If Deficits Don't Matter, Why Bother With Taxes?

Ah, but it’s not just about spending our money more wisely than we ever could, Kelton adds two secondary reasons she loves taxes: to punish particular people by redistributing their money, and to punish people for doing things she doesn’t like. Such as failing to buy energy-efficient appliances (no, really). In other words, social engineering with carrots for your friends, sticks for your not-so-friends.

Aside from the morality of preying on our neighbors, demanding they pay an ever-growing “fair share” that invariably exceeds what, say, a journalist or professor pays, using taxes for redistribution and punishing—“nudging,” in the fashionable parlance—carries enormous collateral damage. Because redistribution arranges society into hostile factions either trying to violently dispossess one another or defending against that dispossession. Moreover, redistribution isn’t simply innocently shuffling the chips; it is wholesale destruction. A paper coauthored by Christina Romer, former chair of Obama’s Council of Economic Advisors, found that each dollar in government spending leads to between $2 and $3 in lost economic activity. A separate study by Harvard economist Martin Feldstein came to similar deadweight estimates that “may exceed $2 per $1 of revenue.” In other words, in order to move a dollar, you have to destroy at least two to three dollars.

There is a similar mix of moral and practical costs to using predatory taxes for social engineering. It also breaks the social compact to live and let live, rendering our every decision subject to public vote, from what we eat, to where we vacation, to what kind of bag we use to carry our groceries. There is nothing outside the realm of the nudgers, no detail too small.

Moreover, by mass imposition of what are effectively judicial fines for noncrimes, such taxes can achieve a level of control that would never be constitutional if written as law. For example, today in the United States, 90 percent of students attend public schools, despite the terrible quality of education. Why do they stay? Because each voter must pay for public schools whether or not they use them, but would have to shoulder $11,200 per child per year for opting out of the public system, while continuing to pay that $12,600 per year in taxes for the “free” public system. Especially for the working class, this penalty becomes prohibitive for all but the most committed.

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Peter St. Onge blogs on economics at Profits of Chaos.

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