Last week The Spinoff’s managing editor published an op-ed celebrating the nation-building value of taxation. Act leader David Seymour was unimpressed. Very, very unimpressed
The Spinoff is hosting Tax Heroes – a series covering tax, who pays it and what it means. Click here to read more.
Duncan Greive’s article Tax Heroes: Forget the rich list – who pays the most tax in NZ? is the most confused and intellectually feeble rant ever published by The Spinoff.
Where to start? How about the abuse of language. The key words he uses are not just a little misused, but used to convey the opposite of their usual meaning.
He says “tax is love”. The trusty Oxford English Dictionary says tax is “a compulsory contribution to state revenue…” And, in its more generic form “A strain or heavy demand.” Love, meanwhile, is “an intense feeling of deep affection, or a great interest and pleasure in something.”
This is the kind of doublespeak Orwell warned us about when The Party said freedom is slavery, war is peace, ignorance is strength. Duncan thinks deep affection can be compelled. Creepy.
Then there’s hero, which is “a person who is admired for their courage, outstanding achievements, or noble qualities”. If you’re a hero for facing a strain or heavy demand, the thing you face can hardly be “love”.
He goes on to say that paying tax is a “contribution to the country”. This is lazy writing. Nobody can give money to “the country”. You can give money to the Inland Revenue Department (who used taxpayer money to fund Duncan’s article) but “the country” has no bank account. Why not describe the actual transaction that goes on? We’ll get to that later.
His last lazy caricature is of the generations. Those old enough to remember Muldoon, he says, are sceptical about government and see all taxes and regulation as bad. Their children are much more enlightened and want to fix all their parents’ silly mistakes. Surely we are allowed to disagree with people born in the same era as us? Later, I’ll take a longer look at the history of government spending in our country and find it did not begin in 1984.
The best way to destroy people’s rights is to stop them expressing themselves, and that’s what Duncan has done with his Doublespeak and Groupthink. In Duncanland, if you oppose tax you also oppose love, and nobility means suffering a heavy strain. If you disagree with all this, you must be the product of growing up under Muldoon’s elected dictatorship, or just a garden variety enemy-of-love.
Looking at Tax Objectively
Perhaps that’s just what you get from taxpayer-funded journalism? Who knows? But what would an honest tax discussion sound like? How do evil, ignorant libertarians like me really think about taxes?
Something like this: violence is wrong. Large groups of people doing it in nice uniforms with lots of pomp and circumstance doesn’t make it any better; that’s how the worst offenders have done it.
Tax is not love, it is violence. If you do not pay, then, after a series of letters, people will come and put you in a cage. When citizens do this it is extortion and kidnapping, but the state calls it tax.
The dilemma for us libertarians is that violence isn’t only perpetrated by the tax department, it’s been inseparable from human nature for eons. The chilling message the great Greek historian Thucydides gave the Milians (who didn’t want to fight the Spartans in the Peloponnesian war) has thundered down through the ages: “right, as the world goes, is only in question between equals in power, while the strong do what they can and the weak suffer what they must.”
Milton Friedman, a Jew, summed up this dilemma during World War II when he helped the US government develop pay-as-you-earn income tax to help raise money for the war effort. He later acknowledged the irony that he, of all people, helped the government tax more efficiently. The Nazis, he reasoned, were a greater threat to freedom than the Inland Revenue Service.
Most libertarians have come to the same conclusion. We believe there is a case for ‘public goods’ to be funded by taxes. They are not just things that are “good for the public”, but that fit an economist’s definition: Public goods are non-rivalrous; one person’s consumption doesn’t take away from another’s. They are non-excludable. There is no way to exclude a person from access to such a good if it is produced at all. If everyone can have it without contributing to its cost, nobody will contribute and the good will not be produced.
Things Worthy of Taxpayer Funds
National defence is a public good. Once a nation is safe from foreign aggressors, it is safe for everybody who lives there. My living safely does not detract from you being safe. It is also difficult to exclude non-payers. People who refuse to fund the military still get protected by it so long as the invaders are kept at bay.
As Milton Friedman concluded, the violence inherent in tax collection is better than that of foreign thugs and bullies. The same can be said for domestic thugs and bullies. If the police catch a criminal, everyone is safe from her, whether or not they’ve contributed to the policeman’s salary.
There are other public goods. Before it became a pulpit for second-rate academics to lecture us all on our personal choices, public health was actually about public health. Installing sewer systems and rubbish collections stopped infectious disease in cities, benefiting payers and non-payers alike who might have been infected otherwise. There is a strong case to fund these kinds of services from compulsory revenues.
If you add up all of the government spending on law and order, defence, environmental protection, and something called ‘Core Government,’ you get to about $11 billion per year. That much money could be raised by a GST of 10%. But last year central and government spent about $76 billion dollars. What was the other $65 billion about?
The rest is government spending on private goods. Things that are rivalrous (one person’s consumption takes from another’s) and excludable (it is practical to prevent non-payers from benefitting). What does that look like? Welfare spending made up $25 billion of that government bill: that’s cash transfers to individuals so they can buy private goods. Just over half of that was superannuation payments to over 65s; the balance Working for Families and various other benefits. About $29 billion was spent on health and education – private goods served up to specific individual. The balance was transport, arts, culture and heritage, and “economic and industrial services” mostly giving taxpayer money to private businesses.
The most favourable interpretation of welfare, health, and education spending is that the government is operating a nationwide insurance scheme. The government must operate it, the argument goes, because there will always be people who no private insurer would cover. About 60,000 babies will be born in New Zealand next year. Some of them will have congenital conditions such as Down syndrome, some will have parents unable or unwilling to fund them an education, others will have a catastrophic accident. Seeing as it could be any of us, we should all want the insurance at birth, but it won’t be there if the lucky ones can leave when they work out they don’t need it.
But the other taxpayer-funded private good expenditure is indefensible. There is no good reason for a government to fund a tourist attraction in the Hokianga, a railway, or a road. It is quite possible for all of these to be operated by private enterprise, charging those who benefit. If people don’t pay for these services, they may be trying to tell the operator something. It is wrong to take their money and make them pay for it anyway.
Contrary to Duncan’s caricatures, it is possible for a libertarian to support tax. The difference is that we see it for what it is. Stripped of Orwellian doublespeak, taxes can be protection money against thugs and bullies, fees for public goods, and premiums for insurance against events that are unfeasible for the private sector to insure.
The Real Taxation Transaction
The critical word is can. Just because taxation can be essential to some goals, doesn’t mean it will always achieve them. Going back to Duncan’s description that people are paying money to “the country”, we need to look at the actual transactions between people.
As the full Oxford definition tells us, tax is: “A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.” In other words, it is a charge on an activity.
It shouldn’t be controversial that, other things being equal, tax deters people from carrying out the activity in question. Tobacco taxes are supposed to stop people from smoking, carbon taxes are supposed to stop people burning fossil fuels, so why wouldn’t a tax on wages from work, profits from saving and investing or purchasing products deter those activities?
That’s exactly what happens. Collecting a dollar of tax doesn’t just take a dollar from the person taxed, it deters them from doing things they might have done absent a tax. The best estimates tell us that every dollar the government raises in tax actually takes about $1.20 to $1.60 out of the economy due to forgone opportunities. For tax to make sense, every dollar the government spends has to be worth not just the dollar that’s taken directly, but the 20-60c of “deadweight loss” as well.
Some government spending passes the test easily. Safety from foreign and domestic thugs and bullies, a court system that upholds the rule of law, and a parliamentary democracy with free and fair elections are things that many countries around the world would give almost anything for. The guarantee of basic public health, education, and an income for those genuinely incapacitated through no fault of their own is easy enough to justify. After that, the picture becomes clouded.
Things Unworthy of Taxpayer Funds (but very worthy of winning elections)
Let’s start with superannuation. Is paying a couple who are millionaires $702 per week from the age of 65 a good use of taxpayer money, especially when the real cost includes at least another $140 of deadweight loss? There are many other examples. The billion-dollar Regional Development Fund is largely a way for politicians to get their photos taken next to projects of dubious economic value. The government has always subsidised about three quarters of a tertiary student’s study, loaning the rest. The taxpayer paid the interest while the student studied (in 1999) then forever (2005) and, what the hell, let’s pay the whole lot (in 2017). Are these subsidies a good use of taxpayer funds when they’ve been shown to have no effect on participation?
Even with ACT’s encouragement, no government has confronted these questions objectively, Notice the years above were all election years. That should be the clue. In practice, tax and its use haven’t ever been about “love for the country”. A more honest analysis is that groups of politicians have targetted groups of voters with promises that have got them over the line. That’s why the amount of tax has grown almost inexorably over the years, and we don’t have a kinder, more inclusive society as a result.
Has All This Tax Really Helped?
Duncan would have it that we are in some sort of all time low point in the amount of tax government collects, but he can’t seem to look back past the all time high, when the government nearly went bankrupt in the 1980s. Here’s a more sober look.
Income tax was introduced in 1891 at 5% on only the very highest incomes. Now it is 10.5% on the lowest incomes and 33% on the highest. By the time Oliver Wendell Holmes Jr said “taxes are the price we pay for a free society” (in 1904), government spending in New Zealand was about one tenth of the economy. When the First Labour Government introduced the welfare state in 1935, government spending equated to a fifth of the economy. Today the government spends about a third of all money in the economy. When you allow for the incredible advances in technology since that time, the real resources applied by government per person per year are actually several times greater than when the welfare state began.
People today would be much wealthier than in 1935 regardless of government spending, but we seem to have as much poverty and neglect as ever. It can only follow that greater government spending has been an unmitigated failure. It has served lots of political purposes, but few useful ones. You only get to here if you’re prepared to analyse the real taxation transaction, not just spout Duncanspeak.
Saying “tax is love” is simply specious. It doesn’t just ignore reality, it tries to cover it up. Worst of all, Duncan’s taxpayer-funded article damages our language, just as Orwell predicted Big Government would do. Tax has a purpose but, outside a limited number of uses, it is more likely to do harm than good. We should be prepared to debate those purposes vigorously, starting from simple observation that tax is violence.
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