Tax system reform and the merits of the 1970 scheme

The present form of levy, as regards direct taxation, is quite imperfect. In fact. direct taxation is on distributed personal incomes; its personality implies defining a place of residence for the perceiver; residents of a country are hit on their worldwide basis. These are the general principles. The revenue of a nation is the sum of internal revenue (from the national basis) and of external revenue (from the foreign basis). Progressivity leads to their being strictly linked. Of course this is the rule for every nation. Since assessment can be conducted only internally, this leads to a general disorder, which compels nations to integrate their fiscal systems. This constriction soon leads to a single destination of revenue within an integrated administration. The functions of expenditure nevertheless are mainly national. This compels huge transfers from the point of collection of revenue, to single nations. The structure so depicted is in part avoided in Europe, because there are exceptions to the principles. Some of these exceptions are: incorporated firms pay not on the basis of distributed incomes, but on produced incomes (profits), at a proportional rate; many less developed countries apply the principle of produced incomes and proportionality also to other incomes beyond profits; taxation on distributed profits and on capital gains is decreasing as a rate (the one on capital gains is hardly effective); financial capital is subtracted in many countries to progressivity. This, if we add the circumstance that every nation normally subjects all internal incomes to withdrawal, and that international treaties pose remedies to such a situation which are necessarily partial, gives some idea of the total confusion with which direct taxation is now confronted. Such confusion is partially extended to indirect taxation, dominated by a tax, VAT, in which the imposable base is not directly revealed. The previous fiscal system, based as regards direct taxation on produced incomes (and therefore at proportional levy), and as regards indirect taxation on all produced goods and not only on consumption, was much more appropriate. The problem is how to try to take the best advantage of past experiences, by adding progressivity, the only “result” of recent times. It is shown that this is possible, taking advantage of the new economy: progressivity can operate within social contributions, which are national; national incomes may be effected by different rates; especially high rates may hit capital gains and the interest rate, on the side of production; a small rate may regard B to B transactions. A synthesis can then be achieved.