Three Strong Reasons for Reduced Taxation
1. Personal Liberty
Taxes interfere in a profound and dramatic way with the personal freedom of the individual. Many people have no other personal assets except their lives. To them the degree of taxation is of crucial importance to their lives and general well being.
Although taxes in general aim to finance a mandatory public welfare system, they still represent an interference with the private life of the individual. This is particularly true in cases where the taxes induce such a high mark-up on the price that the commodity or service cannot be traded at all. It likewise applies to all cases where the individual wishes to take a different direction in his personal life from what has been politically decided.
Taxation at European levels does in some respects represent a declaration of incapacity of the citizens. Many politicians think they have a superior understanding of the needs of people than the people themselves. They also seem to believe that government is a better producer of goods and services than private companies.
These views are of course incorrect, and consequently we want the government sphere to be reduced to a small core of tasks to help citizens help themselves and others in society.
2. Taxes Disturb or Destroy the Economy
High taxes can devastate an economy, or render economic transactions virtually impossible. That is why the living standard of the people benefits from low taxes.
Studies carried out in 2000 by Sweden’s National Price and Competition Office show that price levels in Sweden are the highest in the European Union (EU) — 20% higher than the average EU level. According to this governmental authority, half the difference is due to taxes, wages and the currency, while the rest is due to the lack of competition.
Taxes function in the same way as customs duties did in older days. The higher the duties, the less trade. In certain countries during the 19th century, duties were so high that hardly any trade at all took place. As duties were reduced, trading improved. The lower the duties became, the higher the levels of trading, which resulted in increased living standards. And today large duty-free areas are created in order to benefit trade and industry, all for the good of the people.
Taxes should be reduced for the same reasons that duties were reduced — to foster enterprise, encourage trade, and generate more employment.
We deplore acts where the state intrudes into an economic agreement between two parties simply to take the major part of the costs of the goods or services being sold. To avoid such greedy and ruthless exploitation in the name of the state, constitutional restrictions ought to be established that would prohibit excessive taxation of the individual impossible.
3. High Taxes = Weak Economic Growth. Low Taxes = High Economic Growth
Several scientific studies have indicated a clear relationship between high taxes and low economic growth.
Richard Vedder, Professor of Economics, University of Ohio, has demonstrated such a connection within states of the U.S.A. During the period 1965-1992, the twenty-five states with the lowest tax pressure had an economic growth rate per capita that was one third higher than the rest of the states.
Sweden, with a very large public sector and a tax burden that is higher than any other country in the world, is perhaps the best example of the direct relationship between taxation pressure and economic growth.
The most recent contribution in this area is from the end of year 2000, and from the university town of Lund. In her doctoral thesis “Limits of Tax Policy,” economist Åsa Hansson shows a clear correlation between the size of a country’s public sector and that country’s economic growth. The larger the public sector, the lower the economic growth. For each additional 1% of Gross National Product to the public sector, economic growth decreases 0.23%, according to Hansson.
During the period 1870 to 1970 Sweden — next to Japan — experienced the most rapid welfare increase in the world. Meanwhile the fiscal pressure was not notably higher than in other countries.
However, since 1970 Sweden has increased taxes considerably — from 40% of GDP in 1970 to 53% in 1998 — and is today the only OECD country with a total tax pressure including social security contributions above 50%. The prosperity has faded.