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Taxes: Government Financing In A Free Society

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[Mod's note: Merged with earlier thread on a similar topic. - sN]

Government Financing:

Rand seems to shrug off the idea of government financing as a later issue that could be easily resolved but the problem could be much greater. Even core government services are extremely expensive. The army is one of the largest expenses of our government today. The argument is made that a defensive military would be cheaper, but in modern warfare keeping any army, because of the necessity of technologically advanced weapons, is always expensive. People have said that other countries keep much cheaper militaries, but that is because of large U.S. guaranties of security. The government through military and police would in any society run an enormous cost, which has never been achieved without mass taxation, though it was done by tariffs at a point. What I don't understand is what would be so harmful about a flat tax, that is to say a flat amount not a flat percentage. By living in a country we receive protection from aggressors, why would it be out of line to force people to pay for it? Further isn't it unrealistic to think that we can basically achieve protection without paying for it?

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I know there's not much interest in the specific how of government funding, but it seems to me that contingent contributions might have some potential. The idea is that contributions are pledged

...Even core government services are extremely expensive
By core, I hope you mean Courts, Law Enforcement, and Military only... Most government services today are not core services. Just cutting those programs could result in huge savings.

What I don't understand is what would be so harmful about a flat tax, that is to say a flat amount not a flat percentage.

This was the proper method of direct taxation (apportionment by census) supported by the U.S. Constitution before the 16th Amendment. Indirect taxation could be supported by tariffs etc. I personally would not have a problem with this form of government funding. In this context, it would only be applicable for a 'gold standard' economy, not our current fiat money economy. The first step is to get back on the gold standard.

By living in a country we receive protection from aggressors, why would it be out of line to force people to pay for it?
Freedom and Force cannot co-exist in the long-term... The only viable option is the contractual requirement of citizenship.

Further isn't it unrealistic to think that we can basically achieve protection without paying for it?

Yes it is. But paying for it does not always require taxation. There are other avenues. For example, nothing prevents the government from hiring gold miners to mine gold for the national treasury or nothing prevents the government from charging a reasonable fee to insure contracts (as Rand states in one of her essays).

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In this context, it would only be applicable for a 'gold standard' economy, not our current fiat money economy.

We're already assuming that government only exists to provide defense, police, and justice.

nothing prevents the government from hiring gold miners to mine gold for the national treasury

Except for our assumption above and the fact that such constitutes partial nationlization of an industry.

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...Even core government services are extremely expensive. The army is one of the largest expenses of our government today...

According to last year's income tax instruction book, 18% of Federal spending goes to "National defense, veterans, and foreign affairs." Compare that to 36% for "Social security, Medicare, and other retirement."

In fact, only 36% (on an optimistic estimate) of Federal spending is on legitimate government functions. The rest goes to "Social programs" (18%), "Physical, human, and community development" (10%), and the 36% for social security et al. mentioned above.

Now, if they just got rid of that 64% of illegitimate spending, they could completely do away with personal income taxes and corporate income taxes, which together account for 57% of Federal income. (And they'd still have some extra money to spare. Not to mention, that if nobody had to pay taxes, I think many people--particularly those with much to protect, i.e. the rich--would voluntarily donate some of that money to the government.)

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There's also the secondary economic effects which would lessen the necessary government budget, most of which are hard to predict and probably impossible to quantify. Get rid of taxes, and you lower the overhead for companies, which leads to a number of things like more R&D, lower production costs, higher-quality goods, etc. All of this translates into cheaper costs for defense and domestic law enforcement. As for the courts, simply getting rid of all the crap laws would cut the costs to a fraction of what they are right now. (Hell, just getting rid of the drug war would do that in a second.)

Now consider that all of the above has tertiary effects across the whole economy. That's why it's impossible to say right now exactly what a free economy would look like, or what the costs of a proper government would be. Taking the budget currently dedicated to proper functions is a dramatic overstatement of what the budget would be in a free country; but just how much of an overstatement, I don't think one can say. This is one of the reasons that I think you have to pretty much accept the principle of not initiating force in its application to government and not worry too much about the details at this point. It's not possible to understand it in concrete terms, because there are so overwhelmingly many concretes involved and they're all interrelated. You have to understand them in principle. And the principle amounts to: a free economy is a productive economy, and that would make government a hell of a lot cheaper.

While budgets are outside the realm of speculation, methods are, I think, properly up for debate. I think there are serious problems with the idea of a government lottery... for example, there'd be no grounds on which to rule out private lotteries, and they'd (arguably) be likely to give better payouts. Compare state lottos with Vegas casinos, for example. The only thing they have going for them is a monopoly in most regions. The idea of contract fees is better, and it has the advantage of permitting flexibility in case of fluctuating budget needs. Voluntary donations aren't implausible either, but I think they'd be a bit too unreliable. Anyone have any other ideas?

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  • 4 weeks later...

It's definitely clear that government could be a lot less expensive if it stuck to the core essential functions of government.

I'd like to note this quote to bring up my question:

The only viable option is the contractual requirement of citizenship.

I'm assuming that every person who wishes to make use of government services would sign up as a citizen. Citizenship would grant them the right to vote and run for office and would also grant them the protection of the government all in return for annual "citizenship fees." Does that sound right?

I'm not sure how this would really work, though.

I mean, if we needed to defend the country against an invader, non-citizens would be making use of our government service as well as the citizens.

And could our police really allow a serial killer on the loose, so long as it's killing only non-citizens? And what about other criminals? As long as their victims are non-citizens, would the government just look the other way?

It seems to me that if citizens and non-citizens co-exist in the nation, there is a difficult practical issue regarding the protection of only the rights of the citizens. It would be easier and cheaper for many to remain noncitizens and set up a mafia for their protection.

OR

Is the contention also that noncitizens would be controlled under some kind of visa program?

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Trey,

Go to each of your question marks, hit the spacebar, and type a "No."

You are trying to understand what a government of a free society should be and do from the wrong end of the task. Go back to the primary principles and apply them -- relentlessly!

If the government is to hold a monopoly on force in order to remove all force from the value exchanges among men ( all men ) within the borders it can sustain, then there will be neither citizenship fees nor immigration laws.

While it is entertaining to muse over just how free men would finance their government, it is not an important question. It is unlikely that any specific systems we could devise now would coincide with those that would actually be used in 3058 anyway.

If a prescient speaker had predicted the internet to a conference of computer superbrains and business leaders in 1960, how many could even have fantasized how little it would cost the average user? And what difference would it have made to the validity of the content of the speech?

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Go to each of your question marks, hit the spacebar, and type a "No."

Too bad your earlier post on this thread was lost, Michael, but it's nice to see you back in force! :)

If the government is to hold a monopoly on force in order to remove all force from the value exchanges among men ( all men ) within the borders it can sustain, then there will be neither citizenship fees nor immigration laws.
This is where I respectfully disagree. If all the inhabitants of, say, an island (who own a part of the island each) agree to form a government, that agreement may very well include restrictions on what kind of guests the landowners are to allow on their properties, and it may also very well specify an amount of money, or specific services, that each of the parties to the agreement must furnish in order to sustain the government. If all parties to this contract agree to it of their unforced free will, it is a perfectly legitimate way of forming a government. If the terms of the agreement are objective and rational to boot--tell me where that island is! :)

While it is entertaining to muse over just how free men would finance their government, it is not an important question. It is unlikely that any specific systems we could devise now would coincide with those that would actually be used in 3058 anyway.

3058, eh? Who told you that pessimism was a virtue? ;)

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This is where I respectfully disagree. If all the inhabitants of, say, an island (who own a part of the island each) agree to form a government, that agreement may very well include restrictions on what kind of guests the landowners are to allow on their properties, and it may also very well specify an amount of money, or specific services, that each of the parties to the agreement must furnish in order to sustain the government. If all parties to this contract agree to it of their unforced free will, it is a perfectly legitimate way of forming a government.

The contractual arrangement you describe is not a government in the Objectivist sense. It would have to be classified as a deed restriction or a condominium agreement (and would be valid as such). The difference is that a government may not mandate positive actions, such as the payment of those fees. It may only prohibit the initiation of force.

Also, the context is specious. You have chosen to couch this claim in the least plausible of all possible contexts in which establishment of a government would be a valid human pursuit. What good is it to actual, non-unanimous societies?

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What good is it to actual, non-unanimous societies?

The society does not need to be unanimous about everything, just about the terms to be put into the agreement, which are likely to be (1) few in number, (2) aimed at the effective protection of the rights of individuals, which all rational people can be expected to agree with. Essentially, the agreement would ban the initiation of force AND provide for ways to enforce that ban. (What good is a ban without a means to enforce it?)

The only society where a rational government can be successfully established is a society of rational people. Any attempt to do it with irrational people is bound to fail right at the start. Any attempt to do it without immigration rules that keep irrational people out is bound to fail as soon as enough irrational people immigrate.

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The society does not need to be unanimous about everything, just about the terms to be put into the agreement, which are likely to be (1) few in number, ...

Exactly. In fact, the possibility of unanimity among all about everything is as close to zero as you can get. As I have said before, "consent of the governed" means no more than agreement among the dominant group that forms the government and writes the constitution. BUT:

Those who do not agree to the constitution, but own property in its jurisdiction are nonetheless humans due equal rights. That is the failpoint for any application of your other scheme to a non-unanimous society. You cannot force the dissenters to pay for anything (whether they benefit from it or not) without violating their rights.

Furthermore, if a relative, friend, acquaintance, or whatever lands on any location (in this prototypical nation) to which those dissenters have rights of access that include their guests, that alien may visit them, and the government must allow it, because such an event would occur without any use of force to take a value owned by another.

The alien may stay as long as he wants and travel wherever owners allow him to. He may work for anyone who will hire him, buy property from anyone who will sell to him, and live happily ever after here. If he demonstrates a knowledge and understanding of government, rights, and the non-initiation of force principle, he may also vote.

The rationality of the visitor or immigrant is no more the concern of the government than is the rationality of its own citizens. In fact, the goal of rights is to guarantee the freedom to be completely and utterly irrational [in the eyes of others] so long as the irrationality is not imposed on others by initiated force.

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My questions were directed at understanding the proposition given, so the best answer would have been to both answer "no" to each and then address the notion of "payment by contractual requirements of citizenship."

I also agree that in philosophy

While it is entertaining to muse over just how free men would finance their government, it is not an important question.
But that entertaining question is the one before us. It's further helpful conceptually to weigh each proposition against our agreed upon political principles. Like philosophical weight-training, if you will.

To the topic:

I appreciate MichaelM's summary of how a visiting/inhabiting alien may act within the ideal country with relation to the government. That is certainly a picture of the ideal.

The question, however, remains, "How could the ideal government be funded ideally?"

Donations, of course, is one option. And there are also per enforcement request options and subscription possibilities.

But the government performs two functions, police and military defence, which do not, by the nature of the work they engage in, permit "per use" contracts and payment. So, where might they get their funding in the ideal, though non-unanimous, country?

=-=-=-=-=-=-=-=-=-=

I know this isn't the proper place, but I don't know where it might be proper to say this: I love this forum. I am so, so pleased to have found a place where rational people measure ideas with reason and (most of the time) civility based upon the premises of Objectivism. It's like a breath of fresh air! Thank you!

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But the government performs two functions, police and military defence, which do not, by the nature of the work they engage in, permit "per use" contracts and payment.  So, where might they get their funding in the ideal, though non-unanimous, country?

[correction for the record: government performs three functions: police, military, and the courts.]

In the 60's when Objectivism first blossomed, the quoted question was usually overshadowed by an almost identical but different and more immediate one. That question was, "how would a government that could not impose obligations on its citizens ever defend itself without a draft?"

Rand's answer went something like this: "You don't think men who have experienced complete and unadulterated freedom would ever allow their own nation to be overrun, do you?" I considered that answer sufficient, and refrained from writing to ask just how much she thought the soldiers would have to be paid to volunteer.

Similarly, I will now say: "You don't think Wal-Mart, Microsoft, GE, EXXON, and so on would tolerate anything less than a top-of-the-world-class defense capacity for the protection of their existence, do you?" And as gravy, the population would throw in the small change just to be a part of it all. We should not second guess them about the methods they would devise to achieve uncoerced financing. They will be better at that then than we ever could be now.

And this obsession with discovering the exact method treads dangerously close to the fallacy of being concrete bound. You are failing again to break the mold you live in. You are drastically underestimating the differences between productivity and wealth as we know it and as it would be in a free nation. Any scheme you could think of now would be pitiful in the shadow of that capacity.

Men set free will naturally invest their productivity and wealth to the hilt in order to make a profit. And to live without coercion is the ultimate profit.

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  • 1 month later...

[Mod's note: Merged with earlier thread on a similar topic. - sN]

Government Financing:

Hello, this is my first post here and am quite new to Objectivism, although for as far as I can remember, I have lived my life according to Objectivist principles. I just never really knew that it had a name until last year.

Now that I've got the introduction out of the way, I would like some clarification on a certain topic. As I understand, the government's proper role is basically to retaliate against those who initiate force against its citizens and nothing more. And also, taxes should not exist, right? Well, under this system, how does the government acquire funds in order to fulfill its role? I'm assuming that it will be through private, voluntary donations, right? If this is the case, and certain citizens choose not to pay the government, then does this mean that they do not get protection from the government should someone try to initiate force against them?

Thanks in advance.

Edited by softwareNerd
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You know, this site really needs an FAQ. ;)

Not only would it include private donations, it could include any form of voluntary financing, including lotteries. The most likely form would be fee for service however. The most popular example of such is related to contract enforcement.

In a voluntarily funded govt, people would be free to either enter into contracts protected, enforced, and arbitrated by the govt for a small fee (or small percentage of the contract) - or to enter into contracts which are not ensured by the govt. at all. In the first instance, should a dispute arise (honest or otherwise), the govt will make certain the contract is honored. In the second instance, the individuals take their chances. If some dispute arises, they have no legal recourse to address percieved violation.

Now, since there are literally millions of contract transactions which take place every hour of every day (every time an individual writes a check or uses a credit card, or buys stock, etc etc etc), even using a small fee to guarentee such protection will result in more than enough money voluntarily being given to govt to cover not only the cost of financing the courts but for financing the whole structure (military, police, legislature, etc) of a proper govt.

The reason this example differs from, say, having to pay a fee for police service if it is rendered, is that contracts involve a voluntary interaction between individuals. Mugging, rape, muder, etc. do not.

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RadCap,

Your argument about the funding of government services is a good one. I am wondering though, if a person does not pay the contract fee and loses protection of that contract, do they lose their protection from the police and the military as well? Or, is it the case that everyone receives the protection of the police and the military regardless of paying the contract fee? Thanks.

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Hmm... I don't see why a person would NOT pay the contract fee. The purpose of a contract is basically to form a legally enforceable agreement between two or more parties. If you don't pay the government the contract fee, you're essentially saying that you don't want the contract to be legally enforceable, thus defeating the whole purpose of forming a contract in the first place.

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"Hmm... I don't see why a person would NOT pay the contract fee."

A)perhaps for the same reasons that 50 million people dont choose to purchase health insurance. They either can't afford it, or have different priorities. (food, rent college etc)

;) perhaps because their ability to assess the importance or rationality of such a decision is impaired (invalids for instance, or those dumb assholes who think that if they play the lottery often enough they will win)

c) perhaps its not and they are just gambling wisely (for instance, If I owe my father money he would accept a check not backed by the govt if he trusted me and the bank)

d) a "safety net" mentality... thinking that Uncle Sam will find a way to provide in times of need.

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I can think of several reasons that a person or corporate entity might not pay the fee to have their contract legally protected. In the case of credit contracts, which constitute the vast majority of business transactions, it would depend on the amount of the fee versus the amount at stake and the risk involved. A credit card company, for instance, might choose not to pay the fee on accounts held by individuals who have good credit ratings, make regular payments and keep low balances. On the other hand, the company would be foolish not to pay the fee on higher-risk customers. In the case of the customers with good credit, the company is betting that the maintenance of their credit rating will be their "insurance" against default. (This is equivalent to point © in OG's post above.)

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  • 6 months later...

[Mod's note: Merged with earlier thread on a similar topic. - sN]

Voukntary govt. Financing math:

Does anybody know of any paper/article that has analyzed the amount of money that could be obtained by various voluntary financing schemes (donations, fees for protecting contracts, etc) in the United States?

Edited by softwareNerd
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Does anybody know of any paper/article that has analyzed the amount of money that could be obtained by various voluntary financing schemes (donations, fees for protecting contracts, etc) in the United States?

Sorry, no.

Your question makes me think you're having a discussion with someone who's trying to claim that it's "impractical' to try to fund the gov by voluntary means.

I recommend you try to take the high ground, and show that it's immoral and wrong to fund the government by force, and that some kind of voluntary means is the only proper choice. John Galt has some great formulations about this, something like "a government that initiates force against disarmed citizens who have harmed no one is a nightmare infernal machine".

I'm afraid that trying to propose practical details without first establishing what's right, is sort of putting the cart before the horse. It might work for a while, but you'll end up doing more work than the horse trying to keep the cart on the road.

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  • 2 weeks later...

Hi-

I had some questions regarding how the philosophy of objectivism would translate into an ideal political society.

It is my understanding that objectivists consider the initiation of force to be immoral (and quite understandably so). Is the initiation of force always immoral? Is it still immoral even if the majority of people decide to initate force on the minority?

Doesn't taxation necessarily imply the initation of force? Isn't this force what differentiates the word "tax" from words like "buy"- which imply a voluntary exchange? So therefore, would it be true that all objectivists oppose taxation?

Isn't taxation an inherent part of government? If a government existed which did not fund itself through forceful exchange, but rather allowed people to voluntarily exchange their money for the services it provides- what would be the difference between this government and a private corporation?

Thank you in advance for any answers you may be able to provide.

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