Higher Taxes Aren’t Good In and Of Themselves …

So, Ophelia Benson at Butterflies and Wheels liked part of an interview with a Swedish actor:

Mr. Skarsgård, where do you live?

I live in Sweden because the taxes are higher, nobody is starving, good health care, free schools and universities. It’s a civilized country and I like that.

You prefer paying higher taxes?

Of course. If you make a lot of money like I do you should pay higher taxes. Everybody should have the possibility to go to school, and university, and have good healthcare.

She comments on it this way:

Goodness. How reasonable, and how rare.

Well, it’s a good thing that it’s rare, because it isn’t that reasonable. The reason is that the reason for his living there isn’t, in fact, because he pays higher taxes in Sweden … or, if it is, then he’s actually being quite unreasonable. Either way, something’s missing here.

Now, I’m sure some will comment that I only say this because I’m caught up in some kind of uber-capitalist notions about what society should do and that taxes are evil, and if I only could see the light that the people in these nations have already seen this wouldn’t seem so odd or unreasonable to me. I’ll counter that with this little thought experiment:

Imagine that you have two countries. Both countries have exactly the same quality of social programs: they have excellent schools, no one is starving, they have free health care, and so on and so forth. However, country A has lower taxes than country B. Which country would you rather live in?

If you say country B, then, well, I’d like to see a good argument for why, because rationally country A is the better place to live. You get all of the social program goodies of country B, and get to keep more of your own income to pursue your own interests. How could it not be better?

The reason why someone could think that Skarsgård’s comment on preferring Sweden because he pays higher taxes isn’t just an utterly irrational statement is because of the correlation between tax rates and social programs. In general, we all understand — or at least strongly believe — that in general if you pay higher taxes then you have more social programs, and if you pay lower taxes then you have less social programs. And this is generally the case, because if a government is getting the resources it needs to provide social programs from taxes, then the higher its taxes then the more social programs it can provide, and the lower its taxes then it will be able to provide less social programs. Thus, we expect a range between 100% taxation with the government providing everything for you, and 0% taxation but you not having anything that looks like a government at all.

While many people will easily see the latter case as being bad, the former isn’t good either. Lower taxes provides people with discretionary spending, in the sense that it’s money that they can use to get what they personally want or need. If the only way to get anything is to get it free from the government, then the only things you will be able to get are the things that the government provides. You’d better hope that you want what they want to provide, because if you have non-standard desires you may find yourself out of luck. On the other hand, if the government provides nothing then you can only get what you can afford to pay for yourself, no matter how badly you need it, or how badly everyone needs it. A capitalist system may provide, but your only guarantee will be what you can afford; if you can’t, then that’s likely tough luck. And the instant people get together to pool their resources to build what they need you start to get something that looks a lot like a government … and start introducing things that look a lot like taxes to fund it. Even user fees would quickly grow into general taxation since it would be difficult and expensive to track who’s using what for how much and how much worth.

So neither extreme is actually good, so what we really want is a mix of the two: taxes to fund social programs that pretty much everyone agrees they want and/or need, but taxes kept low enough that we have room for people to spend their own money on the things they need and, also, to not have too many cases where money is taken from them and spent on things that they’ll never want, never need or that they disapprove of. Taxes, in general, are used to provide the things that we really need provided to maintain the social contract, and a functioning society; people will always take it badly — and rightly so — if they are used to fund the personal ideals of politicians or the majority or even a minority of people.

A lot of complaints about taxes and tax increases, in my opinion, comes from a cynicism or distrust that the government needs the money to provide necessary services, and is instead using that money to promote themselves or specific causes that they favour (and many taxpayers don’t). A lot of the complaints about foreign aid, for example, are complaints that the government is spending a lot of money in foreign countries while they aren’t providing sufficient social programs in their own country … you know, the one that contains the people that are paying taxes. And a lot of the complaints about funding special interest groups is the same: the ones that the government likes get money, but things that impact more people or are supported by more people don’t, and surely there are better things to do with that money than to promote a cause that, if it was worth anything at all, could be funded by people who support it instead of with general taxpayer dollars.

Ultimately, it is critical in a democratic society — or, probably, any society with taxpayers for that matter — that people feel that the money they pay in taxes is not wasted or spent on things that a government shouldn’t be providing. If the government didn’t need that money to provide the essential services that we need a government to provide, then it should return that money to the taxpayers to let them support causes they want to support and get things that they want to get. Because of this, it’s critical that taxpayers feel that they have a say in where their tax dollars go, to ensure that they aren’t giving money to a government that is using it to gain more power for themselves, enrich themselves, or support causes that they favour but won’t fund themselves. Hence, the importance of a democracy which does provide that feeling. But note that the higher taxes someone pays, the more they’re going to want to make sure that that money is used properly, because everyone feels that if the government isn’t going to use their money wisely they have uses for it that would certainly, at least, benefit them more than what the government is going to do with it.

Which, then, reveals a major problem with having the wealthy pay more taxes than everyone else. If they note that they fund the government’s activities to a disproportionate amount, they’ll want to have a say in how that funding is used — and therefore, in that government’s activities — to a degree that matches the funding they’d putting into it. This is a perfectly natural response, as in most things we think it fair that if someone is footing most of the bills they get a bigger say in what is getting bought, at least to avoid people racking up the bills because they don’t actually have to pay for it. But they can’t politically get more of a say in a democracy, and so then they’ll demand that they only pay as much as everyone else does. So the choices then are to lower their taxes, or let them have more influence in what programs get funded.

Now, one way around this is to argue that there are certain things that need to be funded, and that the government needs a certain amount of funding to do that, and that taking equal proportions from everyone would unduly burden people with lower incomes while would be less of a burden for those with higher incomes, and so we can have higher taxes on people with higher incomes. And this works perfectly well … as longer as the government is using that money to a) provide those essentials and b) only to provide those essentials. So, the deal works as long as those who have higher incomes believe that, and the government can prove that they are doing that. As soon as that is no longer the case … the deal breaks, and people with higher incomes can again rightly complain about being taken advantage of: the government justifies taking more of their earnings on the basis that it needs it to provide services that it isn’t providing while it provides services that it doesn’t need to provide. And we’re right back where we started.

Ultimately, at the end of the day, all groups, no matter what their income, need the proper and fair balance of taxation versus social programs. Where this line is drawn will depend on a society, of course, but in general the government has to offer the social programs the people need, not offer the programs that people don’t want or want to fund themselves, and then set tax rates specifically to fund the programs that the society agrees they need. Anything beyond that breaks the agreement of what taxes are for and shouldn’t be seen in a free and democratic society.

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