THIS BLOG IS MY BLOG. THIS BLOG IS MY BLOG. Welcome to the Home of Hyperopia.: January 2010

Tuesday, January 05, 2010

Why Do We Have Taxes? - GOOD QUESTION!!

A good friend recommended this article (called "Why Do We Have Taxes?) in the context of a discussion we were having on Facebook about health care and rights and whether the services a government requires its constitutents to perform constitutes slavery. I had recommended this article (called "What Is A Right?") to him, prompting his recommendation.

I thought the "Why Do We Have Taxes?" article deserved a line by line refutation.

At least its second paragraph certainly does.

Because so much of what its author says in those paragraphs is incorrect or untrue.

  • Only without governments would there be no taxes; therefore, without taxes there would be no governments.
This "therefore" item is simply not true, not logical. Governments have a variety of ways to get money, and taxation is only one of them. There are also tariffs. There are also bonds. Note that the U.S. didn't have any income tax until 1916 (or thereabouts). Note also that the federal government had no (or a massively limited) ability to tax under the Articles of Confederation (which was great), and nevertheless, the federal government existed.
  • Taxation is one of the several ways by which governments raise money to pay for the goods and services that they are called on to provide.
This sentence is true except for the part that says "they are called on to provide." Governments aren't called on to provide the services they fund through taxation. Governments grant to themselves monopoly privileges to be the only source from whom their constituents (consumers) are allowed to obtain their services. For example, the U.S. Postal Service. It's against the law (a law made by the government, not the people who wanted the service) for certain kinds of mail to be delivered from one place to another. For another example, taxi cabs. It's generally against the law (a law made by the government, not the people who wanted the service) for people who don't have the proper government-issued credentials (e.g., medallions, etc.) to accept money from a person to drive that person from one place to another, even if the passenger wants to be taken.

In the case of the USPS, the laws were passed because private entrepreneurs were outperforming the government mail service on price and quality of service. Government hates competition.

In the case of taxi cabs, there are many stories about how government policies artificially limiting the number of licensed cabbies in various cities have made life worse for people who don't have cars and need transportation so that the cab companies and cab drivers who do have the licenses can charge prices in excess of what they could charge if the government wasn't limiting - by force of law - entry to the field.
  • Governments lack the major sources of revenue available to other sectors of the economy and must therefore rely on taxes to finance the majority of their expenditures.
This is not true. Governments provide stuff. Governments could charge money for the stuff, except that, because they don't have a profit/loss feedback mechanism, governments can't provide the stuff as efficiently, effectively, or economically as enterprises that do have to generate profits to survive. So governments get out-competed. (Naturally.) So governments do rely on taxes (and other compulsory means) to get money to do what they do. But it's not because the institution is called "government" that it needs to extract wealth by force to operate. It's because of the nature of the institution (operating outside the constraints of the profit and loss feedback mechanism guarantees inefficient, ineffective, and uneconomic operations).
  • Unlike businesses, governments generally produce very few goods and services that can be sold, especially at a profit.
Not true. People pay money to drive on roads. People pay money to have police services provided. People pay money to walk around in nature. People pay money to be educated. People pay money to have records maintained of their transactions. People pay money to communicate with one another.

In fact, completely contrary to what this author says, I bet that for every single good or service a government provides, there is a transaction involving the exact same good or service being purchased in a private transaction.
  • In addition, governments don’t have wage and investment income as do individuals and families.
This may be true, at least as to the wage income. As to the investment income, I'm sure as a factual matter that it isn't true. I'm sure governments do invest some of the money it extracts through force from its constituents in transactions that pay a return (i.e., governments loan money at interest).

Governments do not generate enough profits from their investments to pay for all the activities they undertake. Instead they force their constituents to finance the difference.
  • Without these sources of income, governments have little choice but to finance their spending needs by assessing businesses as well as individuals.
Here the author has, I think, lost the thread of his "argument" a little bit. I'm not even sure what this sentence is saying. The previous sentences speak to governments needing funding for their activities and indicate that, in fact, governments do obtain funding from individuals and families (which is true). But this sentence seems to be saying governments DON'T tax businesses as well (not true).

Moving on ...

  • Governments are continually searching for additional funds to pay for the needs of their citizens, businesses, and bureaucrats.
This is actually true. Governments are relentless in their pursuit of previously un-plundered populations. Understood in this (accurate) way, this sentence is much more ominous than the author probably intended it.
  • At the local level, taxes support spending for schools roads, libraries, athletic facilities, fire and police services, and the salaries of county and municipal employees.
This is true, but as noted above, each of these goods and services are not only being simultaneously provided by private businesses to private individuals in private transactions, each of these goods and services CAN be provided to private folks by private folks. (Government has appropriated for itself the position of primary provider of these goods and services. And it uses force to keep competition from taking that position away from it. (Except at the margins -- see, e.g., FEDEX, private security firms, and home schooling.)
  • States collect taxes for highway construction and upkeep, public colleges, buildings, and law enforcement.
More of the same.
  • The federal government levies taxes in order to provide its citizens with an interstate highway system, a capable military force, health services, an Internal Revenue Service, thousands of parks and monuments, and scores of other things.
More of the same.

SKIPPING TO THE END (of the article) ...

  • In summation, although unpopular (and many may argue, unfair), taxes are a necessity.
Not true.
  • The standard of living of a modern society demands it; governments must collect the revenues in order to provide the goods and services that their citizens need, want and demand.
Not true. Nobody needs government to provide the goods and services it provides. Plenty of people don't want the government to provide those goods and services. And if there is demanding to be done, it ought be to be that government get out of the business of trying to provide goods and services and let the profit-seeking, loss-averse private businesses who don't have the luxury of funding their activities through coercive wealth extraction improve the world for us all.

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