Freeman

ARTICLE

The Real Case Against Taxes

MAY 01, 1990 by JAMES L. PAYNE

If we hate taxes so much, why do we keep on approving them? We’ve just had an episode in Sandpoint, Idaho, where I have lived for several years, that points up the paradox. Civic leaders proposed a 2 percent tax on restaurants, bars, and hotels, with the revenues to be used to beautify the city and attract tourists. Devising this new tax and urging citizens to vote for it were many of the town’s business leaders—the same people who normally deplore government tax-and-spend programs!

What accounts for the inconsistency? The answer is that their opposition to taxes, like the opposition of most Americans to taxes, is shallow. Based on the wrong argument, it crumbles time and again. A century of this flawed debate has left us with the mammoth government we have today.

The argument that most people use against taxes is self-interest: taxes cost us money. This point is good enough in the abstract—who wants to be made poorer?—but it breaks down when it comes to specifics. On program after program, we discover that the tax money is to be spent on community services and improvements. These are improvements that we, too, approve of—like beautifying the town. Since most of us are at least somewhat public-spirited, we agree to the additional tax.

But the real case against taxes doesn’t rest on self-interest. It rests on altruism, on a concern for the health and prosperity of the community. For in the long run, most taxing and spending programs turn out to be harmful in three important ways.

First, because tax monies flow in automatically, government agencies face no day-to-day discipline of the market. The result is a consistent pattern of inefficiency. Studying this issue, economists James T Bennett and Manuel H. Johnson have come up with the “bureaucratic rule of two”: on average, anything a government agency tries to do costs twice as much as a private, market-controlled provider. Hence, tax-and-spend programs are a way of destroying wealth, a way of impoverishing the community. The scandals, corruption, and waste we read about in our daily newspapers are the fruit of this system that separates donors from their donations.

A tax system destroys wealth in a second way: in the collection process. In this highly legalistic day and age, tax systems involve forms and instructions, regulations and reporting requirements, enforcement systems, penalty procedures, appeals, and litigation. In addition, tax collection systems impose losses by discouraging work, savings, and investment, and by channeling effort into tax avoidance and evasion activities. My study of the Federal tax system shows that the overhead costs of operating this system amount to between 60 and 70 cents additional burden for each tax dollar collected. This monetary figure does not count emotional and moral costs, which include abuses of power by the bureaucracy, the frustration of dealing with red tape, and the fear of doing something “wrong” and being treated like a criminal.

Finally, perhaps the most important objection to a tax-and-spend program is that it undermines the spirit of helpfulness and community pride. To its promoters, a tax seems attractive because it guarantees automatic funding for a well-intended project. They don’t have to go around urging people to be public-spirited, appealing to their generosity. The problem is turned over to government officials who presumably “fix” it, and the rest of us can go back to our personal pursuits.

The flaw in this approach is that social generosity is like a muscle: if you don’t use it, it weakens. The more functions you turn over to government, the weaker becomes the conviction that society depends on consideration for others. And that means we all suffer. When the spirit of helpfulness recedes in a society, our lives become more difficult in scores of ways: help is harder to find in an emergency, debtors can’t be trusted to pay their bills; businesses from auto repair to brokerage houses begin to cheat their clients; clerks are surly and uncooperative to customers; everybody spews out as much pollution as they can get away with, heedless of the effect on their neighbors; crime inches up; vandalism takes over. It’s no accident that in the welfare state, public morality goes down.

If you want to live in a caring, helpful society, you have to teach that caring, helpful people are needed to solve its problems. And that means turning away from government and its coercion-based tax system as the problem-solver.

This “real” case against taxes does have an implied obligation, however—one that critics of taxation often overlook. If you say government programs are harmful, consistency demands that you support the alternative: voluntary methods of addressing community problems. When fund-raisers for the local beautification campaign come to your door, don’t say, “Isn’t the government supposed to take care of that?” Pitch in and help.

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May 1990

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