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| INTRO TO LIBERTARIAN ECONOMICS |
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TAXES AND REGULATIONS |
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Taxation is one of only two things in life, as the saying goes, which are certain. One might say taxes are the life-blood of governments. Without them, governments cannot be maintained, police cannot provide order, courts cannot enforce contracts. Without the aforementioned organizations, a market economy cannot operate efficiently, if at all. In other words, without taxes - chaos! Thus, taxes are not inherently bad.
The issue arises, however, as to whether, at some point, taxes stop being beneficial and start being oppressive. Taxes have often been considered a suitable method for redistribution of income and the creation of equal opportunity. Suppose a man makes $100,000 per year, while 2 others are unemployed. In the first instance, who would argue with the premise that taking $60,000 from the former, leaving him with $40,000, and splitting the remainder in equal shares of $30,000 between the other two is humane? After all, the former still keeps $40,000. Consider, however, that this individual might have come from a poor family. Perhaps he received the benefit of $100,000 in loans in order to become educated and now has to pay back the amount of the loans plus interest within 10 years, whereas the other two never attempted to better themselves, despite being offered the chance. Should he still be required to pay the same amount in taxes? If so, then this is a discouragement to spending hard years involved in study, since one who does so will only be slightly better off than one who is unmotivated and chooses not to go to school - and the time and effort spent in school will take away from the time in which one could have been engaged in more enjoyable pursuits. This might well reduce the number of qualified surgeons, which, in turn, would decrease the available supply (for the service performed by the surgeon), causing medical costs, and therefore, insurance, to increase! On the other hand, should another person be punished because he not only went to school but, because he did not rely on loans, also worked and lived in less than ideal conditions in order to get through school? Then such behavior is likewise discouraged. It must be admitted, however, that the CEOs and senior officers of a company, each making millions of dollars a year are not likely to be in that position. Is it not reasonable to tax these individuals in order to redistribute wealth downward to those unfortunate souls who have to eke out a living? To say yes, one must either oppose the concept of new wealth and upward-mobility or assume that the individuals in question cannot find loopholes and tax-shelters in the code allowing them to avoid paying much of what they are taxed. After all, those who are only now becoming wealthy are less likely to have private lawyers on hand who know these loopholes. Assuming, however, that such loopholes can be eliminated, the next question is how so-called progressive taxation affects the prices of goods. Heads of companies and senior officers are paid because it is supposed by the Board of Directors that they are doing a good job of keeping the company profitable. When taxes increase, the Board does not want these officials to be hired away by another company which might be willing to pay them more money. Therefore, assuming that the company might do less well without those individuals, the company gives them raises or bonuses to keep them from going elsewhere. Otherwise, other companies are likely to hire them away for wages which are increased to take into account the new taxes - and, to some extent, the subsequent, increased prices of goods. Since these costs are part of the cost of production, they are passed on to the consumer - the real victim of the tax increase - who has to pay higher prices. Further, even if the consumers subsequently receive raises, the only results are that the prices also increase by that much, and the natural advantage the nation has in the production of that product is negatively affected. Thus each such tax on the highest earners in society has the effect of decreasing the end-value of their production. The effects of such |
progressive taxation, then, is to increase the accumulation of wealth at the highest levels and reduce the average consumers' purchasing power! Further, while the middle-class consumer blithely supports such indirect taxation against himself, supposing it to be a redistribution of wealth from the richer citizens, he also finds himself paying direct taxes. Since the middle-class is, by far, the largest class in the US, it cumulative direct taxation is greater than the cumulative taxes paid by the Upper Classes. Much of this money is returned to the middle-classes as college grants and similar programs - the basis for the assertion that increased taxes are beneficial to the middle-class, itself. However, the middle class does not merely have to pay the bulk of programs to help the poor and programs to benefit itself, it also has to pay for the metaphorical leak in the bucket - the large bureaucracy and copious amounts of paperwork for such services. The middle class then pays again for the poor and to help itself from the remainder - after supporting the bureaucratic middlemen! Sadly, misled, as Montesquieu insisted they should be, by the belief that the creators of wealth are helping to shoulder the burden of taxation for the benefit of the middle class, itself, as well as the poor, they frequently support poorly thought-out redistribution programs which do nothing, in the long-run, to help the poor but continue to increase the divide between the wealthiest persons and themselves.
Regulations are intended to force companies to act in ways intended to benefit the worker as well as the consumer. Without regulations, workers would have often found themselves working in very dangerous conditions. Often without heat or air-conditioning in unsafe buildings, working very long hours. Further, the consumers would have been subject to continual deception about the effectiveness of products and forced to buy shoddy or dangerous equipment without any warning labels. Thus, it is clear, that regulations have had a positive role in benefitting the consumer. The question is whether there is a limit to the benefits of regulation, and, if so, at what point it is reached Regulations can adversely affect the worker's standard of living because they will increase the costs of production. The employer has to pay the immediate costs of regulation compliance, but this increases the production costs leading to increased market prices. The worker, in his role as a consumer, has to pay higher prices for these goods, increasing his opportunity costs so that he has to either buy less (or, perhaps, none) of the goods affected or has to buy fewer other goods. This is not changed by any raise which is also put into the cost of production. Therefore, unless the regulation improves the worker's well-being in a greater proportion than the reduction caused by a decrease in his purchasing power, the regulation is counter-productive! Similarly, when a regulation requires all of a type of product to meet a certain standard, the consumer's options and, perhaps, his purchasing power is adversely affected. Whereas prior to the a regulation preventing the manufacture of a good which poses a certain danger if used improperly, the consumer, relying on information to that effect, as well as an understanding of his abilities and the opportunity costs of purchasing a more expensive but less dangerous tool can decide whether or not to purchase the safer tool. If enough consumers desire to pay a higher price for the safer tool, one will be made available since it allows businesses to fill that specific market. However, once the regulation is put into effect, he cannot make that choice! He can only buy the tool allowed by the regulation. In many cases, this means that the tool he is now forced to buy is more expensive because the cost of the increased safety features is now included in the price. He must, then, either forgo buying the tool at all or buy less of alternative goods due to the increased opportunity costs |