14 INCOME AND STANDARD OF LIVING
If one excludes things such as enjoyment of family, nature, exercise, friends and such non monetary elements in defining “Standard of Living”, we are left with money or its equivalent ( In Canada, dollars). We then can define differences in standard of living in terms of dollars, just as we determine “income” in dollars.
For living, one uses goods and services normally provided by others for which are paid dollars. The higher one's “Standard of Living” rises, the more goods and services are consumed, and the more dollars spent.
One,s efforts provides goods and services, for the standard of living of others, for which one receives as many dollars as the others will pay. Those goods and services are created by one's labour or return on capital (savings and investment), and is income.
The dollars of Income and dollars for standard of living of anyone need not be the same amount of dollars. One can defer spending on their standard of living and save and invest, which becomes their wealth. One can also have a higher standard of living by borrowing money. Under the income base of taxation there is no tax, or deferred tax, on this decrease of wealth for standard of living. The wealth of any country or society is the combined wealth of all members of that society plus the wealth held in common by Government.
One can then conclude that one's income reflects what goods and services (wealth for them and their country) they have produced and their standard of living reflects what goods and services (wealth) others have produced for them to consume. I believe that it is obvious that any society would be stronger if less wealth was consumed and more was saved and invested in improving that society by investing in it's productive capacity, and quality of infrastructure and environment.
If one accepts that a Government is necessary and that taxation is essential to support it, and that it should be levied fairly and efficiently, careful consideration should be given to the tax base and method by which the tax burden is levied. It has been generally accepted that a graduated tax based on ability to pay is preferable in determining rate. The graduated rate meets the criteria of fairness since ones income level is largely dependent on the society or country of domicile as much as personal traits or abilities.
The income tax base means that one is taxed on what they produce, the wealth that they have the choice to either consume or add to the total wealth of the country. To tax at the point of creation is to reduce the wealth that could be left to combine with the productivity of the individual to create more wealth. The exclusions, under the current calculation of the tax base, of so many types of income, results in higher rates of tax on productivity. There is also the dampening effect on the product creation of the individual.
The adoption of a standard of living base would mean that one is taxed on what they consume of the wealth that others have produced. Greater choice would be given to taxpayers, the choice to work harder, the choice to spend less, the choice to defer spending, all to increase the personal and country wealth, instead of consuming.
When compared with the present extremely complicated determination of Income Tax, the calculation of tax based on the standard of living base would be unbelievable easy to calculate. The receipts and payments of money is already fully recorded for business and tax calculations. All savings and investment records are maintained. The one basic determination would be “was the money spent on the standard of living or to increase the wealth of the country”.
Having spent many decades contemplating the present tax policies and their effect of favoritism to the wealthy, I will be returning to this topic.