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On Taxes and Public Ownership

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    "The art of government is to make two-thirds of a nation pay all it possibly can pay for the benefit of the other third." – Voltaire

I've been thinking a lot about taxes and how the desire to receive without payment has been a recurring theme in democracy. Everybody wants a free ride, but few of us want the responsibility for building and maintaining the roller coaster. Hence we create little provisos to ensure that as many people do their bit as possible and, in typically populist fashion, the solution is usually to lower taxes and cut spending so as to create a more direct connection between paying and receiving, with the added bonus that you don't end up with a huge prize pool to bait the private sector into lobbying for hand outs. It's just unfortunate, however, that while this strategy makes a lot of sense prima facie, it neglects the fact that taxes often do a lot of good

First, consider the economic benefits of taxation. As recent analysis of the last decade has shown, John Howard and Peter Costello's emphasis on tax cuts promoted spending without spurring productivity — a formula that only leads to inflation. Indeed, just contrast this with the genius of requiring all Australian workers to sacrifice a minimum percentage of their income on superannuation, as the Keating government legislated, which meant that spending was constrained while simultaneously creating a pool for investment in private enterprise and preparing the public for their retirements.

Second, as much as we might hate the middle men and public sector bloating, the funding of government services can provide effective insurance against catastrophe. For instance, a poorly funded health system creates a disincentive for people to see a doctor in the early stages of a contagious disease, which then increases the chance of it spreading. And as Dmitry Orlov noted in his analysis of the Soviet Union's collapse, the tendency to overbuild made it a lot easier to deal with economic disaster. Put simply, the fat comes in handy when a famine shows up.

Now, at this point it I am more than willing to concede that taxes can easily manipulate the market by not allowing it to set prices according to genuine supply and demand. And in a similar vein I can imagine that some of you might make the case that high taxes can bate the practice of economic planning. But my retort to these assertions is simply that the emphasis on the individual is short sighted and neglects their context, thus overlooking the more systemic problems. The challenge is to promote fairness through fluidity, and not by an arbitrary redistribution.

To this end, high taxes can promote civic engagement by funding public forums and giving citizens the sense of having a stake in spending outcomes. This does not necessarily have to mean a nanny state either, since public demand often motivates the desire to find new money in budget cuts. The Australian Broadcasting Corporation is just one case in point: for much of the last century, it has given voice to critics of the government and was more than willing to report when it was being threatened with funding cuts or privatising. Hence, it has consistently set the standard for media practice in this country.

The reason big corporations have more influence on governments than their citizens do is simply because they create more tax revenue than anyone else. In making up for a free-riding citizenry, governments have found themselves dependent on big industries, like our mining sector, to balance excessive middle class welfare with increasing public expenditure. Instead of squandering money on chasing tax havens to fund our wildest dreams, we should be raising taxes across the board.

About Jonathan Scanlan

  • Jeannie Danna

    Hello Jonathan, the fact that taxes often do a lot of good

    These are nine powerful words when strung together! and soo true:)
    You have written a great article here.

  • http://drdreadful.blogspot.com Dr Dreadful

    Jeannie, please be careful when closing your HTML tags. That’s twice today you’ve fogotten to put a / in front of the command in the closing brackets.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Another good point, Jeannie: “an ownership society doesn’t mean entitlements.” (last paragraph)

  • http://www.republicofdave.com Dave Nalle

    Taxes well spent may indeed “often do a lot of good” but does that good outweigh the harm which they are guaranteed to do to all who pay them, including to many of limited means?

    Dave

  • Brian aka Guppusmaximus

    In an ideal & perfect world where people don’t succumb to temptation this would make total sense. But unfortunately, in our “real” world, the people in charge exploit our tax dollars at every turn. Though, I completely agree that too many people want a free ride.

  • Jeannie Danna

    Dave your number #4 when I woek and collect a paycheck all the taxes have already been deducted from my pay this incudes federal,social security and medicare my employer on the other hand does not pay taxes! at least not their fair share
    deductions up the wazoo for our ownership class! property taxes are slashed in NY so they will stay here, and charity is a big deduction ! and I haven’t even touched on the fact that many corporations leave America to hide their profits! when I go to the store everything I buy, except for raw goods, is taxed and then we need gas don’t we? NY State pays the highest amount per gallon than anywhere in this country! Now allow me to quote one of our wealthier citizens who is no longer with us! “Only the little people pay taxes.”- Leona Helmsley

    for your info

  • Jeannie Danna

    I rest my case…:)

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Dave,

    ” . . . but does that good outweigh the harm which they are guaranteed to do to all who pay them, including to many of limited means?” #4

    What harm do you mean? I can’t think of nothing other than creating a large underclass of “do-nothings”?

    But if that’s the case, is it because they’re all lazy and freeloaders, or perhaps we might want to factor in such things into the equation as uneven playing field, lack of job opportunities, irresponsible corporate behavior?

    Are the poor always to blame for the lot that befalls them, or are there contributing factors as well which contribute in no small measure to the condition they’re in? Does a civilized (and prospering) society has any obligation to do something about it, or should we just let them fall be the wayside like unusable trash?

    If trying to correct these things falls in the category of “the greater harm that taxes are guaranteed to do … even to those of limited means,” then I suggest this position would require substantial rethinking. Or at least coming up with alternative solutions.

    Roger

  • Doug Hunter

    Roger,

    I think he’s talking about the people who pay them, not those receiving the redistribution. When you tax a well off person your hope is tht he/she is forced to work harder to make it up (enslavement). More likely, the tax money will slow their business creating less jobs, or they won’t have the same money to go to their kids college fund so he will go to a less prestigious school and never achieves his potential, or he/she can’t buy a luxury item like a yacht so 10 people (and Clavos) are laid off. At the very least it might have gone to shore up our negative savings rate.

    As long as the poor aren’t starving and have shelter and clothing and a doctor if needed then no, I don’t think I owe them anything. If they want a middle class lifestyle or more, they need to learn to do and act like middle class people, which usually means making some contribution to society.

    From my experience I break the poor up into two classes, the working kind and the not so much working kind. The former I’d really love to see singled out and helped into the middle class, the latter deserves nothing except the basic essentials of life. If you don’t want to contribute to society or your fellow man then your fellow man should have no obligation to sacrifice for you.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Doug,

    Perhaps you’re right; come to think of it, I misunderstood.

    BTW, I’m glad you checked in. I was going to respond to your long comment on the other thread – Jeannie’s article – but decided to do so by writing a separate piece. Too much area to cover.

    One exception to your #9.

    You say, “If you don’t want to contribute to society or your fellow man then your fellow man should have no obligation to sacrifice for you.”

    Well, I don’t think it’s a natural human condition, so perhaps we’re experiencing here a failure of a system. I would therefore try to address what might be the root causes rather than the symptoms (and affix the blame). I know it’s the easy way out.

  • Doug Hunter

    The statistics on what constitutes ‘poverty’ in the US are interesting. They have larger houses, more vehicles, more TV, more cable, more times eating at restaurants (leading to obesity) than the middle class or average citizen in 90% of the rest of the world. The issue is not giving them more stuff, it’s providing them the tools and motivation to contribute more to society. There are ways to provide these motivations and opportunities as well as to educate these people away from how they were raised I just don’t have time to go over them now.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    #11; No question. Only the safety net.

  • http://www.joannehuspek.wordpress.com Joanne Huspek

    Taxes might be a necessary evil, but why should only a certain percentage of the population contribute? Even the so-called working poor should contribute some small share, and doubly so if they are receiving benefits.

    Lest you think I’m some kind of rich tyrant, I’ve been working and poor and I don’t remember not having to pay at least something…

    The other part of the tax equation is the spending side. Wise disbursement is necessary. However, as it is with people in power, there is often the pay to play aspect of running a city, county or state. Such corruption does nothing for the effectiveness of having the tax dollars.

  • Doug Hunter

    Every cause of poverty has a different solution but one aspect of our society and safety net I think needs much more attention is it’s focus on rewarding continued poor behavior. This would be first and foremost on my list of changes to our current system.

    You should not punish people for making positive changes to their lives. We should find ways to negate these punishments and replace them with more rewards. For example, with unemployment on low paying jobs we could set the benefits length to the average or slightly above and then guarantee those benefits even if the person found a job. The people would quickly figure out how to ‘game’ the system by getting another job very quickly and getting two checks instead of ‘gaming’ the system by purposely not finding a job until benefits run out. The change would be revenue neutral and encourage good behavior.

    There are lots of other examples where working more, having roomates, getting married and lots of other things that seem positive actually cause poor people to lose benefits. We should work hard to change this by guaranteeing the benefits even for a time even after the situation has changed, phasing them out much slower, or even add a little extra incentive to do something positive.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Incentives always work, Doug. That is the ticket.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    “Taxes might be a necessary evil, but why should only a certain percentage of the population contribute?”

    Joanne. You do underestimate the extent to which the very rich can avail themselves of the loopholes. Which obviously goes to show you’re not one of them; so naturally, your ire turns on those who are below you.

    I don’t mean this as a criticism – but that’s the usual pattern.

  • Jeannie Danna

    Did I not close that little tag right?…Sorry!

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Just noticed it:

    “The art of government is to make two-thirds of a nation pay all it possibly can pay for the benefit of the other third.” – Voltaire

    Never underestimate the sayings of Voltaire.

  • Clavos

    Except that, in this country, about 10 or 15 percent pay almost all of the taxes.

    Voltaire’s ratio may have prevailed in 18th century France, but not in 21st century USA.

  • Doug Hunter

    A few percents make almost all of the money too. I have some distant (unfortunately) relatives who at the time of death of the most recent generation was worth north of $280 million. They were making more in interest and royalty payments every month than alot of Americans will slave their entire lives for. I don’t have access to their tax paperwork but I would imagine their overall tax rate is lower than that of an average working stiff.

    This is the third generation away from the original source of the wealth, oil, which they did nothing special to create (they just lucked into buying a large ranch right on top of it). I don’t think there’s anything wrong with asking people like this to pay a bit more. It’s not going to upset their standard of living. At worst, in 3-4 more generations some of their great great grandkids might actually have to work to support themselves (not just volunteer occasionally at the charity).

  • M ar k

    Everybody wants a free ride…

    I reject your premise as contrary to fact.