The 40th anniversary of the 1986 EDSA Revolution came last month. Benigno Simeon "Ninoy" A. Aquino Jr. said these words: "According to Gandhi, the willing sacrifice of the innocent is the most powerful answer to insolent tyranny that has yet been conceived by God and man." Basically, EDSA 1986 can't claim to be all too unique. Ninoy had made Gandhi an inspiration. The dictatorship of the First Marcos Administration may be over. However, the Philippines is still stuck in another dictatorship called the dictatorship of the Filipino First Policy. It does sound stupid, but even without Marcos or foreign colonization (please stop mistaking foreign investment with foreign invasion), there's still some oppression to fight. You can think about decades of overly high taxes and restrictions on foreign investments.
Now, we need to look at the historical context in which Gandhi's "tax evasion" occurred. According to a Jagran Josh article written by Manisha Waldia, we can read the following about the Salt March or the Dandi March:
What was the Dandi March?
The Dandi March or Salt Satyagarh was an act of non-violent civil disobedience led by Mohandas Karamchand Gandhi. The march lasted 24 days from March 12 to April 6, 1930. It was started by Gandhi Ji along with 78 supporters, who walked from Sabarmati Ashram near Ahmedabad to the coastal town of Dandi in Gujarat.
The objective to break the British Salt Act of 1882 under British law, Indians were prohibited from collecting or selling salt, a staple in every household by choosing salt, a commodity essential to the poor and rich alike, Mahatma Gandhi created a platform that every Indian could relate to.
Gandhi Ji broke the Salt regulation on April 6 and officially started the Civil Disobedience Movement and declared ‘’Sedition has become my religion’’ He chose to target the salt tax for several reasons:
- Universal Impact, it affected the poorest of the poor.
- Emotional Connection, Salt was a basic necessity; taxing it was seen as a moral failure of the government.
- Non-Violent Symbolism, salt collection was a peaceful activity that could involve the masses without resorting to weaponry.
In economics, the Laffer Curve effect was popularized in 1974. Sure, the concept was made known after the Salt March. However, new schools of thought often emerge from previous incidents. To understand the Laffer Curve, we need to understand how it works. According to an Investopedia article written by Adam Hayes, here's how it goes:
The Interplay Between Tax Rates and Revenue on the Laffer Curve
The Laffer curve follows certain logic because tax revenue does not always increase whenever the tax rate increases. Of course, the government collects no income when the tax rate is 0% but imagine a situation where the government collects 100% tax revenue. All earnings would then be remitted to the government so there would be no incentive for workers to remain employed.
Total revenue declines as shown by the downward part of the curve, even when the tax rate is highest on the x-axis. It may seem counterintuitive but tax revenue is most often not maximized when tax rates are highest due to extenuating circumstances.
The Laffer curve's theory is that it's more efficient and ideal for a government to set a rate somewhere between 0% and 100%. This may seem simplistic but finding the exact point where total revenue is maximized is subject to great political debate. The graphical depiction above shows it somewhere in the middle but the true ideal rate can be skewed in one direction or the other. Different circumstances for different countries will also yield different outcomes.
Historical Context and Impact of the Laffer Curve
Arthur Laffer presented his ideas in 1974 to staff members of President Gerald Ford’s administration. Most believed at the time that an increase in tax rates would increase tax revenue.
Laffer countered that taking more money from a business in the form of taxes means the less money the business will be willing to invest. A business will find ways to protect its capital from taxation or to relocate all or a part of its operations overseas. Workers lose the incentive to work harder when they see a greater portion of their paychecks taken for taxation.
Laffer argued that this means less total revenue as tax rates rise and that the economic effects of reducing incentives to work and invest by raising tax rates would damage an economy.
Laffer's findings influenced President Ronald Reagan’s economic policy known as Reaganomics, based on supply-side and trickle-down economics. It resulted in one of the biggest tax cuts in history. Yet annual federal government current tax receipts still grew during Reagan's time in office. Total federal tax revenue was $517 billion in 1980. Total federal tax revenue had nearly doubled to $909 billion by 1988.
Basically, Gandhi's protest was against an unreasonable tax rate that was hurting the poor. The salt tax caused this protest. This makes me think, "Until when are we going to realize that while taxes are necessary, abnormal taxes will make any move to reduce tax evasion, useless?"