Why do we levy taxes, anyway?

A reader writes, in response to my Upside of Anger column on taxing Wall Street bonuses:

You appear to have a positive outlook regarding the government using the tax system to punish entities they don’t agree with. And you dare use the term “CAPITALIST” in your byline?? How hypocritical can one get?? Here is my take on the punishing taxation thing:

About the time one thinks it can’t get much worse in Washington, it gets worse. In this case a lot worse. It is despicable when the government proposes to use their power of taxation to quell some displeasure or to address some perceived wrongdoing. It is beyond despicable in my opinion; it is downright criminal. Taxes are levied to pay the government debt. PERIOD.

You also seem to place the burden of our troubles on Wall Street. No doubt some greed has contributed; always has; always will. But you ignore the recent history of the politicians coercing the financial institutions to make obscene loans to further their “great society” type agendas.

Maybe you should rethink the “The Curious Capitalist” thing.????

I used to get a fair amount of “how dare you call yourself a capitalist?!?” e-mails and comments. This is the first one months and months and months. I’d say the political atmosphere has changed a little.

Anyway, the most interesting thing to me here is the line:

Taxes are levied to pay the government debt. PERIOD.

Historically speaking this is of course nonsense: U.S. lawmakers been choosing which taxes to levy on whom on the basis of considerations other than pure revenue generation since the begininning of the Republic. Tariffs, sin taxes, you name it. Nowadays the tax code is loaded with provisions meant to steer behavior in one direction or another. Wildly overloaded, you might say. To the point that maybe we would be a lot better off if we simply levied the taxes that most efficiently raised the amount of revenue we happened to need, and left it at that.

Stocks Rally Further in Run-up to EU Summit

MOSCOW — Global stocks enjoyed one of their best days in weeks on Tuesday ahead of a summit of European leaders that’s expected to be dominated by calls to boost economic growth.

Europe remains the focus of attention across all financial markets in the run-up to the June 17 Greek election that could go a long way to determining the country’s membership of the euro as well as the future of the single currency zone.

pneogy

Amartya Sen has useful thoughts on the limitations of pristine, market based capitalism here:
http://www.nybooks.com/articles/22490
tc125231

pneogy –thank you for the link. I am particularly impressed by the distinction from from which the rest of the article flows –markets are clearly necessary, but not sufficient.
curmudgeon57

I don’t think that it’s necessarily bad that we tax to influence behavior, except that it tends to make the tax code extremely complex.
pneogy

@tc125231: Yes. And I also noted his point about markets not being very effective at delivering health care or education.
http://www.rodgermitchell.com rodgermitchell

The August 3, 2009 Chicago Tribune contained an editorial titled, “Clunker frenzy,” in which the editors said, “Cash for clunkers has been . . . burning through the $1 billion in taxpayers’ money.” The editorial bemoans the size of the federal deficit, tells us deficit spending uses our money, and warns deficits will cause inflation.

Although similar editorials can be found in virtually every newspaper in America, they all suffer from a serious defect: They are factually incorrect on three counts:

1. Deficit spending does not use “taxpayers’ money.” Taxpayers’ money is money paid in taxes. Any spending that uses tax money is, by definition, not deficit spending, which uses borrowed money. Lest you believe this merely is quibbling, consider #2.

2. There is no historical relationship between tax rates and federal deficits or federal borrowing. Tax rates have not gone up in response to high deficits, nor have they gone down in response to low deficits. Instead, tax rates seem more related to whether liberals or conservatives are in power. During our periods of greatest deficits, tax rates have tended to fall. Deficits will not be paid for by your children and grandchildren.

3. Contrary to popular wisdom, there also is scant historical relationship between deficits and inflation. In the past 50 years, our highest periods of inflation came during the Carter era of modest deficits. The Reagan era of massive deficits saw inflation decline. Inflation actually is more closely associated with energy prices than with any other factor. If supply and demand make the price of oil go up, we may have inflation. But if the oil price goes down, we probably won’t.

Because the media, the experts and the politicians all talk about spending taxpayers’ money, and how deficit spending causes inflation, we have been programmed to believe it must be true. Except, the facts speak otherwise. You never will see the media, provide any factual basis for their claims. Ask yourself why.

Rodger Malcolm Mitchell
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http://www.rodgermitchell.com