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Death and Taxes

April 30th, 2008 | by Dr. Forbush |

“Certainty? In this world nothing is certain but death and taxes,” Benjamin Franklin.

But, since taxes are so certain it would make sense that we should understand the point of taxes. The conservatives have been crying for years now that our taxes are too high and they should be cut. The limit of cutting taxes can only be based on what we as the general population view as getting our money’s worth from the taxes that we pay. If we don’t really understand what our tax money is being used for, then we will never stop cutting taxes until we get to zero. Obviously there is a major disconnect here between what we need and what we want to pay for with our tax dollars.

Taxes have been a part of life since people formed tribes and began to live in cooperation. Taxes began as a type of payment to the leader in appreciation for his leadership, or as a part of the spoils of his leadership. In ancient tribalism a leader could force the point of leadership by taking command and demanding respect — like other primate societies today, or even gang societies of today. The leader assumes authority and provides protection and in return receives retribution. Leaders obviously recognized that they could use their authority to demand more retribution. The retribution in turn could be used to maintain a large gang, or army to both offer more protection, and also demand more retribution. For the leader the cycle could grow as large as the number of people he could subject to his rule.

This model of a leader offering protection for retribution was challenged with the model of different forms of democracy or moderated government. With democracy, the point is that the leader is subjected to the will of the people. Democracy is an effort to constrain the greed of the leader who has no reason to limit the amount of taxation he places on his subjects. But democracy can only succeed if the people are educated enough to understand how their leader is attempting to maximize his authority and make personal gains. Education is not cheap and therefore many people are not educated. And, even in our own country the wealthy were able to educate their children while not all of the rest were so lucky. By only allowing landowners the right to vote, the education of the voters was maintained.

In these early systems of “democracy” the wealthy were still able to tax those without the right to vote and thereby maintain the uncontrolled ability to take money away from those who could not defend themselves. We saw this in ancient Greece and it was the main reason for the American Revolution — taxation without representation.

Modern political progress tends to be in the direction of giving more political power to the less fortunate. So, in order to give power to the less fortunate it was assumed that they needed to be educated in order to vote in an informed way. Since the less fortunate are less likely to be able to afford a private teacher it was determined that it was in the best interest in society as a whole to have the government sponsor education by creating public schools. Public schools could serve two purposes, to provide a way to learn basic skills, and to spread a common story of the nation to the entire population. Basic skills elevate the individual and raise him to another level of value. A common story brings people together in order to pursue the goals of the common story. Well, obviously in addition to military protection public education is a worthy recipient of our tax money. Especially if one can not control the people who vote, then at least one can control how those people view the world and use the common story to influence control of the government. It seems like money well spent.

Education is not the only universal need of a society. People need food, housing, medical attention, waste management, transportation and more. Since ancient times the system was established that people pretty much fended for themselves. People needed to find a way to make themselves useful to society, and they were rewarded for their usefulness. On an individual level a person would find a need and work to fill that need. With this in mind many people solved many problems in many different ways. However, as society grew a new concept gradually grew as well. This was the idea if efficiency. This could be seen with the concept of interchangeable parts. Instead of having each gun handmade and individual a manufacturer could make hundreds of similar parts and build hundreds of similar guns that shot similar ammunition. Suddenly the efficiency of this model was realized and guns became cheaper.

In a similar way society was being handmade on the local level. Someone would make a road that he could use and others would follow it and try to connect to other roads through a maze of streets every which way, until a path from start to finish was completed. However, it was in the interest of society as a whole to have an organized system of roadways — and it seemed very wise to spend tax dollars on that type of infrastructure.

Some things are more efficient with organization. It makes sense to build thousands of similar weapons so that an entire army can be supplied more cheaply, or hunters can buy guns at a lower cost. But, it doesn’t make sense for a government to tell each hunter which animal to target on his hunt. At some level organization makes efficient sense, but taking the concept too far results in ridiculous bureaucracy and control. At this level of understanding it seems logical that government organization can create efficiency by implementing a system of interchangeability. Local people however know the details much better than the government and therefore should retain local control over those details.

The point remains that there are some things that organization and efficiency can solve. These are the laws, programs and infrastructure that the government should spend its resources on, and we should be grateful to pay taxes for these services. We also need to be smart enough to know when the government is wasting money and efficiency by creating bureaucracy where it isn’t needed. As educated voters we really own it to ourselves to know that these specific issues are at the crux of most tax related issues.

The real problem is that politicians don’t want us to see the whole picture. Politicians are in the business of getting people to like them. Therefore a politician is not very likely to tell you the problems with an idea. Instead a politicians is more likely to tell you the benefits. Any government program has a cost and a benefit. If you are only weighing laws and programs by the perceived benefit that a politician is giving you, then you are likely missing the big picture. Even in government it costs money to build something - anything.

Take for example the gasoline tax holiday that Senator John McCain has recently proposed. The money collected from this gas tax is already being used in our government system of programs. The money is connected to the number of gallons sold, not a percent of sales. The consumption of gasoline is fairly regular because most people drive similar routines of commuting, shopping etc. However, during the summer many people take automobile vacations and consume more gasoline than the rest of the year. Sometimes decisions to take a vacation depend on the price of gasoline, if it is cheaper they will not be deterred and maybe drive more. If it is more expensive maybe they’ll travel a bit less. Cutting the gas tax for the summer is more likely to push demand higher. Econ 101 tells us that more demand will mean higher prices. It is likely that cutting the gas tax for the summer would have the effect of increasing demand and therefore raising the price of the gasoline — likely by the same amount that the gas tax was cut by. The result is that consumers will pay the same price for gas during the summer months. Who gets this money? Well, the Oil Companies, of course! So, cutting the gas tax for the summer will result in shifting the gas tax money from going to the government to the Oil companies instead. Or in other words we will be paying a gas tax to the Oil companies — it is simple Econ 101.

That might be frustrating to say the least, but what happens in September when the gas tax goes back into effect? Will the Oil companies lower their prices? No! Will people drive less? No, they can’t because we are now back to the inelastic market where everyone needs to drive basically the same amount, because they are driving to work and shopping alone. They can’t cut out driving to work. They may stop shopping if their earnings don’t go up.

The point of this entire post, however, is that we certainly will always need to pay taxes for the government benefits that we need to make our society more efficient and organized. Cutting taxes was proposed by the conservatives as a way to increase government revenue. Cutting taxes was supposed to stimulate growth and therefore increase the profits that companies pay taxes on. But, now several years after the tax cuts to the wealthy we are entering into a recession. The government is paying us with welfare checks in an effort to turn the economy around. Of course they don’t want to call them “welfare” checks because only lowlife poor people collect welfare. No, instead these are tax rebates that only tax payers are eligible to receive. What are the real benefits here? Everyone always feels happy when they have found a few extra bucks, so as the recession looms the government is trying to make us feel happy. Much of the problem we as a country suffer from is our over extended debt. If we were wise educated people we would use the money to lower our personal debt. However, lowering debt doesn’t really help pull us out of recession. Instead the government is hoping that we spend it like a bonus. If we do that, then we will extend the inevitability of recession a couple of months down the road. It will happen in due time, because people are still just spending beyond their means. At some point they will collectively need to stop spending and start paying off the debt. When that happens we won’t be making so much and people will loose jobs and default on those loans. So, are those tax rebate checks really a smart way to spend our tax dollars? I don’t think so.

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Don’t forget what Stephen Colbert said, “Reality has a well-known liberal bias.”

Cross Posted @ Bring It On, tblog, Blogger and BlogSpirit

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