hoc contribution,” as Brazil did in 2000 by implementing the “contribution for intervention in the economy.” Likewise, a fine does not become a tax by simply calling it a “special tax.”

What experts forgot this time

While reactions to Legault’s proposed tax were torn, with some condemning it as a Charter violation and others seeing it as a viable health care solution, there are some clear conclusions that can be drawn. While most experts overlooked these 10 aspects when discussing Legault’s tax idea, some did concede that such a tax “would likely withstand legal challenges,” while pointing out it would “disproportionately impact low-income earners.” 

However, they missed that taxes are not just a mandatory payment to government coffers. Taxes are more than that, and these 10 aspects suggest that Legault’s levy would not have been a tax at all, making his idea even more questionable. A tax on the unvaccinated would not have depended on anyone’s economic background, and would have wrongfully affected people’s economic capacity and punished taxpayers. 

Although governments and experts can, and often do, overlook these 10 aspects, citizens should not. Adequate and fair tax implementation begins with these aspects. Keeping them in mind can help us hold governments accountable for the taxes that they try to implement, and can help prevent future unethical and legally questionable taxes. 

Esteban Vallejo Toledo is PhD student in law and society at the University of Victoria. Top image: iStock. Author photo: The Conversation Canada.