TGIF: What Government Has Wrought

Imagine two candidates for president, and ask yourself who is more likely to win.

Candidate A observes that people are facing generally rising prices. Their total at the supermarket checkout is higher than last year. Filling up the car at the gas station takes a bigger bite out of the budget. Everything the kids need seems costlier. Besides all that, the prospect of buying a home or moving to a larger apartment looks grim—too expensive.

Responding to this situation, Candidate A launches a campaign promising to defend the middle class and other working people against "corporate greed." Specifically, he proposes an expanded child tax credit, a crackdown on "price gouging," and down-payment subsidies to first-time home buyers. Targeted tax credits to homebuilders and small businesses are among the promises. (These and other tax credits are called "refundable," which means qualifying people who pay little or no taxes have their nonexistent tax payments refunded to them—a logical impossibility.)

Candidate B, not your typical frontman for a mass-marketing campaign, sees the same hardships as Candidate A, but he has a different message. He pledges to move heaven and earth to repeal taxes on savings, investment, and business, including the capital-gains tax and the corporate income tax. He explains that taxes on savings, investments, and enterprises are dishonest because businesses don't pay taxes; they collect them—from workers, customers, and corporate shareholders. Such taxes constitute double and even triple taxation. (See Roy Cordato's "Corporations Should Pay Higher Taxes?" and "Taxing Investment." ) He also promises to work to abolish regulation on business, which raises production costs, hikes prices, and reduces the supply and variety of consumer products.

The candidate unabashedly promotes his plan in the name of economic growth and prosperity for everyone. He does so because he believes that the only way for everyone to get rich(er) is for production to expand, for labor to become more productive, and for real prices to fall through increased supplies. That requires saving and investment, that is, deferred consumption. Anything that discourages savings is bad, he says. He favors prosperity, he says, over income equality, which is a recipe for poverty.

The candidate proposes to accommodate the lost revenue by pushing Congress to cut spending all through the budget. He also calls on the governors, county executives, and mayors to eliminate the barriers to home and apartment construction, including zoning, because, he notes, high housing prices are caused by politically restricted supply. This is especially egregious where some of the most lucrative jobs are. However, since housing is artificially scarce, many people can't move to where the best jobs are because they're priced out of the housing market. He also promises to get rid of any federal regulations that keep the housing supply from meeting the demand.

In general, Candidate B explains to voters that increased consumption requires increased production (not vice versa) and that bureaucracy discourages savings and raises costs and prices. The government is not good at creating real wealth; it is a consumer and engine of transfer, not a producer.

Who's likely to win the election? The one who promises direct help to middle- and working-class consumers or the one who promises to help them indirectly by freeing up entrepreneurship and free enterprise?

Does anyone doubt who, other things equal, would prevail? Candidate A would be widely portrayed as a champion of the people, a hero bursting with compassion and courage to take on special interests. Candidate B would be portrayed as a shill for Big Business and Wall Street, who favors having all the wealth go to the top 20 or even 1 percent, while the rest of America gets poorer and poorer. (Although that is the opposite of what's been happening for many decades.)

In other words, the candidate who understands how the free-enterprise system tends to work when left unmolested by politicians and bureaucrats will be scorned as an enemy of progress. Meanwhile, the candidate who either is ignorant of economics or engages in demagoguery will be lifted on people's shoulders and carried into the White House.

That's what a representative democratic republic produces. The result is a total national debt—$35 trillion and change—larger than GDP—almost $29 trillion—not counting the unfunded liabilities of the so-called entitlement programs. Interest paid on the debt will be about $900 billion this fiscal year, which ends September 30. Annual budget deficits have hit $2 trillion, which the government covers by selling bonds, which in turn the Fed (short for Federal Inflation Generator) buys up, creating money out of thin electrons. Inflating the money supply then raises prices generally as more dollars chase the same amount of goods, imposing hardship on regular people. A fiscal crisis looms.

If this tale of two candidates does not make you question the utility of government, what would?

TGIF: The Coming New and Improved IRS

The brilliant people in the Biden administration and the U.S. Congress have decided that one thing America really needs is an Internal Revenue Service (!) fortified by 87,000 more employees and 80 billion more dollars so it can help reduce the inflation that currently menaces us.  

You don't believe it? Oh, ye of little faith!

How is that to be accomplished? By auditing rich individuals and corporations, of course, thereby harvesting tons of hitherto uncollected revenue and forcing the shirkers to pay their "fair share." (No one ever says how we know they aren't already paying it.) The law's advocates also say that with its outright tax increase on corporations and cutting of energy and health care costs, inflation will be lowered still more. I wouldn't take that too seriously.

You might suspect that the government's story is not exactly kosher -- and you would be right. Even though the Biden people insist that the IRS provisions of the just-enacted Inflation Reduction Act will leave people making less than $400,000 unscathed, nothing in the law guarantees that, and the defensiveness of the White House and congressional spokesmen seem to confirm that the nonrich are not safe. Last year the Congressional Budget Office said all taxpayers would face higher audit rates under an earlier, larger version of the Inflation Reduction Act. (It was then called Build Back Better.)

This stands to reason that all taxpayers will be at risk. The highest earners have battalions of the best tax lawyers and accountants who surely advise their clients how to (legally) avoid, not evade, taxes. (News flash: the tax code is complicated, even vague, and will become even more so under the new law.) When you combine that fact with the regrettably small number of really, really rich people, you have to figure that the newly beefed-up IRS won't be anywhere near able to squeeze out the expected sums without going after lower hanging fruit. That's the rest of us: additional audits of people of more modest means. (Just for the record: with the exception of any actual thieves, wealthy people also have a right to their money.)

How many times before have presidents and legislators promised to raise badly needed, deficit-shrinking revenue by stepping up IRS enforcement against the rich? It's how progressives lull the middle class into accepting always-increasing spending.

But strangely, the deficits never shrink and stay shrunk. So either the revenue estimates were unalloyed bunk or the government spent the additional revenue on new projects. I'm sure it was a combination of both. Surprise, surprise! Birds gotta fly. Fish gotta swim. Politicians gotta spend.

At any rate, the deficit and debt (monetized by the Federal Reserve, our inflation engine) have grown without relief. Isn't that likely to be the case this time? It's surely the way to bet.

According to Forbes, "Democrats say the legislation will raise close to $740 billion in tax revenue over the next 10 years and devote $300 billion of that money toward reducing the federal deficit." That's 2 percent of the deficits expected over the next 10 years. You should realize that last year's budget deficit was $2.77 trillion, the second highest after the 2020s $3.13 trillion. 

But let's remember that these revenue projections are really predictions about how people will behave -- and how much taxable income they will produce -- in an altered institutional environment. The prognosticators make their predictions with inherently dodgy computer models. Remember how well such models predicted the climate and covid catastrophe? In truth, we don't know how creative, entrepreneurial people will adjust to changing tax and regulatory conditions. Individuals discover things when they face new situations. They are not robots. 

Another thing to keep in mind is that corporations do not pay taxes. They collect them. Only people pay taxes. So which people pay the corporate income tax, which will go up under the new law? Economists have long known that the tax is paid by consumers through higher prices, employees through lower wages, and shareholders, most of whom are not wealthy, through lower returns to their retirement funds. The corporate tax is one of those great political deceptions that seems to be a permanent fixture of the landscape. By the way, taxes on savings and investment invariably constitute double and even triple taxation, stifling innovation and wealth creation. Thus the general welfare, and not only justice, suffers.

Will the Inflation Reduction Act really act to reduce inflation? No bloody way. Inflation is not merely a general price rise. That's only the symptom. The cause is an inflation of the money supply by the government's central bank.

When the government spends more than it collects in taxes, it borrows money to cover the budget deficit. The Federal Reserve will buy the government debt, creating money out of thin air to do so. When the conjured-up money is spent or lent, we have the proverbial more dollars chasing the same amount of goods and -- voila! -- a general rise in prices. The new money also will tend to push interest rates lower than the free-market level, which in turn will distort the calculations of investors -- interest rates are key signals to producers, after all -- resulting in unsustainable malinvestment. (This is one of the monumental theoretical achievements of the Austrian school of economics, featuring Ludwig von Mises's and F. A. Hayek's work on money and banking.)

It's even worse. This century's massive money creation has been accompanied by the depressed production of goods brought about by the economic lockdowns during the covid pandemic. It's not just more money chasing the same supply of goods, but a smaller supply of goods. Thank you, politicians throughout America, for your service.  

A real inflation reduction act would do nothing but slash spending -- assuming we think the government should spend anything at all. After all, it ultimately obtains its money at gunpoint, that is, by theft. Slashing spending means rethinking big government, that is, -- top of the list -- the warfare and welfare state. 

So the touted Biden achievement is the just same old snake oil in new packaging. The government is out of control, and I don't see how that will soon end. Taxation is a blank check for politicians. The income tax is especially bad because it requires all to account to the government for their income-earning activities under threat of penalty. This inquisitorial device ought to be seen as intolerable in a theoretically free country. (For more, see my book Your Money or Your Life: Why We Must Abolish the Income Tax.)

TGIF: That Bloody Government Debt

The government's attraction to borrowing is hardly a mystery. If the politicians had to extract every dollar they wanted to spend directly from the taxpayers, they might have a revolt on their hands--a bad career move for sure. Borrowing tends to make people more tolerant of bigger government than they would have been otherwise. After all, much of it looks free. They might scrutinize spending programs more closely if they paid the full price out of pocket. Thus forbidding borrowing and related central-bank inflation would put a lid on spending. That's why that program won't fly.

As Jean-Baptiste Colbert, the finance minister under Louis XIV, notoriously put it, “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” You can see the advantage to politicians if they can cut way down on the hissing by borrowing what they'd otherwise have to obtain by plucking. This is what the admired art of governing comes down to.

Of course the government's ability to borrow depends crucially on its power to tax. Avoiding present taxes implies offsetting future taxes when interest or principal is due. (More borrowing can finance those payments, but eventually...) Who would lend to a "government" that could not tax its subjects? (No true government lacks the power to tax.) Let's face it: the state without taxation does not have a promising business plan to present to investors. But the "legitimate" power to steal changes everything; it makes for comparatively safe investments for bond buyers, one that unfairly competes with private alternatives. (Legitimate in this case means "in the eyes of most people"; it's a subjective, not an objective, feature.)

To get the data out of the way: a quick survey reveals a national debt approaching $29 trillion against a GDP of over $22.5 trillion. The government borrows to cover its annual budget shortfall, which in FY2021 came to $2.8 trillion (pretty much like the year before). The government had been expected to spend $6.8 trillion in that fiscal year. The debt of course carries interest payments, which in FY2021 came to $562 billion. That's a fairly large budget item, though it lags behind Medicare/Medicaid, Social Security, and the global empire.

Some people believe that what the government finances by debt is actually free. But how could that be? "We owe it to ourselves," is one answer to that question. That leaves out foreign debt holders, but that's just the beginning of the problem with that glib slogan. How can anything really be free?

In fact government borrowing creates both present and future burdens. In the present, as the George Mason University economist Donald Boudreaux points out, by borrowing money for its pet projects, the politicians channel scarce resources away from where consumers would have signaled producers to direct them. Some people clearly like those pet projects, but many or most would not willingly pay for them either because they deem them too expensive or objectionable at any cost. (The empire is a good example.)

In the unmolested marketplace, producers earn profits by satisfying consumers better than their competitors do. That is accomplished by looking for (scarce) resources that are being used less effectively in that regard than they might be. Through their buying and abstaining, consumers let the producers know if they've made good decisions. Profits signal success, and losses signal failure.

The government, as everyone surely knows, works on an entirely different principle; taxpayers aren't allowed to say no, and so as consumers they are worse off. Political accountability, such as it is, pales in comparison to market accountability.

The politicians may tell themselves that they serve everyone, but what they really do is serve themselves and their careers by distributing booty to select constituencies so they will keep those benefactors in power. The beneficiaries will be thrilled with the deal, but what about everyone else? That's the present burden.

In the future another burden falls--this time on the taxpayers who have their money taken to pay principal and interest on the debt. Funny how the advocates of government debt conveniently forget a favorite slogan they trot out in many other contexts: "Think of the children." Spending money today by creating fiscal obligations for kids too young to vote and even the unborn hardly sounds like compassion for the children. And because the government consumes rather than truly invests, future generations will be poorer than they would have been had the government left the resources to market-based decision-making. That's cruel. (We can only hope that those future generations will repudiate the debt and resist the taxes bequeathed to them.)

So government debt activates two intra-generational transfers: one now and another later. In addition, the government's debt-financed activities today make future generations poorer than they would have been. 

We don't owe the borrowed money to ourselves. That's corporate, collectivist claptrap. People are individuals with property and subjective values. If A is forced to give a dollar to B, we can't seriously believe that the A/B's collective situation is uncharged.

The Tax Code Should Not Be Used to Influence Home Buyers

My penultimate column for the American Institute for Economic Research is "The Tax Code Should Not Be Used to Influence Home Buyers."

TGIF: Anatomy of a Tax Cut

Taxation is theft, I know, but the repeal of taxation, which would mean the repeal of the state, is not on the menu today. Sorry about that. So for now we must talk about the best available option. That’s life. You must begin any journey exactly where you are.

I’ve watched the debate over the vanilla Republican tax bill closely during these many months. It’s been fascinating at many levels, not least sociologically. People reveal much about themselves — and their views of personal autonomy — in how they discuss taxes.

Read TGIF at The Libertarian Institute.

TGIF (The Goal Is Freedom) appears on Fridays. Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is executive editor of The Libertarian Institute. He is also a senior fellow and chair of the trustees of the Center for a Stateless Society and a contributing editor at Antiwar.com. Become a Free Association patron today!

Whose Money Is It?

My latest column at the American Institute for Economic Research is about tax reform: "Whose Money Is It?"

End Government Borrowing

My latest column at the American Institute for Economic Research is "End Government Borrowing."

Scrap the Border-Adjustment Tax

My latest article for the American Institute for Economic Research is "Scrap the Border-Adjustment Tax."

Repeal the Corporate Income Tax

My latest article at the American Institute for Economic Research is "Repeal the Corporate Income Tax."

TGIF: The Debate Over Taxation Cannot Be Value-Free

Lenin reportedly said, "The best way to destroy the capitalist system [is] to debauch the currency." If by "capitalist system" we mean only what Adam Smith called "the obvious and simple system of natural liberty," we could improve on the quote: the best way to destroy it is to debauch the currency of thought and communication, language. Orwell understood this and made it the centerpiece of Nineteen Eighty-Four.

Read TGIF at The Libertarian Institute.

TGIF (The Goal Is Freedom) appears on Fridays. Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is executive editor of The Libertarian Institute. He is also a senior fellow and chair of the trustees of the Center for a Stateless Society and a contributing editor at Antiwar.com. Become a Free Association patron today!

Media Economic Illiteracy

Observe the media's economic illiteracy: reporters and pundits wonder why the nominal 35 percent corporate tax rate should be lowered when corporations pay a real rate that is so much lower. What those reporters and pundits don't see is that many actions that corporations take to lower the real tax rate are nonproductive actions that would not be taken were it not for the high nominal rate. This constitutes a waste of resources to society.

PS: Corporate taxation is at least double taxation. So even a believer in taxes ought to oppose it.

Is the Government's Budget Equal to GDP?

Memo to news people: tax cuts don't have to be paid for. The money is ours; the government takes it from us by threat of force, i.e., taxation. It's government programs that have to be paid for. Tax cuts are not government programs. So if you want to ask how government programs will be paid for if taxes are cut, fine. I will answer that the programs should be abolished.

The more you think about the notion that tax cuts must be paid for, the more ridiculous it sounds. One might say tax cuts have have to be made up for (by cutting spending), because the government would have less revenue, but not paid for. Moreover, since taxpayers pay for everything government does (sooner or later), the conventional wisdom about paying for tax cuts translates to: How should the taxpayers pay for their tax cuts? To which the only proper answer is: Huh? Say what?

From the taxpayers' vantage, tax cuts cost nothing. We might say they cost the politicians, bureaucrats, and government contractors something--but it's something they had no right to anyway. Securing my wallet "costs" a would-be thief my money. But who cares?

Final point: a hidden premise of this belief is that the government properly owns all wealth and income. In budget-talk when the government gives you a chance to recover or hold onto some of your money, say, via a tax deduction or credit, that is known as a "tax expenditure"; in other words, it's just another way for government to spend (its) money. But under that way of thinking it follows that not taking the money in the first place is also a tax expenditure. What's the difference between, on the one hand, taking money and giving some back and, on the other, not taking the full amount to begin with? Thus the whole GDP must be the government's budget because the politicians, as they see things, "spend" all of it one way or another.

This is pretty absurd. So let's just acknowledge that what you honestly earn is yours and that the government is a thief because taxation is theft.

Simple Lesson

Doing good with others people's money taken at gunpoint is no virtue.

Guess Who

At least one presidential candidate speaks favorably of printing money to pay the national debt and of taxing the rich. At least one candidate promises not to raise taxes on the middle class, although inflation (printing money) and tariffs are taxes on the middle class (and everyone else).

Income Tax Day

If you hate the income tax (among others), damn the Rats (Federalists) and praise the Anti-Rats (Anti-Federalists). Ignore those who blame someone else later in American history. Don't let the original bad buys off the hook.

As Lysander Spooner said,

But whether the Constitution really be one thing, or another, this much is certain – that it has either authorized such a government as we have had, or has been powerless to prevent it. In either case, it is unfit to exist.

For details see America's Counter-Revolution: The Constitution Revisited.

Planned Parenthood, Social Peace, and the Libertarian Approach

The controversy raging over Planned Parenthood is one of the most acrimonious public discussions in recent memory. While the immediate issue concerns the disposition of fetal tissue after abortion (pregnant women can have tissue donated for medical research), the controversy taps into the more basic, and highly charged, conflict between defenders of women's reproductive rights -- the right to choose an abortion -- and defenders of unborn children's right to life. But my purpose here is not to settle that conflict.

I Love Loosies and the People Who Sell Them

The cops who ganged up on Eric Garner, got him into a chokehold, and mashed his face into the sidewalk didn’t intend to kill him. They intended only to show him who’s boss on the streets of Staten Island — and show him in a way he would never forget.

As a Facebook friend of mine put it, instead they showed him in a way he will never remember.

This pretty much explains the cops’ reckless disregard for Garner’s life that day, and it is what makes the grand-jury sham especially appalling.

Read it here.

Meanwhile on the Fiscal Front...

Here's what's going on: Congress and the government agencies incurred expenses with the intention of paying the bills with a credit card that they knew would be maxed out before payment was due unless the credit limit was raised. They could do this because of their fallback position: the threat of violence against the taxpayers. You and I can't engage in such behavior without paying a penalty.

TGIF: Abolish the IRS -- and the Income Tax with It

My take on the IRS scandal.

Also see TGIF: No Intervention in Syria.

Taxpayers Aren't Stationary Targets

My latest piece at the Project to Restore America website is "Taxpayers Aren't Stationary Targets."

Actor Gérard Depardieu's decision to flee France for Belgium to avoid a 75 percent marginal tax rate on incomes above $1.3 million sends a message we here in America should heed: Those who are singled out for tax increases are not stationary targets. The means of avoiding and evading the taxman are legion.

Read it all here.