Swarajya, September 16, 1961
People are deluded to believe that a government which 'taxes the rich' is favouring the poor and the middle classes. A little thinking is enough to disprove this false notion greatly encouraged by political parties depending for their strength on class-conflict.
Almost all taxes, be they customs duties on machinery or parts or raw materials imported, and all duties of excise which appear to impinge on the manufacturing and commercial community, obviously go into the price of the articles sold to the consumers. What is not so obvious is that all direct taxation on the rich also works itself into the cost of production negatively into the scheme of profit and incentive at the base of production, and finally it enters into the price of the articles sold to the consuming public.
It is an illusion to think that taxes on the rich are taxes on the rich only, and not on the poor. Whether the donkey carries the load on its own back or the rider carries it on his head, ultimately the donkey it is that bears the whole burden.
There is a comforting illusion which prevails that the burden of taxation stays where it is placed. The sooner this fallacious assumption is dispelled, the better for a proper understanding of the effect of policies. People are deluded to believe that a government which 'taxes the rich' is favouring the poor and the middle classes. A little thinking is enough to disprove this false notion greatly encouraged by political parties depending for their strength on class-conflict.
Almost all taxes, be they customs duties on machinery or parts or raw materials imported, and all duties of excise which appear to impinge on the manufacturing and commercial community, obviously go into the price of the articles sold to the consumers. These pay the taxes ultimately through the price charged and recoup the first taxpayer. This is obvious. What is not so obvious, but which is equally true and important, is that all direct taxation on the industrially and commercially employed rich works itself into the cost of production negatively into the scheme of profit and incentive at the base of production, and finally it enters into the price of the articles sold to the consuming public. Like water which finds the lowest level, taxes are all, or almost all, transferred down until the burden falls on the consumer.
Even when the taxes are on articles of comparative luxury which are consumed by the directors and high-grade staff of business organizations, the circumstance is necessarily taken into account when settling their allowances and salaries. These are of course added to the cost of production and nobody can question such addition. Ultimately, therefore, these too fall on the consumer. The income-tax on money-lenders raises the rate of interest on loans as surely as the price of cotton affects the price of cloth.
It is thus an illusion to think that taxes on the rich are taxes on the rich only, and not on the poor. Whether the donkey carries the load on its own back or the rider carries it on his head, ultimately the donkey it is that bears the whole burden.
