2009TAX: Time, space, taxation, bureaucracy

No taxation without representation.

But is our tax system really complying with that basic right?

Or are we taxing people who have no voice into how the money is spent?

Of course, I am referring to transnational taxation, a.k.a. pollution and other physical/financial practices, but also to the debt burden that we are bestowing on future generations to pay for our current needs.

The articles in this series, TAX2009 (either 500 or 1000 words long), will start with some “what if” brainstorming around the consequences of current technological and social trends, and then use the same prism to analyse current events.

In December 2009, the articles will be mainly of the “what if”/brainstorming variety.

As usual: if you have any comments, contact me on Twitter or on Facebook.

Enjoy!

This article: linking time, space, taxes and bureaucracy for a fairer system


Footing the bill

I already wrote once in a while about the increasingly ludicrous debt that we are leaving as a “virtual inheritance” to people not yet born.

Somebody could say- yes, but we are also building infrastructure that they will be able to use.

And that’s an appropriate objection.

But this objection “ignores” a small detail: when we build infrastructure, it is not just for future uses, but mainly to cover the needs of existing taxpayers.

If you want- a properly planned and built infrastructure will keep being usable generations from now, but we are setting the investment, purpose, structure- according to our own needs.

Just look at the Colosseum, the Pyramids, or the Great Chinese Wall: none of these infrastructures is now used for the same purpose it was originally built for.

When an infrastructure is built, a cost/benefit is done not to build something lasting millennia, but something that can be used long enough to recover the investment.

We are currently building by thinking about today and today’s taxpayers, not tomorrow and the future of humanity.

Therefore, my view is that the investment should be paid from and reimbursed to those whose needs the infrastructure caters for.

Taxation in context

Usually, taxation implies imposing a cost to somebody in a specific location, for a specific duration, in order to obtain a certain set of “services”, ranging from the immaterial (e.g. security), to the everyday support (e.g. government services), to ensuring the continuity of community life (e.g. maintaining the road and railway network, coordinating utilities).

I wrote- “usually” on purpose: because unplanned events could give just immaterial/moral benefits to the taxpayers, while giving physical benefits to others.

As an example, consider a famine in Africa or a disaster like the tsunami of December 2005: most governments, directly or through the UN entities or ONGs delivered financial and material support, by extracting resources from the existing budget of their own country.

Often the reason is depicted as humanitarian- but it is really long-term self-preservation.

A famine or a major natural disaster could weaken and destabilize governments, create civil wars, and affect countries far away from the specific area, as shown by the constant piracy issue in Africa and some other areas, affecting trade worldwide.

But selling this financing to taxpayers is usually tougher than to sell just a new local bridge or road.

Are there alternatives? I think so.

Space-time-interests continuum

Coming from the private sector, I am used to see “taxes” as part of “budgeting”.

When building a business plan, I strongly disagreed about some suggestions to include taxation and its effects within the computation to see when a new company would be profitable (the “break-even point”).

Why? Because a new company that is based only on, say, existing tax credits is not really a viable company: you just need an election or political change, and your company is dead in the water.

When allocating the resources within a company, you have to consider limited resources, the potential for future revenue, and see how to efficiently allocate present and future resources, but clearly separating the almost certain to the wishful thinking.

And still, you have to set priorities: why are you choosing one activity vs. another, and what do you expect to obtain from different ways of allocating resources.

But these priorities, or “interests” have to be framed within a specific time and space.

If you were to relocate the activities to another country, maybe all your assumptions about the logistics and the telecommunication networks available should be re-assessed, and your investments modified accordingly.

Moreover, the World changes.

A tax(onomy)

In any human activity there are always more ways to achieve the same results than you can think about.

It is the interaction between humans that generates the dynamic- and not the other way around.

But you can influence the dynamic, but “profiling” specific needs or interests of concern.

The issue with tax systems is really linked to the methods and organizations used to collect taxes.

While a tax could be a temporary incident, like those used to, say, finance in Italy the admission within the Euro, the organization built around the tax is usually a longer term issue.

And, as I wrote in previous articles, usually general-purpose organizations are ill-prepared to temporary teams and activities.

The best way would probably to have a generalist taxation entity, that creates ad hoc, disposable vehicles (like “tiger teams”), to be dissolved at the end of the cycle.

If you want- more a “taxation programme” than a “taxation project”.

But you can also have permanent taxes, say the income tax, that vary in scope, size, assessment and audit methods, according to the evolution of specific policies.

And, of course, in those cases too often a permanent, vertical, bureaucratic organization is ill-suited.

Timing resources and organizations

A bureaucracy is usually built on a hierarchical division of work, with an oft repeated mantra: size is power.

My approach, in long-term projects, programmes, or partnerships was simpler.

If the partnership is built around a 2-year contract, what’s the point of creating a company on empty promises and a shared common future?

Better to start with a 2-year organizational life-span, contributing resources from the participating entities, or finance the acquisition of temporary resources with a shared control/oversight/audit board, and then monitor the eventual needs.

It is often repeated that few family-based companies survive the first or second generational transfer, but few partnerships keep the same balance of power between the contributing entities across multiple “incidents”.

The reason? As Sartre wrote- “l’enfer, ce sont les autres”.

We are all humans- including political or business leaders.

And few times you can get the “elective affinities” that Goethe wrote about.

Also because the time horizon of most managers and politicians is limited by the annual shareholders’ meeting or its political equivalents.

If you want: a tax has a purpose and an organization supporting it, both framing the time horizon and the real organizational structure needed to produce results.

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