3.2.4.2 Visibility of Taxation

The term ‘tax’ can be used to describe any mandatory contribution to the government.  In Britain, for example, the term ‘national insurance’ describes contributions made by both employers and employees towards the cost of the Welfare State.  In economic terms these contributions are no different from taxes, but the use of the term ‘insurance’ delivers a different moral and political message because of the obvious analogy with other forms of insurance: the individual makes payments to the insurance company and can subsequently make claims when entitled to do so within the scope of the policy.  This terminology was introduced to make it easier to explain the philosophy behind the Welfare State.

Governments may try to hide increases in taxation from the electorate: a concept that has been referred to as ‘stealth taxes’.  One example is Chancellor Gordon Brown’s taxing of pension funds under the British Labour government in 1997, as reported by the BBC: Brown defends pensions decision.  He introduced a tax on the dividends that pension funds received from their investments.  It was a form of double taxation, because the people also had to pay tax on their pensions when they had retired.  It attracted little attention when it was introduced, but became very visible a decade later.  It did not affect people who were still working, or who had already retired, but pension schemes suffered when the stock market went down.  Many companies decided to withdraw pension schemes based upon final salaries as a result.  This was a delayed effect, which most people did not foresee – which is why it can be classified as a ‘stealth tax’.  He was warned of this risk at the time.

Taxes on businesses are also less immediately obvious to many people – and businesses don’t get a vote in elections.  Although such concealment reduces political opposition at the time that the tax is introduced, the population pays in some way.  Taxes on businesses, for example, may not be perceived as affecting the voters directly but they have the effect of reducing the amount of employment and rates of pay that businesses can offer their employees.

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