Markus Stocker bio photo

Markus Stocker

Between information technology and environmental science with a flair for economics, the clarinet, and the world of soups and salads.

Email Twitter Google+ LinkedIn Github

According to Wikipedia, the ideology of the True Finns party is, among other things, right-wing populism. Interestingly enough, sometimes what in a country is argued by its right-wing is more or less exactly what the right-wing of another country opposes. This post is about taxes, in particular the recent statement by True Finns chairman Timo Soini ”taxes should be set according to the taxpayer’s ability to pay.”

The target are, I suppose, the rich. We could start a discussion on the welfare state, distribution of wealth within and beyond national borders, economic inequality, or some of Ayn Rand philosophy. Could be interesting but I’m going to keep it simple.

Briefly pause on Timo’s statement. Does it actually tell anything? The obvious difficulty which, in my opinion, partly clears the statement of any real meaning is who exactly defines what ability to pay concretely means. I suppose, the correct answer is the government. As a member of society you typically have the duty to comply with whatever progression your government comes up. If you don’t like it you might have the freedom to leave.

I comply, but not without some thoughts. What is my ability to pay? The government’s answer to me is 23.7%. It is, however, entirely obscure to me why that figure should reflect my ability to pay. To some extent, there is actually no lower bound. Whatever percentage I must pay, I cannot invest otherwise. Thus, if I would like to maximize investing otherwise, my ability to pay (taxes) is zero. Sure, I enjoy a whole range of public services and support for the less fortunate is moral imperative which is why, we are told, the lower bound for government taxation can’t be zero. I suppose, this reasoning resonates with most readers, unless you advocate zero government.

What about the upper bound? Not so clear either. My upper bound currently floats around 80-85% which excludes food, apartment rent, minor things like toilet paper and books. Thus, I could retain as little as 20% of my wage and, aside from my wage, tax and bank statements, I would hardly notice the difference.

So, what is my ability to pay? A very fuzzy concept, indeed. Even if we answer the question who is entitled to collect taxes, the ability to pay of a single individual can technically lie anywhere between 0% and 80% or more and could be as high as 100% in an Utopia where the government entirely cares for subsistence. This fuzziness is the reason why in my opinion arguing that taxes should be set according to an individual’s ability to pay is nonsensical.