We all know from basic economic theory that taxes (especially proportional ones like VAT in Ghana, sales tax in US, etc ) are economic bad because they distort consumption and production. Infact, "taxes are bad" is one of the few hymns sung and believed in by all economists. However, taxes are inevitable if there would ever be anything called the Government. This is because Government needs to find a way to fund her expenditures. Therefore though economists ideally seek for a tax-free economy, such an ideal environment is not practical in any society who wants to reap the benefits of government like security, protection, roads, and others. This, in my opinion, is the reason economists advocate for a limited government instead of "a zero-government" activity in the economy.
Even though, I, like my fellow economists, agree government is inevitable, i think government activity could be done in a more appropriate and optimal manner: Since government is motivated by politics and most political decisions, unlike economic ones, are non-optimal, government decisions are normally toxic to societal growth. Politicians don't think about what is good for society but what would get them re-elected. In this light, politics almost always result in wasteful spending (in the form of distortionary subsidies and grants), sucking-up (is that the right expression?), pleasing the majority if even it means joining HIPC for a ten decades more. If what i am saying is incorrect, why at all do we tax consumers (VAT), producers (corporate taxes) and never our churches which right now are clearly more interested in making money than converting souls? Economically, taxing Ghanaian churches seems right, but politically, it's deadly because more than 80% (I am not sure of this figure, but it's a conservative guess) are Christians!
Taxes are normally bad when it distorts production or consumption. However, since church money normally goes into an individual's or a small group's pockets (instead of being used for a productive venture), church taxes, in my opinion, would not be distortionary to economic growth. It would rather be a more sensible way (than VAT and corporate taxes) to fund government expenditure. And if the presiding members of these churches truly believe they aren't in the church business for money, then they shouldn't hesitate offering a fraction of their humongous revenues back to the government for public use. The church should rather feel good that they are helping the government fight poverty, increase security, build roads, etc.
Also, Ghana could give tax-breaks to the altruistic churches who show their appreciation and love for the country by establishing schools, jobs, hospitals and so on and so forth.
As our Ancestors used to say "Se papa nye hwee a, bone nso nye hwee": If these churches don't feel bad about not using church revenues (which includes poor peoples' money) for the benefit of the poor Ghanaian people, then we shouldn't hesitate slapping them with taxes. Am i preaching to the choir or what?
(Don't tell anyone: The world would be much better if run by economists rather than politicians)
Weak economic analysis (again?).
"We all know from basic economic theory that taxes (especially proportional ones like VAT in Ghana, sales tax in US, etc ) are economic bad because they distort consumption and production."
Who's "we"? Which sources are you quoting that demonstrate (i.e. mathematical proof please!) that proportional taxation distorts consumption?
I would suggest that consumption taxes are more economically advantageous than income taxes.
Saying "let's tax churches" implies to me that now, they do not pay taxes at all, of which I am sceptical. Was the land for the church building acquired without paying taxes? What about building services (water, electricity)? Please declare what taxes they are paying now and what specific taxes (feet through the door? A proportion of donations) you are suggesting they should pay.
Moreover, the patrons of these churches (assuming they are all legitimate) would have paid for their donations out of taxable income.
"church taxes, in my opinion, would not be distortionary to economic growth"
Well, increased taxes of churches would probably lead to increased demand for donations ("you must give more to save your soul" I hear the priests beg), so you would in effect be reducing the church visitors ability to spend money on other "productive ventures", whatever they could be.
A true (christian) church would automatically be doing the altruistic actions that you suggested without the need for the taxation burden. You should be asking yourself "why aren't these church visitors asking their churches about their altruistic activities? Where is my money going (apart from the mercedes)".
I wouldn't be pleased to be running a business, doing similar activities such as donating to a local hospital, without tax breaks, whilst churches receive such an advantage.
Which brings me to my next point: how is your business going? Are the employees happy with their efficiency wages??? :)
Ok Mr. R., I love the fact that your understanding in economics is weak: I make money explaining Economics to people who don't get it--- students, policy-makers, politicians,etc. I don't have much time but i think i should create some to address some of your questions about taxes (so if you happen to become a policy-maker one day (which is "prolly" unlikely....lol) , my kids and I will not have to leave our dear nation because of your bad economic policies).
Mr. R: Who's "we"? Which ( sources are you quoting that demonstrate (i.e. mathematical proof please!) that proportional taxation distorts consumption?
Response: Infact, proportional taxes being distortionary is one of the few lessons every undergraduate student (who becomes lucky enough to take the simplest economic course) takes from an introductory economic class. In case you don't see it, i will explain. Market prices are set by the interaction of demand (reflection of people's willingness to pay for the good and hence the marginal benefit of the good to society) and supply (which is purely determined by marginal costs). When these two forces interact, the market price results. More specifically, the market price is the price where social marginal benefit (Demand) equals the social marginal cost (supply). Barring any third party effects (called externalities in Economics), it should be intuitive (from the cost-benefit analysis given above) to see why market price is the best price for society. In this light, any sort of exogenous restrictions or interruptions to the market (like taxes, price floors, price ceilings) would lead to inefficiencies. Proportional taxes cause people(firms) to cut down on their consumption (production) to levels where social marginal benefit exceed social marginal cost (now you see where the distortionary begins?). There is a kind of tax called lump-sum which is non-distortionary but very difficult to implement. So please believe that taxes are distortionary!
Mr. R: "Well, increased taxes of churches would probably lead to increased demand for donations ("you must give more to save your soul" I hear the priests beg), so you would in effect be reducing the church visitors ability to spend money on other "productive ventures", whatever they could be."
Response: You couldn't be more wrong! The church (especially the ones being run as business) wants to maximize revenue with or without the tax burden. So if there were other means which they could have used to generate more money now that they face no tax burdens, they would be currently be using it. Let's say the largest possible revenue that can be reaped by church A is $50 000. I don't see why church A would be targeting $40 000 under no tax, but $50 000 when taxed. For any tax rate strictly less than 100%, the target should be 50K.
Mr. R: "Saying "let's tax churches" implies to me that now, they do not pay taxes at all, of which I am sceptical. Was the land for the church building acquired without paying taxes? What about building services (water, electricity)? Please declare what taxes they are paying now and what specific taxes (feet through the door? A proportion of donations) you are suggesting they should pay".
Response: I am talking about the offering, the seeds, the collection, the promises and any kind of gift that is given to the church. The last time i checked, Ghanaian churches paid no dime on church revenues. My proposal would ensure that at least part of these church money is used to do the right thing. If these churches (and here I mean their presiding members) are left alone, they would do nothing. Hence, there is a need to incite them to naturally do the right things. I strongly think the tax burden and tax rewards would do the trick. In US for example, more rich people give money as charity because they would have to give it to the government otherwise. The problem of taxing churches is the difficulty in determining the revenues of churches. However, I hope churches, being moral organizations, would be truthful in reporting revenues even when faced with tax burdens.
Mr. R: Which brings me to my next point: how is your business going? Are the employees happy with their efficiency wages??? :)
Response: Unfortunately, I have 0 employee. I am my own employee and give myself a heck of an efficiency wage. I seriously think Ghana should re-consider their wage structure if we want any significant economic growth. We should know that wages don't only affect how many hours Ghanaians work, but also the intensity and quality of work.
Gyasi K Dapaa
You'll have to excuse my mathematical bias, but I still like to see some evidence that taxes distorting consumption.
To state that VAT is economically bad, without any explanation (apart from rudimentary demand/supply) is poor.
Unless you can state that (for example) NYC will see a boost in consumption (without inflation) by simple removal of sales tax, you argument is weak. Despite your long treatise, you haven't demonstrated a real world example!
"In this light, any sort of exogenous restrictions or interruptions to the market (like taxes, price floors, price ceilings) would lead to inefficiencies."
I would state that environmental damage is a good example where the use of taxes is an effective way of imposing a short term value of environmental resources, creativing an incentive for higher efficient usage.
"I don't see why church A would be targeting $40 000 under no tax, but $50 000 when taxed"
Well, if the marginal tax rate is so prohibitive, the church would indeed not have an incentive to maximise revenue; often a reason for a regressive tax system, to cope with "disincentives" to increase consumption.
I take issue with the (socialist) assumption that the state is better at spending money than the individual. Philantropists donate for various reasons, not just to be tax efficient. You make a very weak case that individuals, or a group of individuals, have no interest in helping a beggar (for example), unless taxes are used to induce them to do so. You should accept that altruism is an acknowledged human trait that exists innately.
"Response: You couldn't be more wrong!"
Church A on Monday receives $10000 net. Next week a new 10% tax is introduced; the church must increase gross income to $11000 to obtain the same net income, agreed? Ceteris paribus, you increase tax on the price of worship (i.e. the "donation") and the church visitors increase their donation, can only result in less income for other expenditures.
Being a free marketeer, I believe in leaving people to spend their own money as they please wherever possible.
"However, I hope churches, being moral organizations, would be truthful in reporting revenues even when faced with tax burdens."
Churches now do not have the morality to stop child abuse, or "leaders" profiteering from their patrons, so I have little confidence that churches are somehow "more moral" to file tax returns honestly.
Congratulations on your efficiency wages. Although, true respect comes only when you are able to pay all your employees (from the cleaner to you as managing director) this fantastic efficiency wage. Since your model is so successful, can you tell us how many private firms have implemented your consultancy? ;)