The Tedious Tax Payers’ Lament

Can we please stop crying about “Our Tax Payers’ Money?”

Far too often when reading a perhaps otherwise interesting essay, this horrible argument is made. Whatever the governments’ wrong doing e.g: police violence against protesters, or military adventures abroad, along comes the lament of how can they do this with our tax dollars? Whether it’s the activities of corrupt politicians, or some other case of perceived misuse of money by the government, too often included is the tax payers’ lament. This is a really bad argument.

First of all, the argument is very flimsy politically. For instance, would it be OK for the police to beat-up protesters if such activity was not publicly funded? Would it be OK to bomb foreign countries if it did not cost the “tax payer” anything? Probably not. For this reason alone, lamenting that dubious actions by the State that were undertaken “With Our Tax Dollars” is the wrong argument. Instead, it’s much better to argue against such activities by showing that they are wrong, harmful and contrary to the public good, regardless of how such undertakings were financed.

Further, the tax payers’ lament is actually false. The Government does not spend tax payers’ money. The government does not collect taxes because it needs this money to spend. All money, meaning here the national currency of the country, originally comes from the government. If the government did not spend or lend, there would be no such money in the economy. The government creates money.

What’s more is that workers do not really pay taxes in any economic sense.

When labour is sold as a commodity on the market its price is driven by its replacement costs. This is clear to most people when it comes to other commodities. For instance if the government enacted a tax on tomatoes, nobody would be surprised that the price of tomatoes went up. In most countries, the price of commodities like alcohol and tobacco is substantially made up of taxes, yet nobody expects that the sellers of these goods absorb the cost of such taxes in reduced profits, everybody knows they are passed-on in the prices paid.

The same is true for wages. Wages are nothing more than the price of labour on the market, and in a capitalist market economy, they are likewise driven towards their replacement costs. In other words, if your taxes were lowered, then your real wages would likewise fall, either by the labour market driving wages down, or by the availability of extra money in the hands of workers driving prices up. Everything else being equal, the inflation-adjusted wage would remain the same. Therefore, the workers do not really pay taxes in any meaningful sense, rather those taxes are passed-on to the their bosses as part of the price of labour.

Now, going back to the example of the workers taxes being reduced and yet wages remaining stable, in the case that for instance there were legal or structural barriers to wages being accordingly reduced by the labour market. I have noted above that the extra money available would drive up the prices of the things workers pay for. This is the real reason that the government requires taxes. Not to fund it’s own spending, but to control prices.

However this is not just a simple function of the amount of money the government creates, how money is spent is far more relevant than how much the government spends. More money only means higher prices when there is little or no excess capacity in the production of that which is purchased. In other words, only when the amount produced and sold does not or cannot increase in proportion with the increase in the supply of money.

Money spent on consumer goods is likely to drive the prices of those goods up. This is almost always the case with workers’ spending, since workers do not generally finance productive capacity directly, but compete against each other to purchase available goods.

Money spent on investments in production is less likely to drive prices up. Government spending can mobilize underutilized economic capacity, especially unemployed labour, and increase the productivity of labour by way of eduction and other public investments, thus at the same time creating more money, but also more goods to spend money on. Therefore, not increasing prices, but increasing the size of the economy.

There are no fixed limits on how much money the government can create. The governments and its central bank’s ability to lend or spend is limited only by law and policy. Therefore, all lending and spending is undertaken in order to achieve some public aim. Spending and lending is a social choice, a choice of what aims to undertake and what aims not to undertake. We are not limited by any scarcity of tax dollars as to how many protestors we want to beat-up or how many countries we want to bomb, or for that matter, how many students we want educate or how many people we want to provide with medical care, we can only be limited by law and policy, and ultimately, by the productive capacity of our society. In other we are limited only by social choices as to how to employ our productive capacity.

We have a right to say we do not approve of bad choices because we have a right to participate in the social choices made by our society, not because it is “our” tax money. The idea that our right to comment or dissent comes from the fact that we have paid taxes is a fundamentally undemocratic argument. Do people that pay more taxes have more right to say what social choices we make? No! We have a democratic right to dissent and that does not come from the amount of taxes we may have paid.

So please, pretty please, drop the tax payers’ lament. The government doesn’t really spend tax dollars, workers don’t really pay taxes, and most importantly, our right to criticize the government does not derive from how much tax we’ve paid, but from our democratic right to participate in social choices and to hold our government accountable to the public good.

I’ll be at Stammtisch tonight around 9pm as usual, please come!