Optimal Tax

Optimal Tax .
Andre Willers
22 Mar 2009

Synopsis :
Any delineated entity in a competitive environment has an optimal reserve .
(See http://andreswhy.blogspot.com "NewTools : Reserves")
If this reserve is exceeded by a tax , the entity has the three choices : revolt , moving , or extinction .

Discussion :
The argument involves the effects of errors in sub-entities which are partitioned to infinity . The error of not paying taxes is included in the range .

The range of optimal reserves is 28% to 38% , with an average of 33%

Direct tax: roughly , the percentage of GDP going to the state (in SA , 28%)
Indirect tax : Inflation .
Benefits from tax: the monetary value the entity receives back from the group (society) in benefits . Usually , there is cross-subsidization to prevent too big gaps between layers of society . This works fine , unless boundary conditions are exceeded.

The basic relationship is
Direct Tax + Inflation – TaxBenefits = TaxOnReserve
This is layered according to social classes .

If TaxOnReserve > 38% ,
there is armed rebellion , major social unrest , revolution ,extinction .
If TaxOnReserve is between 33% and 38% , there is unrest . Population movements .
If TaxOnReserve is between 28% and 33% , there is smugness .
If TaxOnReserve is < 28% , there is unrest because of a vague perception of unfairness .

This seems fairly straightforward . The problem is in the social layering .

South Africa as a case study : as at 22 Mar 2009 .
DirectTax(28%) + Inflation(8%) = 36% .

The TaxBenefits :
Upper classes : TaxBenefits(1%) gives a TaxOnReserve of 35% , 2% less than 33% .
They leave .

Other classes :
They would be satisfied with TaxBenefits of up to 8% .
More than that , and they want to know " What have you done for us lately. We deserve more . "

The perils of populism .

Andre