Legitimate & Just Taxation

If a new state like the Guarded Domains of Iranshahr could rise in an era of intense nationalism and sectarianism it must have a legitimacy built on justice and fairness to counter the alluring call of division and hatred. Therefore such a state that seeks to unite many must endeavor to foster truly good governance, and there cannot be good governance without talking about taxes. A truly fair and efficient taxation system builds its own legitimacy and loyalty and can help foster a united sense of purpose. Taxes raised poorly can also breed resentment and can foster its own kind of deep-seated hatred. So let us consider how taxes should be raised and what forms of taxation are fair and just.

The modern state typically has a tax code that is frankly a giant mess. Citizens must pay taxes to local, provincial, and central governments. An underfunded tax collecting bureaucracy is always in a perpetual struggle with an army of lawyers and accountants. These codes are written with the intention of confusing the common person and providing loopholes for the wealthy who can afford tax evading professionals. These tax credits become major subsidies which then become entrenched privileges that once received rarely can be undone. There are no restricted forms of taxation so the modern state has little need to balance budgets through effective cutting of spending but just raises taxes ever higher when it sees fit to.  
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​Politicians and citizens always claim to desire a simpler tax system but selfishness requires the tax code to be only accessible to the tax lawyer. Whenever reformists wish to act, everyone wants reform, but no one wants her or his tax benefits to be taken away. Simplicity is not always the answer but in this case a just taxation system must be simple. It must not have loopholes or credits. There cannot be exceptions. All must pay their fair share. And a good tax system should require very few tax lawyers and accountants.

Envisioning a Good Tax System

Iranshahr must have a consistent tax philosophy. What is the purpose of taxation and what characteristics of a tax should be considered just? Taxation is a payment by the individual for services rendered by the state to the benefit of the individual and the collective. This last part is crucial, the individual and the collective benefit. But when it comes to taxes, the collective benefits more than the individual. An individual may not use the army but the nation needs that army. The individual benefits from the security but in the case of a war, the individual might be unaffected by the conflict while the nation feels it acutely. Where possible taxes should reflect a direct fee for service. Take for instance the creation and maintenance of a bridge. The creation of the bridge should be a collective task, because a bridge will create easier travel which means more trade which benefits the collective. The taxes of the nation should be pooled to create a loan for the bridge’s construction. But the bridge’s maintenance and the repayment of the pooled money should be the results of tolls where those who directly use the bridge pay to cross.

Taxation must also reflect the idea that those who have benefited most from the freedom and stability provided by the state and society should pay more than those who have least benefited. Too often the wealthy profess that their wealth is purely due to their financial prudence and their shear will. They ignore or are ignorant of the facts that wealth can hardly be accumulated without some kind of societal stability, or that a society has to have some kind of social mobility to allow a poor person to even attempt to change her or his financial status. Behind every wealthy person’s ambitious will, prudence, entrepreneurial spirit, are countless invisible helping hands allowing that person to get rich while nurturing her or his sense of self accomplishment. A vine cannot grow tall to bear fruit without some kind of support. Truly the just state will tax an individual a larger portion of her or his income the greater that income becomes as payment for the unseen benefits of stability and liberty.

Just taxation must differentiate between income, and wages for labor. Labor is really the exchange of a person’s mind, body, and time to provide a service or a product for payment or a wage. The mind, the body, and especially the time one has on earth are irreplaceable. No amount of wealth can give back seconds, minutes, hours, of a person’s life. And because as humans we all have roughly the same potential for years of life if the environment favors it, all time is equal. Of course this is an assumption since a youthful person’s time is cheap while an old dying person’s time seems almost priceless. But since the society of Iranshahr pursues equality, a minute of your life is just as precious as a minute of my life since we are both humans with unknown finite amounts of minutes. The time a farmer spends in the fields is equally precious to the corporate executive’s time at the desk. In the grand scheme of things death takes all and time cannot be acquired once lost. Since time is spent in labor, the monetary reward for one’s labor is truly earned. The earned wage should be equally protected from taxes.

What does this mean? It means that a legitimate tax system should not tax a certain amount of monetary compensation (which I call the wage) that is equal for every person living within the Guarded Domains of Iranshahr. This wage can be the amount someone makes that covers the basic necessities of life plus an amount that allows the person to live a life with dignity. That sum earned is protected from direct taxation. The Guarded Domains of Iranshahr could declare that a gold Daric (a theoretical coin containing 1 ounce of pure gold) earned each week or a total of fifty two Darics per annum shall be deemed a wage for labor. An individual who procures this amount of money or less shall not be directly taxed on it. That is to say that income tax cannot apply to any yearly wages amounting to fifty two Darics or less.

Now an individual who makes more than fifty two Darics per annum is accumulating income on top of her or his wages. I think of income as a payment for services or products on top of wages received. Income is not earned through labor since a corporate executive cannot work harder than a farmer though she or he gets paid much more than the farmer does. Therefore, the excess money accumulated is not due to labor but due to the whims of market demands. In light of this, income can and should be taxed vigorously. So for example if an individual makes one hundred Darics yearly salary, fifty two Darics are subtracted as wages, as not taxable. The forty eight remaining Darics can be taxed ten percent, twenty percent, fifty percent as the people of the Satraps decide. But the wages are protected so that the people cannot become impoverished from taxes, just deprived of excess wealth. This is not to say that wages used to purchase goods with sales tax aren’t being taxed. The wages are just being taxed indirectly.

Now it must be said that payment with assets or “gifts” instead of currency should not excluded from the definition of wages or income. Anything that can be exchanged for money, which in our capitalist world is everything, would have its value assessed and added to an individual’s compensation. For example, if a person receives a salary of thirty Darics a year, but is given by her or his company a laptop worth two Darics, the tax code would view that individual’s yearly wage (only for that year) as thirty two Darics. If in the same year a relative gives her or him a property deed worth forty Darics, then forty Darics is added to the thirty two making seventy two Darics worth of incoming wealth for that year. That individual would pay taxes on twenty Darics worth. If another individual receives a salary of fifty Darics per annum but is given a gym membership, spa treatment, and healthcare insurance for non-basic services, all totaling to five Darics, then the government would view the individual’s annual worth as fifty five Darics. Three Darics would then be taxable. All assets, services, and gifts coming into a person’s hand must be added since those assets, services, and gifts have monetary value. No matter how small the item or service, it should be accounted for. 

Since the Guarded Domains of Iranshahr shall be a decentralized state, it is necessary to create a system that clearly indicates taxation powers. For the Guarded Domains, the individual will pay taxes to the Satrap and the Shahrestan. Since they have autonomy, the Satraps will individually decide how much taxation power their Shahrestans can have. Under the Commonwealth Constitution, the Satraps will be allowed certain forms of taxation, which I will go over in a later paragraph. The Commonwealth does not tax individuals, but Satraps. A  progressive tax will be placed on all the Satraps of the Guarded Domains so that the richer Satraps pay more than the poorer ones. With this method, the individual knows who to pay, and the Satrap knows who to pay. Only customs duties will be a taxation tool of the Commonwealth, since each Satrap having its own customs duties would create chaos. The Satraps will be allowed certain types of taxation and forbidden other types. I will now focus on those just and unjust taxes. First I will explain why the unjust taxes are wrong to use and should be illegal, then I will defend the taxes I believe to be legitimate.  Finally I will discuss corporate taxation separately due to its highly debated relevance.
 
Illegitimate and Unjust Taxation

Regressive income tax rewards the rich while punishing the poor. The rich are already rewarded for being rich by receiving extra compensation for their labor that can not logically be concluded is more intense than the farmer, the miner, or factory worker. Therefore, it is unjust that the state should allow the wealthy to pay lower taxes than the poor when the rich's wealth is derived more from the liberty and stability created by the state. At the very least the poor and rich must pay the same proportion of their income to the government to have some semblance of justice, though even proportional income taxes neglect the fact that the rich still owe their good fortune to the state more than the poor. Therefore, the only truly just version of an income tax is progressive.

A wealth tax is a tax on market value of assets held by an individual. Once a Daric has been directly taxed, it should never be directly taxed again. A wealth tax does just that. If someone buys stocks or bonds and the value of those increase, it should not be taxed just because it is worth more. However, when the person sells  those, the profit generated from that sell is income and should be taxed according to the progressive income tax I mentioned above.

Inheritance tax is a controversial taxation tool. For those who oppose it, they claim that it takes away an incentive to save for the welfare of an individual’s children. For those for it, they claim that it adds to the accumulation of vast amounts of unearned wealth. To tax wealth saved by an individual on her or his death would be equivalent to a wealth tax, which is unjust. But the recipient of that inheritance will probably be receiving income not a wage. Therefore, if the inheritance received puts a person beyond the fifty two Darics per annum, then the amount beyond that wage should be taxed according to income tax codes of the Satrap in which the recipient resides. If the inheritance is small enough to not put a person beyond fifty two Darics a year, then it should not be taxed since it is part of that person’s wage.

One of the great injustices done to the poor is the property tax. Every year the land one owns is assessed and a rent is paid to the state. That means a person does not own her or his piece of farmland, house, or condo. It belongs to the state if it continues to be paid for it year after year. If a person buys a cup, should they pay a tax on it every year? No, the person buys the cup and pays a sales tax. Then that cup belongs to the individual. So why not property or cars? In the Guarded Domains, when a person purchases a piece of land, she or he will pay the sales tax of that land. When a person purchases a vehicle, she or he will pay the sales tax and register the vehicle once. That vehicle or that piece of land becomes property same as the cup. It cannot be taxed or registered again until it is sold. If the vehicle is sold, the new buyer pays tax and registers the vehicle. The new buyer of the land pays the sales tax. If the property sold brings a profit to the seller, the profit is added to the seller’s yearly wage. Whatever amount over the fifty two Darics per annum should then be taxed as income. If a property is used for collecting rent, then that rent, if it goes beyond the fifty two Darics per annum, should be considered income and taxed accordingly.

Taxation relating to expatriation would be similar to a wealth tax. That money is already the property of the individual. The income tax has already been paid, so what business is it of the government, if the individual should take the wealth out of the country. Governments do fear of capital flight, but if the nation is just, stable, and free then most will stay in the country of their birth, even the rich. It would also be a crime to tax wealth entering the nation. Let capital that has already been fairly taxed flow where it may.

Since all properties sold would have a sales tax, and all given properties would be viewed as potential income, a transfer tax is unnecessary. As said above, if a person is given assets, services, or gifts with payment then this is viewed as incoming wealth. If this new wealth brings a person beyond the fifty two Daric level, then the income shall be taxed.

Poll taxes are means of keeping the people from enacting their right to vote. Citizens can be forced to register to vote, but they should not be charged for registering. Even the smallest charge could harm the poor. Now a fine could be imposed for not registering, since the Commonwealth Constitution says that the citizens have the duty to register to vote, but have the right to refuse to vote.

The jizya should not be allowed within the Guarded Domains of Iranshahr. Whether a Muslim, Jew, Christian, Baha’i, Hindu, Yazidi, Buddhist, Zoroastrian, Jain, or Sikh, all should pay their fair share of taxes. Taxation discrimination regarding religion, ethnicity, sex, gender, age, or sexual orientation would be the exact opposite of a just society. All within the Guarded Domains have equal rights and duties.

Food and public water should be protected from taxation. Raw fruits, vegetables, grains, dairy, and proteins are necessities for survival. Taxing these would hurt the poor who already have trouble eating nutritiously. Food that is processed, or prepared by a restaurant are not necessities and can thus be taxed. I concede that it is difficult to determine how processed a food is. A polished rice grain is technically processed. Bread is a processed food as the flour could be called processed too. But I believe baked bread and polished rice are necessary staples that should not be taxed. It would be up to the Commonwealth to create a uniform policy of taxable and not taxable foods. Water that comes from a sink or a well should not be taxed. Pricing rates for water should increase as consumption increases to conserve water which could be considered a tax. A person only needs so much water to live daily. Necessary liters of water for drinking, cooking, and light bathing should be very affordable for all. Once water use goes beyond the “necessary” amount, then water rates should rise so that the more waste occurs, the higher the penalty of the price. Bottled water should be taxed because the profits made from such commodities are immense, and the wasteful use of plastic is damaging to the environment. I have explained to the best of my abilities why these taxes are unjust. I will now defend the just taxation tools.

Legitimate and Just Taxation

Proportional income tax and progressive income tax are both just taxes, but side by side progressive is superior than proportional in that it recognizes that the richer a person is, the more indebted she or he is to the stability and liberty of the nation. The more one earns in income, the more it should cost to keep it safe. In terms of implementing taxation by the government, proportional would be more convenient because the rich would be slightly less likely to evade taxation if all people pay forty percent on their income. With progressive income taxes, everyone would try to put themselves into a lower tax bracket. The Satraps would have to decide what their bureaucracy can handle and what their peoples believe most just. However there is no doubt that progressive taxation is fairer and more legitimate.

Though a punishment for too much consumption goes against the essence of consumption based capitalism, consumption taxes would encourage the people to save and reduce purchasing luxuries. Consumption taxes require a society that has bank accounts so that what enters and what exits can be monitored. As a person spends more of that money, the taxes get higher, encouraging that person to save and spend only when necessary. This type of taxation could help keep the people of Iranshahr from becoming addicted to spending as in Western and East Asian economies. This type of tax would be difficult to implement but a very urbanized Satrap could use it with great effect.

Sales tax is an efficient method of collecting revenue for the state. If done as a blanket tax, it taxes the poor proportionally more than the rich, but if necessities have lower sales taxes than luxuries, then this could be a just form of taxation. Satraps and the Commonwealth could work together to create classes to categorize goods and services as necessities and luxuries. It should be noted that assets like stocks and bonds would also have to be taxed since they are goods bought and sold. The wealthy should not be excluded from sales taxes. Value added taxes are of little difference from sales tax to go into detail. In essence whenever a good or service is sold, the buyer pays the tax imposed by the government. For example, a forester sells her or his trees to a timber processor. The timber processor pays a tax for that purchase. After creating planks, the timber processor sells the planks to the wholesaler who pays a tax. The wholesaler in turn sells the products to the carpenter who pays a tax on the planks. The carpenter uses her or his purchase to repair a house. The home owner pays a tax on the carpenter’s service. And if the homeowner sells the house, the buyer will pay a tax on the home.

Excise taxes can only be just when they counter the burden placed on the public by a good or service. When referring to a public burden, it can include a public health burden or an environmental burden. A moral burden on the public is unjustifiable to use an excise tax. In order to determine if a burden exists, evidence produced through research is the best method. Take alcohol for instance. Research has shown that alcohol when consumed in moderation (one to two serving per day depending on the person), actually produces health benefits. But when over consumed, it poses a health risk to the individual and society. Therefore an excise tax is justifiable. If the government wants to reduce alcohol consumption because of the religious beliefs then using an excise tax would be unjust. Now the excise tax revenue placed on alcohol should go directly to alcohol education and funding alcoholic rehabilitation programs. If the excise goes straight into the general budget, that is not just. When the individual’s actions place a burden on society, the individual has the duty to pay society for that burden.

Licenses are an important tool in the modern state. It gives legitimacy to the holder and protects consumers of products and services in which licenses are enforced. But most modern states use license fees unjustly. When a person has to pay for a license year after year, the government is clearly collecting revenue to bloat a bureaucracy. When a person shows they are qualified to have a certain license, she or he should pay a fee. This fee should cover the administration costs. That licensed person must then remain qualified to retain the license, by taking a test. The cost of the test should be very small, only covering administration costs. If the person passes the test, she or he keeps the license without paying for the license again. The test’s cost should only cover processing.

Licenses and permits are a guarantee for quality goods and services to the people. The individuals who acquire those documents must earn them. But the people are the ones requiring the permits and licenses. Therefore the licenses should be strict enough to ensure quality but affordable so that the people are benefitted by the licenses rather than the state by the revenue. The state should not require more than what it costs to create the documents and ensure the licensed are worthy of that document.

Tolls are a just tax because only those who use the infrastructure pay. Tolls should only cost as much as it takes to repay the loan (a loan from the general tax budget) for construction of the infrastructure and for its maintenance, both regular maintenance and emergency repairs. Tolls should not exceed these basic expenses because then citizens are over paying for infrastructure, their original taxes paid for. Toll revenue should not go to anything but maintaining the integrity of the infrastructure or it becomes an unjust tax. In this way infrastructure will not fall into disrepair as is the case in so many countries, and the people will feel less resentment if they know that their toll directly benefits the quality infrastructure they use.

Now to speak of a tax in which the Commonwealth could demand that the Satraps collect. A sustainability tax would be a special type of excise tax for an item or service that would not meet certain environmental requirements. Essentially items would be taxed based on how reusable, repairable, or recyclable an item is. If pollution is created in the production of a good, it would receive a sustainability tax. A product with a long lifespan would be taxed lower than items with shorter ones. Products that use dangerous materials would be taxed higher than safer ones. These kinds of items or services would account for wasting of resources or causing harm to other people besides the buyer. For instance a smartphone is an unsustainable product because they are made to die after a certain lifespan, they are made with rare earth metals from conflict zones, and when they die they are not easily repairable or recyclable. Such an item would have a high sustainability tax. Another example would be vehicle tires. Today’s tires are not sustainable. They would receive high taxes. But if a tire producer sold a tire that lasted decades instead of a handful of years its sustainability tax would decrease substantially. Or if the tire’s material was easily recyclable, it would be much lower in price than its competitors. Sustainability taxation would be an incentive for producers to change a trend that has arisen over the past few decades where quantity over quality prevails. Wastefulness and ill-created goods would be priced to show the real cost of its manufacturing. The Commonwealth would not collect this tax revenue, but could only order the Satraps to increase or decrease a tax on a good or service. The Commonwealth would create a sustainability classification system by which Satraps could refer to when adding taxes to products both imported and domestically produced.

For all other unspecified types of taxes, they are forbidden unless a general referendum by the people of a Satrap approves the new tax. Innovations like new taxes should be by default forbidden in the Empire whereas elsewhere, the government creates the new tax and the people must fight to overturn it. Justice requires that the people, not their representatives, concede to paying more of their hard earn wealth.

Corporate taxation is a hotly debated topic in countries around the world. Many people believe that since corporations are given so many subsidies and are allowed to influence government policy, these profit creating organizations should pay taxes. My thoughts on this are similar. If a corporation is given privileges that human citizens get, then yes, they should be taxed. But in my opinion companies, whether for profit or nonprofit, are not human beings. Corporations should not receive subsidies from any government, nor should they be allowed to lobby governments. Corporations are not people, they are tools of generating wealth and jobs by providing services and goods. That is their sole purpose. There should be a separation of business and state where business is at the mercy of government, not the other way around. Only citizens should be able to fund campaigns or be able to write legislation. The Commonwealth Constitution strips corporations of their privileges that all modern countries give. By making corporations a tool instead of a being, the state and the people are secure from their influence.

So if a corporation becomes a tool, why should it be taxed? If a corporation has no say in national policy, why should it pay taxes? Businesses have many benefits when their political costs are eliminated. They generate wealth and jobs for a country and provide desired products and services. Corporations and small businesses are needed in a nation. The critic will say that corporations generate huge profits for the wealthy. Yes but the wealthy consist on human beings who are individuals of the country. If the above taxes are implemented, then the wealthy would pay their fair share. When shareholders receive dividends or sell their shares for more than they paid for, then that would be added to their wage and other income. If it goes above fifty two Darics, then it would be taxed the same as any other income type. Taxing the business rather than the people invested in the business does not make sense. Eliminating corporate tax for domestic businesses would also simplify the tax code.

There are two types of organizations that generate revenue: for-profit and non-profit. For many countries non-profits receive special exemptions from paying taxes. This is a grave mistake because so many non-profits receive vast amounts of income that are truly profitable. Therefore many organizations use armies of lawyers to attain non-profit status corrupting the system further and losing taxable income for the state. For me non-profit businesses and for-profit businesses should be treated equally under the tax code.

So this is my proposal. If Iranshahr wants to create a just tax system relating to business, it can do one of two things. One, it could tax corporations and any organization that receives revenue. This includes religious organizations. A just tax code is simplified. There is absolutely no reason to exempt organizations who receive money, services, or goods no matter what the organizations’ goals. Many might think this heartless since so many organizations receive donations to do charitable works, but by allowing these organizations to be exempt from taxation, it opens a flood gate of truly greedy individuals pursuing wealth in the guise of charity or faith or socially valued services. Those individuals gain wealth that should be taxed. So taxation on organizations would be on the revenue collected, not the profits generated. In doing this, the code is simplified and the corporations pay taxes. The second option, which after much reflection I view as more just, is to not tax corporations or any organizations that receive revenue in the form of money, goods, or services. Tax the income of the organization’s vested members. This will simplify the tax code, generate more jobs, and place Iranshahr at a competitive advantage with other nations.

Now what of multinational corporations or foreign corporations? With a zero corporate tax policy, these entities might flock to Iranshahr to set up their headquarters and claim to be “Iranian” corporations. If fifty one percent of a business is owned by an Iranian citizen it would be deemed legally as a domestic corporation. But it would have to abide by all the rights, duties, and laws of the nation, even if most of its business activity was done over seas. I see no reason to charge foreign corporations taxation for doing business in Iranshahr. But since many foreign corporations have abused developing countries, I would suggest that all foreign companies pay a “deposit” to be held by the government to ensure compliance with the laws of the nation. It would need to be a substantial amount to act as a deterrent of corporate misbehavior. If they violate a law and do not pay the fine legally required of them, and change their practices, then the Commonwealth would take the deposit and kick the corporation out the country, banning them for five years. After five years the corporation could reapply to do business in Iranshahr. But if a company complied with the laws of Iranshahr and decided to leave the market, the Commonwealth would return the deposit to the company after doing a thorough investigation of the negative impacts of the company’s presence. Taxing people and not corporations is just so long as corporations also do not receive subsidies or the ability to influence law creation and enforcement.

A final note about taxation within the Empire relates to tax loopholes. The Empire shall forbid all forms of tax deductions, exemptions, and credits because such loopholes weaken tax collecting efficiency. It is better to have generally lower taxes for all than to have higher taxes but offer refunds or perks for good behavior. Individuals would pay their own taxes. A married couple would submit tax documents separately. In fact marriage would not give an individual a reduced tax rate. Nor would having children or dependents. Owning property or going to school would not change an individual income tax. Though such measures seem cruel, human ingenuity finds ways to evade taxes by pretending to be what it is not. Destroying such loopholes reduces tax bureaucracy and tax lawyers. By removing these benefits tax documents would be simple enough for a common individual to fill them out without professional help.

If all that I have laid out here were to take place, the Empire of Iranshahr would have the most just and radical tax code in the world. By limiting what taxes can be used and how certain tax revenue can be used, the people can have some respite from the enumerable taxes that a greedy state imposes. By creating a wage/income divide, individuals gain a new sense of equality with their peers. And by eliminating loopholes, the revenue will flow to the governments’ coffers, while simplifying the tax process for the people. Taxation is the lifeblood of the state and the bane of the people. Only through just taxation can the state function better and the people feel less resentment for parting from their wealth.