The State loses tax income!

Pravda announces that the Finnish government loses approximately 18 000 million euros per year in various tax subsidies. That sounds like a lot, but... caveat emptor. Beware if you buy this.

The largest of these "subsidies" is the imputed net rent, which means that if you own the house or apartment where you live, you don't need to pay rent to someone else. You save money, thus you get an imaginary income. Since this imaginary income is currently not taxed, the state is losing money.

Economic theory is abused here to create an impression that the State would somehow be entitled to get more tax money if this imaginary income was calculated and taxed "correctly". The idea is popular among those who oppose the idea that people own their own homes. In a truly developed, progressive state, all housing belongs to government; this makes people less attached to their homes, and they can more easily be ordered to move from one kolkhoz to another. This increases productivity and makes it easier to achieve the targets of the next 5-year plan. Everyone benefits! If you don't believe in this, you deserve to be re-housed in Kolyma.

There have been attempts to impose this tax, at least in the U.K. and Finland in 1970's, but the trials weren't all too popular.

Why? Because the income is imaginary. It's absurd. It's arbitrary, and people who are taxed never see that money and never hold it in their hands. Why do people want to own their homes? First, because they like to be in control of their own lives, particularly the place where they spend most of their time, and secondly, to manage it well and save in the cost. But is saving (in the sense of not spending) some kind of income? No.

Or, if it is, then the State is losing much more money somewhere else.

Let's take another example of imputed income. This is much more significant.

Let's assume that instead of walking, or driving, or taking a bus to work, people would take a helicopter taxi to work. Sure, it is costly. Half an hour helicopter ride costs around 350 €, and there are the transitions for the chopper from the base to the place where you take off, so going to work with helicopter costs about 700 € one way, 1400 € a day. There are 2457000 people in a job in the country, 260 working days. This means that the imputed net income gained by people in Finland not riding helicopter to work is about 894 000 000 000 € per year. As the average income tax rate is 23,2 %, it means that the State loses 207 000 000 000 € per year! About a hundred times the amount of the imaginary imputed net rent income. (In fact, the amount should be larger, because of course also those who don't go to work but go to school etc also get a similar income).

Just think how much good the State could do with this money!

And that's not all. Add to that the amount of imputed net income that people get when they cook food at home, instead of going to dine every day at Chez Dominique! (With a helicopter taxi.) Not to mention the imputed net value of sexual services that are exchanged by married couples (or unmarried, for that matter, not to forget registered relationships of same-sex couples, nor activities in public swimming halls).

Yeah, it's rubbish. Just like that imputed net rent income idea. In reality, both the income tax rates and other tax rates in this country are adjusted to be as tight as possible. There's considerable argument about on which side of the peak of the Laffer curve we are in, but surely it is folly to imagine that you could just hike up the income tax rate (based on calculated imaginary income) and collect 20 % more without severe impact on economic activity.

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