» posted on Tuesday, April 20th, 2010 at 6:31 pm by Andy D
Of Government and Men:Taxes
Last year I started a series entitled “Of Government and Men“. It was my attempt to explain my philosophy on government. I want to periodically update that series, and this is the first “sequel” to that.When writing the series, I didn’t spend as much time on taxes as I wanted to. I despise taxes, but I cannot deny that a certain amount of taxes are required. However, as Henry Hazlitt wrote in Economics in One Lesson, “…every dollar of government spending must be raised through a dollar of taxation.” The government has no means of raising it’s own funds. When it borrows money, that money must be repaid at some point, and can only be repaid by taking the money from the taxpayers. The government does not make a profit. Every dollar the government spends is a dollar taken from someone.
To summarize Hazlitt’s argument, the government should carefully examine any tax as the money taken from taxpayers is money the taxpayers can’t spend. That’s money that isn’t used in the private sector to create jobs. Hazlitt used a bridge project to illustrate this:
If {the bridge} is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if ,in short, it is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money if it had not been taken away, there can be no objection. But a bridge built primarily “to provide employment” is a different kind of bridge. When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to be invented. {bold is mine, emphasis in the original}
Any spending of tax money should be done because the need for the items bought by taxes are needed, not because the government wants to “create jobs” or bailout a company. If the need for the bridge, road, building, or dam isn’t a real need, the project shouldn’t be created.
The other danger in taxes is on what they tax, or what they may cause to happen. Taxes discourage the behavior they tax. A tax on cigarettes will discourage some people from smoking. A tax on investing discourages individuals from investing. In the first case, it makes the object more expensive, in the second case, it decreases the reward of the behavior. When an investor risks $1, he risks losing $1. If his investment is successful, for every $1 he makes, the government will step in and take some percentage of that $1. Let’s assume there is a 40% capital gains tax. Then if an investment is a bad investment, the investor loses $1. If it is a good investment he gains $0.60. This level of tax will discourage some people from investing.
As our deficit gets worse and worse, Congress will purpose new taxes to solve the problem. Remember these two rules: Is the spending government purposes worth the money to the taxpayers? And, will the taxes discourage something we want to encourage (like business growth)?
filed under Government · taxes | 3 comments
Mac L said:
Nov 23, 11 at 12:20 amRepublicans criticize Obama for not creating jobs yet they aren’t willing to pay the taxes to create them? What do they want?
Andy D said:
Nov 23, 11 at 11:27 pmThanks for the comment. I hope you find more on the site that helps spark a discussion.
Taxes don’t create jobs. Taxes provide for services that we as a society decide are worth paying for. However, that same tax money in private hands can create more jobs than the government can.
Gerrit said:
Nov 24, 11 at 6:58 amThe thing is of course: who would you want to be creating the jobs? I think this is the big question mark and point of divide between those who support higher taxes or those who don’t.
In my opinion, privatisation should be limited as much as possible and as many businesses as possible should be nationalised. Because the government is the ideal employer. The government has to look after all citizens, so it doesn’t make sense for them to discriminate and exploit when it comes to the workers. It also wouldn’t make sense to outsource to offshore locations because even when the work can be done cheaper there, it’d just be an expense on top of having to look after those who lose their jobs at home. The government as employer is a much better guarantee for continuity of employment and non-exploitation. I would rather see governments creating jobs than people founding their own businesses. Hence, I support higher taxes in order for the government to be able to look after its people, which includes creating jobs (and supporting those that are left unemployed, which should be a minimum if the job creation is planned carefully)
In my native country Belgium liberals OpenVLD are now also pushing for less taxes, hence protecting the CEO’s (a tiny minority that has the majority of money) instead of defending the labour unions and the workers they represent (the majority of people with a tiny minority of the capital). I hope this party will not come close to governing the nation. Luckily, it is likely the socialist party will deliver the prime minister, but my fear is that he will compensate in order to get the liberals on board to form the needed majority of votes for a parliament. A coalition with the liberals and thus weakening the own party program would equal getting a trojan horse in. More and more protests and banners calling for nationalising banks and multinationals and putting the rich minority in a higher tax group for redistribution of the available capital, are giving a glimpse of hope though. But I doubt such reform can happen without the right people in office, in the end one can occupy squares and put graffiti on every wall, this won’t change anything concretely in the end.