Other Views

47 percent

Taxes: those who pay, those who consume

 
 

AZEL
AZEL

jazel@miami.edu

Republican presidential candidate Mitt Romney’s comment that 47 percent of Americans would almost automatically vote for President Obama because they are dependent on the government and pay no income taxes was indeed, to use his term, “not elegantly stated.”

Notwithstanding the inelegant language, it is axiomatic that the very nature of government creates two asymmetric classes in society inherently at odds with each other: tax “payers” and tax “consumers.” The state, for its part, lives parasitically and coercively, subtracting from the production of the taxpaying citizenry.

A principal justification for taxation is the provision of “public goods,” defined in economics as non-excludable goods where everyone benefits regardless of how much they contribute to their financing. Public goods are also jointly supplied, meaning that one person’s consumption of the good does not limit what is available for others. The deterrence effects of national defense and public safety are examples of true public “goods.” Unfortunately, most government spending in so-called public goods does not meet this definition.

In an effort to understand the social dynamics of financing public goods, economists have developed standard economic experiments such as the Public-Goods Game that has been extensively play-acted around the world. In the basic Public-Goods Game, subjects secretly choose how many of their private tokens to put into a public pot in each of a number of rounds. On each round, a player can either contribute tokens into the public pot or keep them. Each player gets to keep the tokens they do not contribute. The tokens in the public pot are then evenly distributed among all the players.

The typical result over a series of rounds is a declining proportion of public contribution. During the first round many people unselfishly contribute about half of their tokens to the public pot. In subsequent rounds, as trusting contributors see “free riders” (called defectors in game theory lexicon), the rate of contribution drops. In later rounds, close to 80 percent of the players become free riders and the amount contributed to the public pot has been greatly reduced.

Interestingly, those who choose not to contribute in the first round rarely change their minds; they continue to not contribute in later rounds even after discovering that other players are contributing. On the other hand, most “conditional consenters” that start by contributing some of their wealth stop cooperating as they observe others free riding.

In the United States, in the current round of our real-life Public Goods Game, nearly half of Americans have become game defectors paying no federal income taxes. As predicted by the game, the conditional consenters still putting their tokens in the public pot are increasingly reluctant to carry a highly disproportionate burden of the public goods expenditures.

The conditions are now in place where some individuals, as voters, demand more government services than what they would be willing to pay for directly as individual consumers. Arguments to decrease the size of government and federal income taxes are not particularly persuasive to voters paying no income taxes. But if we do indeed need a large, intrusive, coercive, paternalistic state, what does that tell us about our capacity as individuals to take care of ourselves?

Politically, we fail to recognize that the stridency or eloquence with which some people demand higher tax contributions by others is certainly not a measure of their own benevolence. Moreover, the validity of certain politico-economic beliefs is not determined by the reasons why people may hold those beliefs.

Essentially, there are only two ways to organize economic activity, by voluntary exchanges represented by free market activities, or by the coercive action of governments. If we accept the premise that voluntary, legitimate interaction among individuals is preferable to coerced interaction, then what are the philosophical grounds for the forced rectification of the results of voluntary, legitimate exchanges?

If under the logic of a felicific calculus, certain goods are to be guaranteed to some individuals, then other individuals must be coerced to pay for those goods. This philosophical conception of rights is inherently discriminatory requiring that the state treat some individuals differently from others. Just as important, as the state severs incomes it must assume the economic functions of the appropriated income, thus redistributing power from the individual to the state; a process that weakens the power of civil society.

Undermining individual initiatives is a perilous path in the Randian argument that individuals are “the only creators of any tomorrows humanity has ever been granted.”

José Azel is a senior scholar at the Institute for Cuban and Cuban-American Studies, University of Miami and the author of the book, Mañana in Cuba.

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