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Thursday, 23 June 2011

Taxation – A Very Bad Thing

Two things are inevitable: Death and Taxes. It’s easier to make a case for Death than for taxes.

As Milton Friedman points out, there are four ways to spend money:

You can spend your money on yourself, in which case you will try to get the best quality for the lowest price.

You can spend other people’s money on yourself (eg business expenses), in which case you try to get good quality but you don’t care too much about price.

You can spend your money on other people, in which case you care about price but not so much on quality.

Finally, you can spend other people’s money on other people, in which case you don’t care much about price or quality

Government spends other people’s money on other people. They help themselves to taxpayers’ cash with an implied threat of violence in the case of resistance.

It costs money to collect taxes – your money. So, if the government wants a hundred pounds of your money, it has to collect more than a hundred pounds – to cover the cost of collecting it. So, you lose perhaps £150 or even £200.

It costs money to spend the tax take. All the officials who disburse the taxes have to be paid. So, to get £100 pounds worth of health care or education the government has to spend £300 or maybe much more.

The government spends your money cynically, almost always to benefit a particular group in society. It hopes that the particular group will vote for it at the next election. It disregards what you might have done with your money. It prevents you from spending it. So, you don’t get the benefit you might have had; nor do the tradesmen or merchants and their employees get the benefit of what you might have spent. It prevents you from saving it (ie investing it in enterprises which might create real wealth and employment).

It is as clear an example of unforeseen consequences as can be imagined. So, it stands to reason that societies that are lightly taxed will be happier and more prosperous than societies that are heavily taxed.

What is equally certain is that the quality of the health care or education that the government buys for you will be lower than that of health care or education that you buy for yourself. If you are able to shop around for these services, you will try to get the best possible value for money and providers will have a strong incentive to serve you well.

Another pernicious effect of government provided services is that they inevitably end by being run for the benefit of the providers. In Britain, public sector workers earn more in wages/salaries and pensions than do private sector workers, their trades unions being so powerful. We are about to witness strikes and demonstrations by public sector workers alarmed by the prospect of less generous entitlements. How long will it be before private sector workers wake up to the fact that they are paying for these generous entitlements. People without index-linked pensions should be livid that they are paying for the index-linked pensions of public sector workers, while at the same time their savings are being eroded by government created inflation.

It is a government conspiracy that we are so pitifully ignorant of simple economic truths. The fact is, of course, the state apparatus being as vast as it is, that we all belong to groups which at least occasionally benefit from government entitlements or benefits. This blinds us to the fact that we are all worse off as a society.

There is an almost universal perception that goods and services that are supplied from a profit motive are bad. This is the opposite of the truth. The profit motive (combined with competition) drives up quality and drives down prices. Regrettably, even our most highly educated (perhaps particularly they) are in thrall to this idiocy.

All this is not to say that all businessmen have pure motives. They don’t. They cheat whenever they think they can get away with it by campaigning for subsidies and regulations which benefit them.

We are fallen creatures. We would be better off with a cast-iron constitutional clause forbidding the government from passing any legislation which benefits any group over other groups. It’s illegal for me to mug you for my benefit. It should be just as illegal for the government to mug you for my benefit.

Should we care nothing for those who for no fault of their own are indigent? Clearly not. Charity has its place; but high taxes are a disincentive to charitable works. Taxes are a very bad thing. Perhaps, for the time being, a necessary evil – but evil nonetheless. The less the better.

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