Friday, April 16, 2010

Taxed Enough Already? Or Not?

Here on Jefferson Street we payed less in taxes this year. For the first time in years, we got a refund, instead of scrambling to pay tax we still "owe." This is mainly because our income plunged in 2009. But we also benefited from the maze of tax credits Obama brought in to nudge, wheedle, and bribe people into forms of behavior that he likes. One of his favorite theories is that everyone should go to college. Since we have a kid in college, we got an Obama pat on the head for that.

On tax day, Obama said that he was "amused" by the tax protests going on all over the country. Given that so many are paying less this year, "You would think they'd be saying thank you."

I'll give him one thing, at least: If you are worried about big government, taxes aren't really the problem. The real problem is spending. Every time the government spends more, it must do one of three things, all of which are bad:

1) Yes, it can raise taxes now. That is apt to be problematic, both on grounds of efficiency and those of distributive justice. Efficiency: it prevents you from spending your money on things that you would choose to spend it on and directs it instead toward things that, for whatever reason, you did not choose to spend it on. Does the person who gets your money value it more highly than you? Maybe, but probably not. That's a net loss of happiness in the world. As to distributive justice: taxation takes money from the productive and in many cases gives it to the unproductive. Further, this money was taken from you by force, and in my opinion it takes a lot to justify using force. Whatever they are spending your money on, it had better be very, very important. My point though is that the government can cover new spending in two other ways, in addition to presently raising your taxes. As ethically problematic as this alternative is, the other two are much worse.

2) It can go further into debt. This means taxing you and future generations later on, and with interest. To the distributive justice problems involved in taxation itself, it adds two others. The future generations who will have to pay this debt off will be suffering costs without reaping most of the corresponding benefits: they will be paying for things that were gobbled up and pissed away long ago. Public debt is a sophisticated way to carry out one of the oldest and shabbiest functions of government: shoving one's costs on to other people. Moreover, when your grandchildren finally do pay your bills, the people they will be paying their money to may be people you do not feel are more deserving than they, such as corrupt crony-capitalists in China.

3) Finally, the government can cover new spending by inflating the currency. This is in effect the most dishonest, chaotic, and unjust form of taxation. It benefits borrowers at the expense of debtors, those to consume at the expense of those who save, and injures the old more than other age groups. Moreover, it disproportionately benefits people who receive money directly from the government: they are spending the extra dollars on things that have old, low prices. As the money ripples through the economy, it drives prices up and ends up in the hands of people far from the government money-faucet, who also have more dollars, but who by now are buying things that cost more dollars. They do not come out ahead. And people who do not get any extra dollars, because they live on fixed incomes, actually come out behind. (Hat-tip here to Ludwig von Mises.)

The root of all these evils is spending, and obsessing too much about taxes will cause the two even-worse options to be taken. This is hardly an idle point, as obsessing about current taxes, current tax hikes, and possible tax cuts is one of the cardinal sins of the Republican party.

The question in the title of this post is really the wrong question. But I think the tea party protesters basically understand this better than the Republicans do. If you look at the signs at those rallies that are attracting thousands upon thousands of first-time activists, or this statement of principles based on half a million online votes, what these people are so heated up about is the spending -- the bailouts, stimuli, and gigantic new entitlements. Obviously, these things haven't resulted in new taxes -- yet. But that only means that what will happen, eventually, will be even worse than immediate tax hikes. Unlike Obama, these people are looking at the future.

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