Thoughts about Taxation in Thyatis
by Sven JeskeSince I am doing some revamping of the Thyatian economy right now, I thought I would weigh in here ... although I am talking specifically about Thyatis, most of what is coming right now is true for other nations as well.
So, Thyatian taxes according to the Almanac 1017 looked like this:
Taxes: 25% income tax collected quarterly on the aristocracy, nobility, and wealthy; 20% income tax collected quarterly on everyone else (Va. 1, Ya. 1, Fy. 3, and Ei. 1). Thyatians abroad must still pay their taxes. Expensive and magical items are also taxed 25% of their worth. 10% imperial commercia sales tax on all goods except food, clothing, and fixed assets; levied on imports, rebated on exports. Tax on slave owning equal to 50% of the slave's value annually. Property tax levied based on quality of land, roughly 6% of its value annually.
Sorry guys, there is no way to put this politely ... this system is crap.
Implement this, and the empire will cease to exist within 18 months. Total economic collapse, hunger riots, the apocalypse.
First, there are two different things here that are taxed. One is income, another is assets. It is highly unusual to tax both of them simultaneously – normally it would be one, or the other.
And then, not only that you tax two things – both taxes, each for itself, are WAY too high. So, let’s break this down, shall we?
Income tax of 25%, 20% for “the poor”.
The problem here is our modern way of thinking. When we talk about tax rates, what we are nearly always talking about is the marginal tax rate – the tax that is paid on our last gold piece earned. However, we are used to have a progressive tax rate, and not a flat tax. With a flat tax, there would be no difference, but so ...
Real world example, taken from German tax system (full disclosure – yes, I am German. And I do financial stuff including taxes for a living). The median German single makes an amount of roughly 23000 gold pieces yearly, before taxes. That’s not the poor one, not the rich guy, notably it is not the arithmetic average – it’s the median guy. On that, he has a marginal tax rate of 27.5% Sounds just like the KW's 25%, right?. But that’s not 27.5% on all his income – it’s 27.5% on his last gp. The real amount of tax he pays is 3327 gp. Which amounts to an average tax rate of 14.4%. Again – this is the median guy. It’s not a poor one. With 25% flat tax on his income, or even 20%, we would have a full-blown revolution before breakfast tomorrow in Germany.
So, if you want to do an income tax in Mystara because that is what we are all used to in our head ... then make it a flat 10% or at most 15% in high-tax-areas. Any more will result in rioting citizens because they simply won’t be able to pay it.
Then, there are assets. Admittedly, these are not for the median guy, but for the at least somewhat wealthy, because the poor don’t have assets. Still, it is MUCH too high to be economically feasible.
First, land is taxed with 6% of its worth annually. Now, for real estate and similar investments, a really good value for the break-even-point is 15-20 years. Some few might get there in 10 years, but a more conservative position would actually be 20-30 years. And those are figures for an industrialized economy used to high returns on investment. Ok, let’s take the middle ground and say, 20 years until some real estate used for production pays off. That is 5% per year. So, with some land worth 100000 gp, you make a net gain of 5000 gp before taxes. However, then, you are taxed 6000 gp for this parcel of land? You pay more in taxes than you gain. And since you pay a 25% income tax on these 5000 gp earned on top of this, which amounts to 1250 gp, the result is – you make 5000 gp and have to pay 7250 gp in taxes on it. That’s a tax rate of 145%. Ouch.
But wait, it gets worse. Besides land, you have slaves.
All moral implications to the side, slaves are an asset. And to get taxed 50% annually on the worth of an asset is downright insane. On this topic, we have to delve a bit into Roman history, because it is the most complete picture we have here. According to Cato in “De Agri Cultura”, a slave would return his investment in two to four years, so on average 3 years. This means, if you own slaves 1000 gp worth, they will give you a net gain of 333 gp annually. However, on this you have to pay 500 gp in slave tax. Plus of course your 25% income tax, that is 83 gp. In sum, 583 gp taxes on a net gain of 333 gp. Tax rate ... a whopping 175%. If you would really have this slave tax, you would force your slaves to literally work themselves to death in less than a year. Or as a method of tax evasion, you simply kill off all your slaves the day before they are counted and buy new ones the day after. Both will result in the necessity to abduct thousands and thousands of new slaves every year. I guess that’s not what we want.
To put all of this into yet another perspective ... if you assume that the tax rules as-written-now would work, you would compulsorily have to assume that Mystara has a productivity (for workers as well as for assets) that is roughly double or triple the productivity of our industrialized, electrified and computerized real world of today.
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So, what to do instead? As I said earlier, we could keep the income tax at a rate of 10 or 15 per cent flat to keep things simple. But then, by all means, do not tax assets on top of this!
The more historically accurate thing to do would be letting go of income tax altogether, and instead collect a poll tax on every family, and taxes on assets, like land, or ploughs, or stuff like this.
I would reform the whole tax system in the way of the early Roman empire:
Levy taxes against all property – land, homes and other real estate, slaves, animals, personal items (including weapons, armour, and magic items) and monetary wealth. Tax rate would be 1 per cent normally. This would go up in times of war, like when Thyatis enters the Wrath War up to 2 per cent, and due to the continuing wars could reach 3 per cent in 1017. That, however, is already crippling. Maybe add an additional poll tax of 10 sp or so for each adult person in normal times.
This would actually be much more simple than an income tax, for the in-world-characters as well for out-of-character ... you just have to set a value to things like real estate and assets like slaves, and that is it. Don’t have to bother with “How much loot did I take with me” any more.
Probably, add tariffs and customs to that (great for wandering adventurers btw ... “Oh you don’t have a home here? Then we will have to levy a 10% custom fee on your magic items when you enter our lands. Yes, this is for every time you come here. Don’t you want to buy some real estate and become a regular citizen?”
Finally, for Thyatis, one could consider taxes on slaves, in the way they have been at times in the Roman empire:
A) 5% of the worth payable by the owner when he frees the slave.
B) a sales tax of 6% when a slave is sold.
C) as a tariff, there was a “custom tax” of 15 denarii for each imported slave in the third century.
Sorry for the long read, but I wanted to make it really clear why this proposed tax system as it is now will be simply impossible to implement.