A case for paying taxes

2020-07-01

Taxation is unavoidable, that should be clear to you and to everyone who lives on planet Earth. However, I can relate if you are not happy about paying taxes because you think the money is not invested wisely or it is stolen by corrupt politicians. I was born in Colombia (a country in South America) and it was clear to me that our taxes were not used for the correct purposes. Now I'm living in Estonia (Europe, EU member) and I am more than happy to pay taxes here. Why? Simple, it is evident that taxes are used for the benefit of the society as a whole, and not to benefit a few that already have more than they need.

Living in Europe has changed my opinion around paying taxes. I can see that taxes are important to distribute wealth and to provide social security. I'm happy to know that the money I'm contributing every month to the welfare system is helping people to afford a place to live, have healthcare access, and put food on their table. Consequently, as most basic needs are covered by the state in case you don't have a job, the crime rate here is low. I had walked from a pub to my home at 2 am and I felt safe. I never did that in my home country because the probability of being robbed in that setting was high.

Living here made me realize that it is possible to change people's perceptions around taxation. In my view, there are two main things required to do this:

1. Simplify the tax payment process.
2. Show taxpayers where their money is invested.

The tax payment process in Estonia is a great example of simplicity and efficiency. The government already knows most of the information it needs to calculate how much taxes you need to pay. Most government services in this country are digital and those involving taxes are no exception. Therefore, to pay your taxes you only need to login into the government website, verify that the information automatically filled by the system is correct, add missing information (if any) and then pay. The whole process takes less than 5 minutes and does not require help from an accountant.

How can the process be this fast? There are two main reasons. Firstly, the Estonian tax code is clear and simple: you pay 20% income tax and there are few exemptions. Secondly, most of the process is automated by technology.

However, providing a frictionless tax declaration process is only one piece of the solution. The other part consists in bringing transparency on how the money is invested. Although I'm not sure how the taxes I'm paying in Estonia are invested, I have the feeling that the government is doing a good job and it is using the money wisely because everything seems to work here: people have access to clean water, healthcare, education; the roads are in good shape and the public transport system works. But the truth is that I don't know how the government is using the money I'm contributing to keeping it running. If we analyse this situation from a financial perspective, the government is a company that we all fund. We are the investors of this company, yet we don't know how the money we contribute every year is used. This is important because no one would like that their tax money ended in the pockets of politicians instead of funding welfare programs. I don't know if this happens in Estonia, but I'm sure it has happened and keeps happening in Colombia.

What would you do if you knew that the money you paid in taxes ended up paying a trip to Disney for a politician and his/her family, or was used to buy weapons and equipment to dissipate peaceful protestors? I bet we would make more informed decisions in election time if we had a report from the government telling us: how the money we contributed was used and who decided to use the money that way.

In conclusion, the message I want to convey through this post is: taxation is an important tool to distribute wealth and provide social security, this will become evident to us once we know how the money we are giving to the state is positively impacting other people's lives. We, as the investors of the government, need to demand a straightforward process to declare our taxes and more transparency on how the money we contribute to support this enterprise is used.