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Classical Liberalism and Limited Government Classical liberal
thinkers believed that the government's role should be restricted to
security, stability and maintaining order. The government's only
involvement in the economy was paying for a police force, courts and
jails, and supporting a military to protect the nation from its enemies.
Modern Liberalism and the Role of Government Today's
governments in almost every nation in the world have much greater roles.
Not only do they regulate industry to enforce safety and labour standards
and protect the environment, they also provide essential services that
most people take for granted. In some countries the government provides
health care and education for everyone, builds and maintains the roads
that everyone drives on, establishes and maintains water supplies and
essential utilities such as electricity and natural gas, creates
communication networks that connect people across the nation and
around the world, and provides an income for those who are unable to
work.
Where does this money come from? How did liberalism evolve from the
idea that government should only provide security to the larger role it has
today?
Take a look at the American historical cartoon on the left. In it, the
Statue of Liberty, symbolizing peace, stands with a heavy weight entitled
"income tax" around her neck.
An old ship and a closed workshop represent the fact that a long
economic depression was just ending while the vultures overhead indicate
death is near.
Context of the Image The first income tax in the United States was
established in 1861 to help pay the costs of the U.S. Civil War. It
amounted to 3% of a person's annual income for anyone who earned
more than $800 per year. While that doesn't seem like much to us today,
back in the 1800s the average worker made less than that amount and so
he did not have to pay any taxes. The tax was in effect for less than ten
years, and then it was abolished. When businesses and politicians
proposed replacing their business taxes with income tax, many Americans
were outraged. The proposed income tax bill was defeated, but the next
income tax bill passed. Analyzing Links to Liberalism
Look at the statue's name and the cartoon's caption, combined with the other elements of the image. What do you think the cartoonist thinks about income tax during peace time? What is the artist's ideological perspective? What links between the source and liberalism can be made? See exemplar here. In this world nothing can be said to be certain, except death
and taxes.
Benjamin Franklin Today, we take the idea of income taxes for granted, but it has not always
been the case. For many years, countries with classical liberal economies
obtained their incomes from tariffs and other business related fees.
However, the government did not provide many services to its people.
The first income tax in Britain was introduced in 1798 to pay for the costs
of the Napoleonic Wars. In Canada, income tax was introduced in 1917 in
order to finance Canada's expenses in World War I. It amounted to 4% on
all income of single men over $2,000. Canadians with annual incomes of
more than $6,000 paid an income tax of 2 to 25 per cent. Income Tax Today
In a democracy, people vote for their government representatives, who
then decide how the taxes paid by the citizens will be spent. In most
democracies around the world, the government and the services it
provides are paid for largely through income tax. Both the federal and
provincial governments in Canada utilize progressive taxation. This means
that the more one earns, the more money (tax) is deducted from their
income. The reasoning is that those with higher incomes can afford to pay
more than a low income earner to help pay for government services used
by everyone.
Since the Great Depression in the 1930s, progressive taxation has been
used to ensure a minimum standard of living for all citizens, regardless of
socio-economic status. The more collectivist (or socialist) a government is,
which means the more ideologically they move to the left on the
ideological spectrum, the higher the taxes and the more programs offered
to citizens. This is done in an attempt to provide more services to ensure
the collective well-being of society.
However, the staggering of tax deductions also differs by provincial and
federal governments. The 2016 Federal Government tax rates begin at
15% for those making $45,282, with the top tax rate of 33% for those
making more than $200,000 a year. Comparatively, Alberta has a relatively flat tax structure. All its residents who earn under $100,000 pay
10% and by 2019, those who earn more than $250,000 will pay 12% tax.
To learn more about Canada's income tax rates click here. Other Taxes as Revenue
Many provinces, states and nations also impose a variety of consumption
or "value added" taxes in the form of sales tax. In Canada, the Federal
GST or Goods and Services Tax is 5%. Alberta is the only province that
does not have an additional sales tax.
In the European Union, the VAT (Value Added Tax) is 15% on most goods
and services. In the United States, each state has its own sales tax
ranging from 0-13%.
To better understand where our tax dollars go , before completing the
discussion, check out this story on the CBC website.