Tax Reform 4 – Progressive Tax Rates

Translator: Cinder Translations

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"Or…"

Paul scanned the officials from various departments seated around the table.

"Should we cut the budget of a specific department?"

The meeting room fell into a heavy silence.

"No! Lord Grayman."

Hansel was the first to break the silence. "I believe abolishing the tax farming system is imperative."

"Yes, the old system is outdated."

"We unanimously agree with Lord Grayman's wise decision."

The others also reacted quickly.

Cutting departmental budgets? That was simply unacceptable. The current government council was rapidly expanding, and everyone was scrambling to secure work for their departments to highlight their importance; a lack of sufficient budget was not an option.

Who would want to see their budget shrink and end up sidelined? Clearly, not a single person present wanted that.

Instead, it would be better to let those country landlords suffer a bit.

In fact, it was already well-known in the council that Earl Grayman loathed the tax farming system. He had expressed his disdain multiple times in different locations and at various times, so his decision today didn't come as a shock to everyone.

However, Hansel soon realized a problem: even if the tax farmers were abolished, would that actually increase tax revenue?

"Lord Grayman," he cautiously posed his question, "Are you planning to raise the tax rates?"

Paul looked puzzled and replied, "Raise the tax rates?"

Hansel made a hypothetical suggestion. "For example, each person in the territory is required to pay the lord 100 copper shields. When tax farmers were involved, each person would pay 110 copper shields; they would hand over the 100 copper shields to the lord's residence, keeping the remaining 10 for themselves. Now that you're abolishing the tax farmers and collecting the 100 copper shields directly, from our perspective, the final amount received would be the same as it was before."

Paul burst out laughing and pointed twice at Hansel, saying, "That's indeed a question. Fielding, my tax supervisor, what do you think?"

Fielding considered for a moment and then explained to everyone, "Sir Abbott's concerns are valid. However, theoretically, without the tax farmers taking a cut, the people will have more money left in their pockets. The extra money can stimulate their desire to consume, which would promote market prosperity. This means more goods will circulate and more products will be manufactured, resulting in higher tax revenues from commerce and industry."

Ah, now many people understood in their hearts.

"Abolishing the tax farmers is merely the first aspect of the reform."

Paul continued, "The second aspect of the reform is to change the head tax into property tax and income tax."

The head tax was well-known to everyone. In the territory, subjects of all genders, ages, and social classes were counted individually, and each person had to pay a certain amount. This tax was the most stable and fundamental source of revenue for lords and even kings throughout Aldor. Thus, the population of a territory determined the power of a lord; the king ruled the territory with the largest population, making him the strongest "lord" in the kingdom.

However, Aldor had recently focused on developing commerce and industry, taxing the circulating goods and manufactured products, which had caused the head tax to become less significant—it wasn't as though people could be produced endlessly like factory goods. Nonetheless, the head tax remained one of the government council's important revenue sources.

As for property tax, this had existed for quite some time and was quite common. Houses had to pay taxes to the lord, the fields had to pay taxes to the lord, inheriting parents' property required paying taxes to the lord, and there were even various other taxes such as livestock tax, window tax, and hearth tax. In some territories, even owning a pet cat or dog required paying taxes to the lord.

When Hansel first worked under Paul, one important task was to survey the lands in the territory, which had displeased many people.

After establishing commerce and industry as significant sources of revenue, Paul abolished many of what he deemed absurd taxes, retaining only land tax, property tax, inheritance tax, and a few others. This was also one of the reasons Aldor was more attractive to migrants than other territories.

As for income tax, this was the first time everyone present had heard of it. Paul explained that it was a tax levied based on the profits earned by individuals or groups, such as wages, salaries, business profits, contract and lease profits, service compensation, interest, stock dividends, property rental income, and property transfer income, among others.

"From now on, everyone here and your subordinates will have to pay taxes on the salaries you receive in your positions."

Paul gave everyone a heads-up.

Old Fort looked somewhat worried and said, "This might lead some people to harbor grievances against Lord Grayman, so everyone must set an example and provide psychological support to the staff in your departments, paying close attention to their comments."

"That will be a significant amount of tax!"

Hansel roughly estimated in his mind and couldn't help but be taken aback. But then again, Earl Grayman had abolished so many miscellaneous taxes and head taxes; it made sense to compensate in other areas due to the financial difficulties.

Wait, but since the head tax was abolished, whether the property tax and income tax could fill the gap and achieve tax revenue growth would have to be concluded through practice.

Not only Hansel but every attendee had similar doubts in their minds. If property tax and income tax couldn't make up for the losses from abolishing the head tax, then it would be a net loss. Even if it could match the head tax, it would merely be a change of name; what was the point of the reform?

Earl Grayman must have other measures.

"There's a third aspect of the reform!"

As expected, Paul continued to announce.

"Whether it's property tax or income tax, we will implement progressive tax rates in the future."

Progressive tax rates?

Everyone heard this term for the first time.

Except for Malon and Old Fort, who had discussed the reform details with Paul, everyone else looked puzzled.

"Let me elaborate."

Paul explained to everyone while observing their expressions.

"Taking personal income tax as an example, an individual's income represents their tax amount. If their monthly income doesn't exceed 1 silver shield, they won't have to pay taxes. If their monthly income is between 1 and 5 silver shields, they will have to pay a tax rate of 2%. If their monthly income is between 5 and 10 silver shields, they will have to pay a tax rate of 5%. If their monthly income is between 10 and 20 silver shields, they will have to pay a tax rate of 10%. If their monthly income is between 20 and 50 silver shields, they will have to pay a tax rate of 20%. If their monthly income exceeds 50 silver shields, they will have to pay a tax rate of 40%."

"In short, income will be divided into progressive brackets, each with a different tax rate. Those with lower incomes will pay less tax or even no tax at all, while those with higher incomes will pay more tax, and the more income one has, the larger the portion they will need to pay."

"Of course, the tax brackets and rates I mentioned in the example are just for illustrative purposes and were made up on the spot. The specifics of how the brackets should be defined and what tax rates should be set for each bracket will need to be thoroughly researched by the tax department to reach a conclusion."

As soon as Earl Grayman's words fell, a loud sound seemed to explode in everyone's minds, as if something had burst open.

(End of the Chapter)

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