I don’t like paying taxes. I don’t know anyone who does. However, I also don’t like going to the dentist or getting a tetanus shot. If I indulge these dislikes, my teeth will be horrible and I might die. Shouldn’t we start looking more at what benefits we obtain from tax dollars?
When I taught AP Economics, I joked that Americans paid the lowest percentage of income in taxes, of any country in the industrialized world, but we complained about them more than anyone else. The first part, at least, is pretty close to the truth. There are 34 countries in the OECD (Organization for Economic Co-operation and Development), which consists of the world’s industrialized democracies. The average tax burden among these countries is 34%; the U.S. burden is 26%. Only Mexico, South Korea, Ireland, and Chile have a lower burden than the U.S. Finland, the country with the highest standard of living, has a tax burden of 44%.
I recognize that freedom of choice lies at the root of U.S. attitudes about taxation. Perhaps our greatest strength is the emphasis on this freedom. Volumes have been written, determining that our economic strength and other areas of innovation are derived from it; I’m not about to argue with them. Every dollar spent on taxes is an expenditure that was not freely chosen.
However, no quality exists in a vacuum, nor should it. To paraphrase the late Meg Greenfield, a world with total freedom is chaos, not paradise. All of us understand how that applies to criminal law and property law, but it is not always apparent how that applies to paying taxes. There are at least three major social benefits gained by paying taxes: economy of scale, adjusting for flaws in the economic system (without destroying the entire economy), and the ability to better achieve long range plans.
The first, economy of scale, refers to how all of us benefit when we pool our resources. It is the driving force behind the success of large-scale industry; its two primary determinants are the costs of the natural resources and capital needed for production and the need for a labor force highly focused on a specific task while having more than one person available to fit an individual niche.
Obviously, then, all-but-boutique automakers use economy of scale to make cars that we Americans enjoy and expect; iron and conveyer belts (capital) are very expensive, and laborers must have special skills and workers repeated execute the same series of tasks. In fact, some countries have auto and steel companies that are publicly owned (implicitly, paid for by taxes), although a market-based economy like that of the U.S. would never tolerate such companies. What are the elements, then, that make it desirable for a specific good or service to be paid for by taxes? The four primary questions are:
- Is it needed for survival?
- Is it something not needed on a daily basis by an individual, but constantly needed by society in general?
- Is it something for which innovation is unnecessary, even undesirable?
- Is it something that benefits people besides those who are using it at the time?
The more firmly the answer to these questions is “yes”, the stronger the argument that it should be provided by taxes. To clarify, here are two examples that are found at opposite ends of the spectrum: fire departments and fine dining. Fire departments obviously benefit from economy of scale. Just as obviously, they directly save lives. We would hope that no one person would need fire services on a daily basis, but these services are demanded all of the time. While there are periodic improvements in technology and techniques, firefighters are not supposed to improvise away from their routines. Finally, putting out a fire significantly reduces the chances that adjoining buildings will catch on fire. By contrast, fine dining is none of these: restaurants that emphasize economy of scale drop in quality, as luxury goods they don’t fit either #1 or #2, #3 is necessary for all but the most iconic restaurants, and it would be hard to argue that my going out to dinner would benefit you (no matter how hard I try to convince you.)
Most goods and services fall somewhere between those two extremes and, therefore, are the root of most political debates about public, tax-based ownership vs. private. Should prisons be privatized? Should we adopt universal health care? Use the criteria above and see if your answer corresponds to your gut-level response.
publius17 
Interesting read Hal thank you for sharing. Something that I always think about is what if we were to apply some form of tax dollar selection where we are allowed to decide where a certain amount of taxes go. I know this might sound insane at first but bare with me. Lets just say that for 25% of your taxes you are allowed to elect how the government spends the money, for instance you can decide whether to allocate more funds for education or infrastructure thereby actively contributing where you think the government should prioritize funds.
I sometimes wonder that it is not necessarily that we do not like paying taxes it is more that we have no input in how tax dollars are spent. If there was some way where the government where to treat citizen’s like customers thereby providing some form of active choice this might encourage further engagement. It also leads into our capitalist nature where Americans as consumers like to have choices.
The underlying question then is can we trust citizens to make responsible decisions if we gave them the choice. Most would rather not but I think we might be surprised that when given the choice how responsible we would be when allocating tax dollars. I would assume certain essentials would always be covered, i.e. fire departments, infrastructure and education.