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January 16, 2018 Charles Heintel 0Comment

It’s not the government’s money to begin with.

If you have ever picked up a copy of The News Record, the student newspaper of the University of Cincinnati, you would know that the paper is very left-leaning. So it was no surprise when the paper published an article on November 22nd, titled “Opinion | Steal from the poor to give to the rich: GOP tax plan.” The implication of this article is striking — that taxation qualifies as stealing. Though the title is a clear criticism of how the author perceives the GOP’s platform on taxes, the title actually agrees with a very conservative concept: that taxation, so to speak, is theft. It isn’t hard to see why some people believe this; the government takes your money without your permission. If you want to get more technical, it may be more precise to refer to taxation as extortion, rather than theft. And it can be argued that you consent to be taxed by simply living in the United States, or something of that nature, but the purpose of this article is not to go into depth on the legitimacy of taxation.

Still, the author, and anyone who agrees with this common Democrat belief about how Republicans handle taxes, is able to recognize that there is something inherently unsettling about taxation. Those on the left may only recognize it when poor people are being taxed, but the logic can be consistently applied to the rich. If levying (higher) taxes on the poor is stealing because the money belongs to them, then it is stealing to take money that belongs to rich people.

Income tax, which the bill affects considerably, is a particularly disturbing tax. While other taxes like sales tax can be seen as a sort of fee to the government for ensuring a system that allows commerce to take place, an income tax implies that government has a theoretic right to all of your income and thus gets to decide what percentage you can keep. There’s a reason why many of the founders opposed any sort of direct taxation. Direct taxation was always permitted under the Constitution, but direct taxes had to be apportioned among the states according to their populations, rendering an income tax politically impossible. That’s why the Supreme Court ruled that a uniform income tax was unconstitutional in 1895. Later, in 1913, the Sixteenth Amendment to the Constitution was ratified which gave Congress the “power to lay and collect taxes on incomes.”

Critics of tax cuts typically accuse Republicans of believing in “Trickle Down Economics.” This refers to the alleged benefit that “trickles down” to the middle class when the rich receive tax cuts. The idea is that tax cuts for the rich will help the economy and thus help the poor. Certainly, the rich benefit when their taxes are cut. But do others benefit? To answer this, we need to look at the difference between the government having the money and the taxpayers having the money.

“When a government official spends money, he does so with no personal monetary risk.”

When a government official spends money, he does so with no personal monetary risk. He also is not spending on his own behalf, but trying to gauge how much society will benefit from the spending. This often leads to overspending as citizens are more likely to support money being spent on something they like when it’s being spent from government revenue, and not completely out of their own pockets. As an example, taxpayers might rally around the building of a new community pool which will supposedly bring great social benefit to the community, but if they had to pay out of pocket for it (even for just a portion of it), they might decide that they’d rather spend the money on something else.

The point is that money will be spent more efficiently privately than by the government. Who benefits from this? All of society benefits. Economics is the study of how scarce resources are distributed in society. It’s better for everyone when scarce resources are used efficiently, to satisfy consumer desires, instead of inefficiently, such as on a fancy new community pool that goes way over budget.

The more money the government has, the less is available in the private market. What will rich people do with their tax-cut money? They might spend it, which will help people they buy from. If rich people buy fancy yachts, the middle-class laborers who build them will reap the benefit. If they instead save the money, the supply of loanable funds will grow, meaning that borrowers (like middle class folks) will get lower interest rates (increased supply reduces price). Whatever they do with their increased wealth, the fact remains that there is more available wealth in society. Everyone benefits when society is wealthier. For example, that’s why the value of a given person’s labor is much greater in the United States than in a poor country.

It appears that “trickle-down economics” is a derisive term that people use to argue against tax cuts for the rich. Whomever gets the tax cuts, the aforementioned societal benefits will occur. You could even argue that it’s better for tax cuts to go to the rich because many of them, particularly the ones who become wealthy as entrepreneurs, are better at creating more wealth for society than an average middle-class person (that’s how rich entrepreneurs get rich in the first place). Also, the rich would appear more likely to give the money to charity, as they are already meeting their basic needs. Additionally, cutting taxes by a small percentage for the rich means they get to keep far more of their money to use in the economy. On the other hand, the middle-class needs the money more than the rich do. And it seems fair to many people that the rich should pay more because they have more to spend.

So then who should get the tax cuts? Everyone. As economist Milton Friedman once said, “I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.”

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