Taxation

Taxation

Most people agree that a certain amount of taxation is necessary to keep at least the most important social institutes working. But the question is how much taxes should be paid and how much the government should take part in business with tax revenues. Both high and low tax rates have many arguments against and in defence, and that’s why the question about taxes rises up frequently in public conversation and in media.

High tax rates are the backbone of our Scandinavian welfare state. One of the main functions of taxation is to even out the gap between the poor and the rich by government spending. Big differences in standards of living will eventually lead to unrest, and therefore high taxation makes the society more stable. In Finland, the public education system is also one of the best in the world. There are probably many reasons for a working education system but a high tax rate is definitely one those. In other words, tax money makes it possible to have more highly educated work force. However, the high taxes have also a negative effect on labor reserves. Especially well educated people tend to move abroad for work because of the lower tax rates.

Even though the high taxes make it possible to get educated labor, many companies are moving their businesses abroad, especially to Asia. That’s because of the large amount of expenses caused by high income taxation. Lower income taxes would also encourage people to work more. Since we have the progressive taxation, working more doesn’t always increase the net-earnings. Furthermore, high tax rates usually lead to black economy.