Tax Compliance as a Social Contract
Citizens and organizations pay taxes to various levels of government for the same reasons that most of us obey red lights. Even when no one’s around to catch us in the act of running a red light, we undertake the inconvenience of stopping in exchange for the partial safety promised to us by mutually obeyed traffic laws. Taxes, in a perfect world, work the same way. We willingly undertake the inconvenience of totalling up our taxes in April and handing over a portion of our own wealth in exchange for a variety of promises made by the governments to whom we pay the tax. This is the social contract: a commitment, freely entered by two parties, for the mutual benefit of both of those parties and often others. In the case of taxes, “other” is quite a large group including our own children, born or unborn.
A quick Statista search reveals that in some nations, over 20% of annual tax revenue falls off the top before it reaches its intended purpose. And, as tax revenue is usually distributed at the behest of governments of the day, reaching its intended purpose rarely means reaching its full potential.
To see what’s lost in this breach of contract, when taxes go unpaid or misappropriated, we need only reflect on the things about public life that we value: public schools, libraries and parks, safe and adequately maintained roads, access to emergency services and healthcare. More likely than not, you’ve made use of a tax-funded resource already today.
Doesn’t it seem prudent, then, given the mutual benefits accrued, to hold up our end of the bargain? Perhaps, if only for the sake of re-election, it might be prudent for governments to do the same.