2. Who Really Pays Understanding How Cash Flows, and to Whom, Through Common Taxation Systems Understanding How Cash Flows, and to Whom, Through Common Taxation Systems Copyright 2004 c.e.r.e.s. Copyright 2004 c.e.r.e.s.

3. Who Really Pays? Two Person Society Suppose there is a society that has two people. One person earns $100,000 a year. Suppose there is a society that has two people. One person earns $100,000 a year. The other person earns $10,000 a year. The other person earns $10,000 a year. Let’s say the cost of maintaining their shared assets is $55,000 a year. Let’s say the cost of maintaining their shared assets is $55,000 a year.

4. What What are shared assets? Shared assets, similar to what is called the social capital, are all the assets that are owned equally by all members of a society. Herbert A Simon, a Nobel laureate in economics has calculated that 90% of everyone's income in western countries is acquired through the social capital. These assets include such things as education, research and development; government agencies; health services; roads; and natural resources like water. Shared assets, similar to what is called the social capital, are all the assets that are owned equally by all members of a society. Herbert A Simon, a Nobel laureate in economics has calculated that 90% of everyone's income in western countries is acquired through the social capital. These assets include such things as education, research and development; government agencies; health services; roads; and natural resources like water.

5. Two methods to pay for Social Capital Going back to our two person society, we see on the graph that the green column is the $100,000 person. Next to it, is the $10,000 person represented by the blue column. The red column is the $55,000 social capital costs owed by this society. There are two principle methods to pay for the social capital: one is taxing as a percentage of income and wealth. The other way is to tax as fixed charges. The rest of this section will illustrate these two methods for our 2 person society. Going back to our two person society, we see on the graph that the green column is the $100,000 person. Next to it, is the $10,000 person represented by the blue column. The red column is the $55,000 social capital costs owed by this society. There are two principle methods to pay for the social capital: one is taxing as a percentage of income and wealth. The other way is to tax as fixed charges. The rest of this section will illustrate these two methods for our 2 person society. $10,000 Person

6. Taxation as a percentage of income and wealth The key principle is that we all own an equal percentage of the social capital, therefore, we all owe and pay an equal percentage of our income for its use and maintenance. Social capital costs to society are traditionally calculated and expressed as percentages of everyone's income or wealth. In short that means after we find out what the actual costs are for maintaining, developing, and funding the social capital assets for a given year, that cost is expressed as an equal percentage of everyone's income or wealth and billed, in the form of taxes, accordingly. This is the standard way taxes are normally calculated using a variety of different types of taxes based on percentages of wealth and income. The key principle is that we all own an equal percentage of the social capital, therefore, we all owe and pay an equal percentage of our income for its use and maintenance. Social capital costs to society are traditionally calculated and expressed as percentages of everyone's income or wealth. In short that means after we find out what the actual costs are for maintaining, developing, and funding the social capital assets for a given year, that cost is expressed as an equal percentage of everyone's income or wealth and billed, in the form of taxes, accordingly. This is the standard way taxes are normally calculated using a variety of different types of taxes based on percentages of wealth and income. In our 2 person society, the cost of the social capital is divided such that each person is paying the same percentage of their income. In this case, a 50% tax is what is require to pay for the cost of the shared assets or social capital. In our 2 person society, the cost of the social capital is divided such that each person is paying the same percentage of their income. In this case, a 50% tax is what is require to pay for the cost of the shared assets or social capital.

7. Taxation as a percentage of income and wealth continued The green column representing the $100,000 person has $50,000 remaining after paying a 50% income tax on the social capital. The $10,000 person in the blue column has $5,000 remaining after paying a 50% income tax. The red column shows the $55,000 social capital costs paid. Note that no one is in debt. Everyone has income and resources left-over after paying an equal percentage of their income. Each person is able to pay for the social capital and has free access to their resources and use. This is what is generally meant when a society is said to have free education and free health services. The green column representing the $100,000 person has $50,000 remaining after paying a 50% income tax on the social capital. The $10,000 person in the blue column has $5,000 remaining after paying a 50% income tax. The red column shows the $55,000 social capital costs paid. Note that no one is in debt. Everyone has income and resources left-over after paying an equal percentage of their income. Each person is able to pay for the social capital and has free access to their resources and use. This is what is generally meant when a society is said to have free education and free health services.

8. Taxation using fixed charges Fixed charges are such things as rates (ie, uniform annual charges) GST, user pay and resource taxes. These are all forms of fixed charges. Fixed charges are such things as rates (ie, uniform annual charges) GST, user pay and resource taxes. These are all forms of fixed charges.

9. Taxation using fixed charges: continued This system is based on the idea that the cost of the social capital should be divided equally among the population. Each person pays the same amount regardless of the amount of income or resources they have taken out of society. This implies that the person who acquires the most wealth and resources from society is entitled to pay less of a percentage of their income because they are somehow using less of a percentage of societies resources than everyone else. This is of course completely false. This system is based on the idea that the cost of the social capital should be divided equally among the population. Each person pays the same amount regardless of the amount of income or resources they have taken out of society. This implies that the person who acquires the most wealth and resources from society is entitled to pay less of a percentage of their income because they are somehow using less of a percentage of societies resources than everyone else. This is of course completely false. After dividing the social capital costs of $55,000 by the number of people in our 2 person society, each person is required to pay $27,500. The $100,000 person indicated by the green column on the left has $72,500 remaining. The $10,000 person represented by the blue column is in debt $17,500. After dividing the social capital costs of $55,000 by the number of people in our 2 person society, each person is required to pay $27,500. The $100,000 person indicated by the green column on the left has $72,500 remaining. The $10,000 person represented by the blue column is in debt $17,500.

10. Who really pays? comparison comparison and conclusion This is a comparative chart representing the two taxation methods for our 2 person society. This is a comparative chart representing the two taxation methods for our 2 person society. The columns on the left represent taxes based on percentages of income and wealth. The columns on the left represent taxes based on percentages of income and wealth. This is the system that is traditionally used to determine equity. In this system everyone has money and resources left over and has free access to health, education, and other resources of the shared assets. This is the system that is traditionally used to determine equity. In this system everyone has money and resources left over and has free access to health, education, and other resources of the shared assets.

11. Who really pays? comparison comparison and conclusion The columns on the right represent taxes based on fixed charges. The columns on the right represent taxes based on fixed charges. In this system we can see that the low income earners are having to go in debt in order to subsidise the wealthier people to use the same public resources that everyone owns an equal percentage of. They in fact are having to go in debt to pay for the wealthy to go on welfare. Welfare payments can be defined as any targeted payment or tax transfer in the form of a tax relief, break, cut, rebate or subsidy which is not a payment in return for productive services but represents an income redistribution. Fixed charges are often put in place to compensate for tax cuts in order to pay for society's shared assets or social capital. In this system we can see that the low income earners are having to go in debt in order to subsidise the wealthier people to use the same public resources that everyone owns an equal percentage of. They in fact are having to go in debt to pay for the wealthy to go on welfare. Welfare payments can be defined as any targeted payment or tax transfer in the form of a tax relief, break, cut, rebate or subsidy which is not a payment in return for productive services but represents an income redistribution. Fixed charges are often put in place to compensate for tax cuts in order to pay for society's shared assets or social capital.