An inquiry into the nature and causes of the wealth of a national (book five Of the Revenue of the Sovereign)

Taxes upon consumable Commodities

Adam smith in his open statement on taxes upon consumable commodities said “The government cannot tax the people according to their revenue but directly tax them based on their expenses”.

Here Revenue refers to the total amount generated from normal business operations calculated as the average sales price.

EXPENSES: Are the cost incurred in or required for something.

The above quotation seeks to explain that the state is unable to tax individuals as per how they earn but rather tax them as per how they spend consumable commodities meaning any food or beverage product which is offered for human or animal consumption.

He further explained how inferior people (blacks) consume the highest amount of goods not only in quantity but also in value for example a creditable laborer will be ashamed to appear in public who earn small amount of money will be ashamed to appear in public without a linen the same goes for a leather shoe in England.

Also in Scotland custom as made it a necessity woman may work barefooted but men may not on the other hand in France both could go out barefooted without any problem.

Smith further explains the categories of consumable which include Necessities and Luxuries. In necessities not only things with nature but those things that are applicable by the rules set to be decent rules for the poor.

Luxuries an any inessential desirable item which is inexpensive or difficult to obtain these are things whether with or without them you are not questionable for instance a man in any rank can disapprove to stop drinking that because nature don’t make them life supporting and custom doesn’t say it indecent to not have it.

However the rise in taxes resulting to the increase of prices doesn’t affect the low class in bring up families but their major problem is that no matter the rise in prices they will continue to use as before nor will they curtail it usage and in the end it is the industrious poor who normally bring up the highest number of family.

The middle rank expected to oppose the taxes reason being is that they have a voice in society and government listens to their appeals more compared to the low class but yet they sit back and do nothing.

Smith continues to explain that consumable goods are task in two ways:

The consumer may either pay an annual sum on account of his using that is you pay for the exact amount of the commodities you will need in that particular year OR The goods maybe taxed while they remain in the hands of the dealer In sense you pay by installment of a particular good and until you are done paying before it is delivered to the consumer.

In most cases most of the goods that are imported are more likely to withstand the stresses of demand use and most times they have to smuggle these goods into the country illegally and with all the pressure they may only be able to import small amount of goods on the other hand “Merchants exporters they make entry of more than they export” what they say is the amount or percentage of the goods exported is not equivalent to the exact amount of the goods on board and these fraud are cause by politicians who mentioned the national progress by what they called “ balance trade” ( the difference in value between a countries import and export of goods and services.

To some extent the higher taxes demolish the consumption because many people will not good in for that particular good they rather find a substitute but if government also encourages smuggling the will generate a small amount of income and that will affect the country’s economy.

One way through which smuggling can be prevented by importers is by lowering the tax.

Another way is by providing strong policies that go against smuggling.

The various methods for levying tax Smith analyzes suggest that, in his opinion, tax on land is the most effective method for collecting taxes. Despite the complexities of adopting an appropriate model for tax, which must take into account both the value of the land and the incentive structure surrounding its cultivation, tax levied on land seems to be the most appropriate. Land taxes interferes the least with existing price structures, and avoid the problem of citizens hiding their income from the government.

Smith also expresses the concern that taxes should be levied in a manner that does not decrease the motivation for productivity or prove overly burdensome for citizens. He therefore suggests that taxes should be levied openly and clearly, upon property (land) that is easy to measure. These opinions would make him an automatic critic of the tax systems of most large states, many of which levy taxes on goods that are potentially profitable (untenanted buildings, and capital), as well as the dividends of stock. On the other hand, it might be argued that Smith could not have foreseen the complexities of an economy in which large amounts of unproductive land were owned by average citizens (neither large landowners, nor the government).

Smith also makes the important point that the cost of taxes, wherever possible, will be passed on to the consumer, or have the result of affecting prices. If a tax is levied upon the practice of a particular profession, then, this tax will result in a higher cost to persons who consume that service. If taxes are levied upon landowners who rent, these taxes will be passed on to tenants, and will limit the amount of rent that landowners may charge. In short, poorly designed taxes will always interfere with prices, and may distort the necessary balance between the factors that affect pricing.

While taxes are used to pay for a wide variety of public works, they are not generally used to offset the enormous cost of war. This is because the structure of a democracy will lead elected officials to use up nearly all tax revenues on public works during peace-time, in order to increase the quality of life within their jurisdiction and win the approval of their constituencies. When war is being waged, governments will be compelled to borrow from private sources. The more attractive the government can make itself as a borrower, the more money it will be able to access, and the broader the scope of its wars may be.

PRAISES

Smith was able to make a clear analysis as to how the government levied taxes on the people and how these taxes affect the consumption and slows down businesses which affect the livelihood of individuals. The article also shows a clear way as to how the inferior poor contributes to their continues hardships because they fail to spend as they earn and bring up numerous family which makes it difficult for their standard of living especially when taxes are levied on consumable goods leading to the inflation of prices.

CRITICISM

It’s is true that commodities are highly taxed by government but taxes that are been collected goes to the country’s economy and they are used for bring progress into the country for instance the free quality education, free healthcare, road construction all these can only come to existence when there is money and the only way they can generate money for the country from citizens is by paying tax by so doing the country’s becomes independent without relaying from external source of funding or free from debt.

Also if smith argues that the inferior poor should curtail the way they consume goods because of high prices definitely it will lead to a more social problems, it leads to poor health as a result of under consumption which makes them physically unable to do things leading to the backwardness of work.

Hence I suggest the government should be honest and Levied taxes that business people will be able to pay for and that will help in the development of the nation so we all reach at an equilibrium.