Centrum im. Adama SmithaPierwszy Niezależny Instytut w Polsce od 16 września 1989 roku

The System Must Die Out

The situation with the Polish tax system is similar to the story from a Russian joke. The KGB officer interrogates a citizen caught scattering throwaways on the Red Square [in Moscow]. The officer takes a leaflet and examines it several times. But the paper is not covered with print. Full of surprise, he asks the interrogated person: ”- Where are the letters? - What for, lieutenant. Everything’s clear.”

Almost everything has been said and written about our tax system. The awareness that it is bad is among general public. Political careers made parties that managed to create a public impression they could change anything. Social dissatisfaction rises, especially after capital gains tax was imposed (while savings accounts earn little interest), because of rising tax burdens (a study conducted by ASRC, and Estymator Institute shows that 96 percent of the society believes that taxes are too high; please visit www.estymator.com.pl/sondaze.htm).

American Definition and Polish Dreams

Dissatisfaction does not keep pace with rising taxes. We are not in danger of revolt against high and unjust taxes, which in result brought independence for the United States of America, and influenced constitutional order of that nation. Its nature is perfectly pictured in Thomas Jefferson’s words, which he spoken during a celebration when the first president of the United States was pledged: 

A wise and modest government, which does not let people harm each other, which leaves the people freedom of economic development and self-improvement, which does not deprive people of their means of livelihood they earned – that is a definition of a good government which we need, to make our happiness fulfilled.

Two hundred years after these words were said, there are dreams of the Polish society that still wait for that wish to fulfill. The regaining of independence itself is an accomplished and celebrated chapter of our history. Despite that fact, the past twelve years have been a very disappointing experience, especially for the young generation, which perceives the present Republic of Poland a state that takes from them a chance for normal life. Expectations so as to life perspectives counted upon the European Union might not come true.

The measure of inefficiency of Poland is high and alarmingly rising level of unemployment. Extremely expensive and ineffective bureaucratic structures and judicial regulations are mechanisms that accelerate growth of unemployment. They are like a cancer that attacks additional spheres of economy and citizens’ lives. These structures cause that energy of millions of Poles is unaccountably and immorally wasted. On the way to national wealth we were walled off by bureaucratic and taxation systems hybrid. They “prevent” Poland and its citizens from stream of wealth that passes by.

That obstacle does not allow us using that wealth as is done by other nations. It leads to desolation of the Polish economy and impoverishment of more and more people in this country. Today, it is difficult to believe that throughout past three years there was a growth of 7% annually and unemployment was gradually decreasing. Nowadays, the unattainable dream of politicians is a merely 3% growth. There is still a chance for our country to experience a civilization development; sources of that development are energy and work of our own citizens. No donations or help that comes from abroad can be a guarantee of endless national wealth, needles to say that they cannot be sources of normal and consistent development.

A New Tradition

The Clark’s law states that when many people behave foolishly, then the reason of that lies within a tax law. Silly behavior has been happening for many years during obligatory filling and submitting a status declaration. That is how millions of hours are irrevocably wasted.  It is the prevailing taxation system that causes that compulsory loss of time, which did not take place previously. 

It was only when so called taxation reform was introduced at the beginning of 1990s that it imposed on millions of Poles an obligation of filling a status declaration. A new secular practise was initiated, the absurd of which surpassed even the ones presented in Bareja’s films. That absurd is intensified by acts and decrees, which introduced fiscal cash registers in cabs, or an obligation of replacement if they do not print logos in the middle of bill of sale. The final measure of absurd of that system – which is more than Mrożek and Ionescu could think of altogether - is a concentration of fear that this system produces. The materialization of that fear was visible during disastrous floods that afflicted several regions of our country.  Shops on the areas afflicted with misfortune did not work – not because they were flooded or just damaged. They could function anyway and sell goods for people in need, who were cut off from supplies. Yet, owners of those shops decided to close them – due to lack of electricity fiscal cash registers could not work. Hatred from the people around was nothing in comparison with fear for consequences of selling without the use of those fiscal cash registers. Social ties, slowly improving after the previous political system, were again destroyed – this time by the tax system.

The Unattainable Idea of Simplicity

That system, which is clearly visible, is by all conditions pathological. Similar to gambling, it is interpreted by authorities and the growing number of tax advisors. Only Harlequin publications might compete with the amount of printed materials on taxes, though there is no hope for happy end. The result is chaos and uncertainty within behavior and the process of decision making among millions of people put under additional jurisdiction. The system itself became its own hostage. In order to enforce its own regulations, it requires growing and expensive means of control and repression. The Constitutional Tribunal in Poland cannot deliver remedies to that tumor-like, ever growing system. Its verdicts only delay uncontrolled growth of that cancer.

On that framework, the more and more popular becomes a postulate so that the system be indeed simple. However, simplicity is not accepted not only by politicians, but also for some theoreticians and practicing professionals. They are stroke by univocal character nature of simplicity, since it is a negation of exquisite complex ideas. Once, a respectable body that was asked to work on program merits for symposium on taxation, deleted a notion of simplicity from principles of a new system, as one of professors asked: “What does it mean simple?”

A Matter of Principles

That respectable body decided to cross out from documents of that congress basic principle on which a taxation system should be established. It ended up with seemingly correct postulate for decreasing tax rates, which is a mantra for all those who cannot find themselves in alternative system. The national budged cannot be properly cashed without taking into account “fixed” expenditures that are to be financed. So, if taxes cannot be low, at least let they not be helplessly stupid, and with paralyzing effects. 

Here, we reach fundamental principles in case of a state and lives of each and one of us. Certainty – it is the basic and most important principle raised by Adam Smith. It is of greater importance than rates of taxes. Security and anticipation will bring the budget greater revenues than rapidly introduced capital gains tax, which hits money-grubbers. That maxim corresponds with a principle of cheapness. Its notion is limited to a fact that a tax should not take from citizens incomparably more than it benefits the budget itself. Only a clear system is cheap and profit-yielding. Every other will only waste the work of millions of taxpayers, and numbers of bureaucrats in a game with adverse balance that has a detrimental effect on national economy. The goal is to stop or limit acuteness of absurd of a system from one side, and responsibility of its enforcing according to law from the other.

The list of principles is slightly longer than described above. It is based on basic logic, rationalism , and knowledge of a human nature. It causes that each time people protect themselves from oppression of tax collectors – even if these are the results of democratic choices. 

The System Must Be Abandoned

Market rules do no apply to situation and fate of a single enterprise in current Polish reality. Neither is it market position, quality of products and services, nor managerial or owner’s attitude that have objective influence and real value. A bureaucrat becomes a substitute for the market. Individual, arbitrary decision, mainly based on acuteness of taxation system, might lead a firm to tax delinquency and make it cease to exist. That common regularity confirmed a many years’ chairman of the Optimus company, Roman Kluska, in his interview for Rzeczpospolita daily (April 12, 2002.)

That system, which is a threat for companies and entrepreneurs (an example of which is detention of aforementioned chairman), has a destabilizing influence on economy and a state. There is a crisis of public finances that has been rising throughout the years, the efforts were made to hide that situation by forcing Social Insurance Institution (‘ZUS’) or employment offices to take commercial credits in the name of a state. Neither fiscal burden, nor a timid proposal of flat tax limited to personal income tax would prevent from breaking of a public finances system.

The current tax system must be abandoned as soon as possible. Its sustaining is an inexcusable ruin of possibilities for development of our country, and improvement of prosperity of our citizens. The latest attempts of its modifications result only in superficial effects. Not only does that system accelerate the crisis of public finances, but also the crisis of the nation. It also stimulated a previously deeply hidden notion of a hostile government towards the people. That leads to questioning of a constitutional order, which until recently seemed to be unbelievable, and will increase as unemployment rises.

The Chance of a Lifetime 

The political elites created their own world and they react to external signals inefficiently or too late. They use a taxation system as a chance to state unfulfilled promises. It is a proper thing for a politician to publicly admit that he or she was not able to fill in a status declaration by their own, even though that politician was previously voting for that obligation in the name of millions of his nationals. That situation is in contradiction with Jefferson’s words. That is why those organizations that are most aware of indispensable changes ought to take an initiative.

The notion of taxation does not need to be complex, if accompanied by aforementioned principles and common sense. The idea of ordinary taxation system has been publicly presented many a time. One of the basic assumptions of the changed system is substantial decrease of tax rates imposed on labor (ZUS, insurance premiums, taxes), which is the most important source of unemployment in Poland (though, decrease of revenues from those loads will commit do lower budged revenues, and will have to be replenished by indirect taxes). An indispensable feature is a radical simplification of business tax for small and medium enterprises (as previously was announced by the Spanish government). The simplification of the system will not be possible without holding of absurd VAT tax rate. Its expanding results in lower revenues from that tax. That expensive and discriminating tax system might be one of the sources of critical condition of public finances.

The time has come to transform the concepts of taxation into a proposal of a bill, which was announced in June by the Adam Smith Research. As a citizen initiative, it is possible to combine efforts of employers and trade unions (such common undertaking took place in Germany). It seems that it is the only way for the impoverishing and desperate society to make at least a part of political elites wake up, and take the side of their own voters.

By doing so a government has a chance to regain trust among society and make history. If nothing is done, there will be a disastrous lack of after-effects. It is possible that we experience a statement by J. Newman that “at least as many people escape abroad from taxes as from dictatorship.” Even if it is democratically chosen dictatorship of political elites, which lost their instinct for creation for Statehood.

Andrzej Sadowski – a co-founder of the Adam Smith Research Centre and vice-president since 1989

http://arch.rp.pl/a/rz/2002/07/20020722/200207220046.html?k=on;t=2002072220020722 (Visited November 11, 2002.) 

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