Friday, March 31, 2006

Response to Jaded JDs "The Fallacy of Government Within Its Means"

Shawn Kenney noted that Jaded JD was back. He referenced JD's entry The Fallacy of "Government Within Its Means".

There's a lot of stuff there, some real thought, and I urge you all to read it completely. I picked off a few of what I thought were obvious debate points, but my comment got so long I decided to put it over here in the hopes of drawing a few more readers.

My focus was on four assertions JD makes, starting with his opening paragraph:

"The people of Virginia must live within their means[;] their government should have to do the same." That's Old Zach @ SST's version of a common, meaningless, anti-tax populist platitude. Simply rebutted, Virginians don't live within their means.

The others were that Virginia Does live within its means, that people can raise their own revenue, and that therefore government should be able to as well:

But my point--that the people of Virginia can increase their revenue, so the idea that their government cannot belies the analogy--is that's it's not irresponsible to raise taxes per se.

(Again, I urge you to read his entire post at his site -- I certainly am not doing it justice with my snippets, and you may not agree with my interpretation of his focus).

That said, this was my long-winded reply, written with I imagine not nearly so much thought as his post:

While JD may be literally "correct", I think the post is wrong in application on several counts.

First, no individual can live above their means indefinitely. At some point the creditors want to be paid. So while a vast number of people may actually have a net worth below zero, few people are allowed to get to too far below zero.

Rich people are of course allowed to get much more in debt than us normal folk. At one point Donald Trump I believe was over 900 MILLION in debt. I'd like to see anybody reading this blog try that. If you could run up a 900 million dollar debt at a casino, you could walk out with a million bucks.

Second,Virginia is only required to live within its means in the sense that we must keep our expenses and revenue in balance. Revenues can be increased to match increased spending. That leads to...

Third, people CAN increase their income, but not at all in the same way as government. People get money mostly by providing service. They provide more service, they get more money. They privide BETTER service, they get more money. People have to achieve to get. People have to succeed to get more (there are exceptions of course, but in general this is true).

If people were the government, they wouldn't take a 2nd job to send their kid to college -- they would simply tell their employee to pay them an extra 10k a year. They wouldn't work any more, or provide any more service to the employer, and the employer would not be able to fire them.

In fact, in such a scenario you might ask why the employee doesn't simply ask for an infinite amount of money? Just like you might ask how does government decide when to stop asking for more money. More on that below.

But even if you think that Government does provide services equal to its income, the services rarely go to those who pay the money. In fact, we seem to be "pleasantly surprised" when government comes up with a "tax plan" that makes the people pay who get the service (like road tolls). Although we also seem to complain a lot about it (e.g. "why should we have to pay so much to use our public lands, they should be free").

Further, the worse government performs its tasks, the less in services it provides successfully, the more money it asks for in return. If the schools are excellent, we hold the line on the budget. If they are failing our kids, we clamor for higher taxes to put more money into those schools to fix them.

But going back to my question: Why doesn't government just raise taxes to an infinite amount? Well, obviously Government can't tax people more than people make. I suppose that corresponds to the idea that an employer can't pay an employee more than the employer "makes", but as JD notes a person can get a second job, so theoretically a person can make virtually an infinite amount of money (I'm thinking anything over a billion dollars should count as more money than you can use in a lifetime). Bill Gates is a multibillionare. So it can happen.

But Government can't raise revenue to more than what the people and business and visitors to the state can physically pay. Worse, as government increases taxes, it discourages visitors, business, and citizens from being in the state. The higher the taxes, the greater the encouragement to stay away. If Virginia had a 100% income tax, nobody would work in the state, so they would make no money.

In fact, you could do an analysis of various tax policies and their effect on people's habits, and find the exact amount of differing taxes that maximises the revenue to the government. If you follow that thought, it should now be clear to you that REVENUE TO THE GOVERNMENT is NOTHING AT ALL like REVENUE TO A PERSON.

A person's revenue is based on service and increases as service increases. A government's revenue is based on how much people are able to give and has a real maximum that can be calculated based on policies, above which revenue drops as taxes are raised.

So, when someone says the government must live within its means, that has a real-life application (although admittedly not what most people think). If one simply wanted government to spend as much money as it possibly could, there would be a specific number that would represent that maximum, based on the tax analysis of the maximum revenue we could confiscate.

Now, I believe in limited government. That means that I could care less about government living within it's means, I want government to live within its specified requirements. Or more precisely, I want government to set revenues at exactly that which will fully fund ONLY what we absolutely need government to do.

So in my perfect world, rather than figuring out how to maximize taxes, we would spend all of our time figuring out what exactly we NEED from our government. Then we would set taxes to raise that amount -- and it should be much less than the maximum possible, so we shouldn't have to take a lot of time figuring out how to squeeze out the last tax dollar.

Figuring out need is something our politicians do poorly if at all. Even the modern "thrifty" representatives are quick to spend money on frivolous items. But worse, we have almost no real debate about what government should be doing. Both sides always end up at money. The anti-tax crowd will argue that we shouldn't do something because we can't afford it. But if it is a valid government service, we SHOULD do it and if we have to raise taxes then that is what we should do. The pro-tax crowd will argue that if a program is "good", it should be funded. But almost everything is "good" in some sense. Giving every citizen a free ice cream cone sounds like a fabulous idea to me. But it isn't what government is for.

Maybe some day soon I'll actually talk about what government is for.

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