4

Are governmental taxes (federal or state) which an entity pays considered a debt [owed to its government] or is the entity merely giving the government its share? E.g. a person is taxed 30% on his income; is that 30% a debt which he owes or did the government own that 30% to begin with? Does it further make a difference which country or which kind of tax is under question? (I’m asking for info. per any country.)

An argument that it is a debt might be made that since the tax is to compensate the government for maintaining habitable infrastructure (streets, bridges, security, emergency services etc.) an entity is repaying monies “laid out” on its behalf. In opposition, it can be argued that a government is saying “Look, it costs X amount of money to run this country. To make with work we get 30% of the citizens’ income.”

  • 5
    How taxes are considered depends on your political viewpoint. You might ask how libertarians, communists, conservatives, or liberals view it, and you would probably have to qualify by area and era as well. – o.m. Mar 13 at 20:25
  • 1
    @o.m. Valid point, though the lack of a particular viewpoint is because I’m interested in knowing if there is unequivocal (legal) basis/definition for any view. – Oliver Mar 14 at 2:14
  • How could there be such a viewpoint? The concept of taxes is older than the concept of a social contract, I think. – o.m. Mar 14 at 5:24
  • @o.m. You originally commented that explaining the legal structure of taxes “depends on your political viewpoint. You might ask how [X, Y or Z] view it...”. I replied that indeed I’m not asking from a particular political viewpoint. Now you ask “how could there be such a viewpoint”? I’m confused. Are you questioning your own initial comment or are you questioning how can there be any “unequivocal (legal) basis/definition” which I asked about? – Oliver Mar 14 at 5:44
  • I'm trying to say that there can be no "unequivocal (legal) basis" for taxes because there is no universally recognized basis for government. Just various competing theories. – o.m. Mar 14 at 5:54
4

In UK law, the government is treated like an unsecured creditor.

A debt can only exist when there is a demand for payment. In the case of tax the legal basis for this demand is not the fulfilment of a contract, but the decision of the representatives of the Commons to consent to the payment of a tax: I.e. You voted for those MPs, and they voted to allow the government to raise tax. Or (to misquote Monty Python) the power to tax derives from a mandate from the masses.

The debt only becomes an issue when there is a failure to pay. In the case of someone evading tax, this is not treated like normal debt, since tax evasion is a crime. (unlike debt from not fulfilling a contract, which is a tort).

But if someone is unable to pay, then HMRC is considered to be an unsecured creditor. Secured debt is paid off first. In the case of personal bankruptcy, your house can be sold to pay off your mortgage. After this there are preferential creditors (eg employees). Until 2002 HMRC was a preferential creditor but now HMRC joins with all the other unsecured creditors (eg credit card debt) to share out what money is left.

https://www.begbies-traynorgroup.com/articles/insolvency/who-gets-paid-first-when-a-company-goes-into-liquidation

The same principle seems to apply in the USA. While tax has a special status, and non-payment is a crime, The IRS is treated like an unsecured lender and must take its share along with other creditors when an individual or company becomes insolvent.

https://www.investopedia.com/ask/answers/09/corporate-liquidation-unpaid-taxes-wages.asp

  • Interesting analysis; thank you. – Oliver Mar 14 at 2:12
  • U,S. law gives unsecured income tax debts priority over most other debts. Certain kinds of taxes (e.g. estate tax debts and property tax debts) are de facto secured debts with the property that is subject to taxation providing collateral for a pre-collection tax lien prior to secured debt), rather than being unsecured debts. U.S. law often does not require a demand for payment which can be implied in law. However, taxes are usually not considered true debts in the probate process in the U.S. (and hence not required to adhere to the probate claim presentation process in decedent's estates). – ohwilleke Mar 14 at 22:15
0

Are governmental taxes (federal or state) which an entity pays considered a debt [owed to its government] or is the entity merely giving the government its share?

U.S. law gives unsecured income tax debts priority over most other unsecured debts.

Certain kinds of taxes (e.g. estate tax debts and property tax debts) are de facto secured debts with the property that is subject to taxation providing collateral for a pre-collection tax lien prior to secured debt), rather than being unsecured debts. U.S. law often does not require a demand for payment which can be implied in law.

However, taxes are usually not considered true debts in the probate process in the U.S. (and hence not required to adhere to the probate claim presentation process in decedent's estates).

There are forms of revenue that are conceptualized as "merely giving the government its share" for legal purposes, but revenues of those types are normally not classified as taxes.

For example, in the U.S. and many other countries, all or many mineral rights are the property of the government, and the government receives royalty payments under leases from the government to mineral exploitation companies that are a share of the revenues or a share of the profits of that company.

Similarly, governments often charge lease or royalty or share cropping amounts for grazing on government land, or farming on government land. In the feudal period, most government revenues were structured in this manner.

And, when almost all housing in Singapore was government owned, a significant source of government revenue was rent charged to people living in government owned housing which was its share of the value generated by this property.

The key point to recognize that is somewhat flawed in the question is that a debt, which is basically another name for an obligation, does not naturally imply a contractual relationship with mutual benefits and obligations. Obligations and debts can be one sided and non-contractual.

For example, a speeding ticket or a fine for public drunkenness is a debt, even though it did not arise as an exchange for something provided by the government in exchange.

Even when a particular types of tax (e.g. FICA payroll taxes in the U.S.) are earmarked for a particular purpose that benefits the person paying the tax (e.g. Social Security and Medicare benefits), a tax isn't something paid in exchange for the benefit received in the same way that, for example, an insurance premium would be.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .