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Taxes: Government Financing In A Free Society

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Usually when I encounter this argument, they are making what is called a "false dichotomy". They aren't conceiving of a society so radically different that they don't realize how much money they lose to taxation currently. Ask them if they ever look at their paystub at the end of the week or actually pay attention to how much in taxes they paid when they file in April. Then ask if they have any idea how much money in sales taxes they have paid their entire lives. Then ask if they have any notion of how much more the goods and services they pruchase every day cost because the manufacturers and retailers have had to imbed THEIR taxes into the price to the consumer. If these people truly understood how much MORE money they would have to their name right now, they might not have trouble conceiving how people would have the money to donate to all sorts of voluntary things in a truly free society.

If the govt abolished forced taxation, wouldn't everyone's bosses start lowering salaries across the board?

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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

"If the govt abolished forced taxation, wouldn't everyone's bosses start lowering salaries across the board?"

Why? What is the correlation between compulsory taxation and employee salaries? I can speak for where I am at by saying: If we had less money taken by the government there would be more money for compensation (e.g. salaries/bonuses) and investing.

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If the govt abolished forced taxation, wouldn't everyone's bosses start lowering salaries across the board?
The impact would vary across types of employment. If a particular job has an middle-range elasticity of demand and supply, then one would expect the tax-break to be "shared" more or less evenly between employer and employee... so, net wages will go up while gross (pre-tax) wages will go down for that specific type of job. In addition, one would expect the demand for employees to rise in many jobs, as employers put their tax-break to use.
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If embedded taxes disappeared, one of two things would happen--1) the price of goods and services sold would drop or 2) worker's pay would increase. Or some combination of the two.

I'd bet the prices would drop, since doing so would be competitively advantageous. In point of fact what might happen is that this would happen, *AND* pay would drop too, but not take-home pay, just gross pay. In other words what the typical worker would see is a paycheck about the same size as he has now, and a lot more (and less expensive) goods for sale.

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When I say that people will pay for this service voluntarily I usually lose them.

Unfortunately there are no modern historical examples of voluntary payment of taxation or funding on such a large scale. Objectivists essentially are taking a leap of faith on this assertion, usually with the caveat that a "moral revolution" has already taken place.

As SN said, it comes down to coming to an agreement on the role of government in society. As for limiting it to military, police and courts, there is the problem, in the United States anyway, of the U.S. constitution, which clearly gives powers (and responsibilities) to the government that extend beyond that. So you would have to scrap the constitution, or substantially amend it, to reduce the government to such a bare bones entity. Not to mention 200+ years of stare decisis in the US court system that would have to be ignored. A much more effective argument would be to use a hypothetical Objectivist country in which to argue about principles of taxation, with a given that the country has already been founded on Objectivist principles.

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If it turns out that for whatever reason, the government does not raise enough money without taxes, then what? What's plan B?

One possible consequence is people go without some of the services that the government would provide or the services would have to operate a diminished capacity. Reduced military, reduced policing, etc.

The question comes up, do we (as a country and individuals) deserve freedom and liberty if we refuse to do what is necessary to provide it for ourselves?

A remains A.

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I think it is nearly impossible to foresee how a voluntary funding system will finally end up, because it would have to evolve by trial and error. As government is wound down to its core functions, there ought to be trials with various types of voluntary funding schemes, for part of the funding, to see what works and what does not.

There would almost certainly have to be some type contractual obligations that allow planning (e.g. commitments for future funding). There may also be contingent contributions (e.g. where contributions are contingent on other people contributing as well). There may be endowments that fund specific government activities. For new developments -- like a new subdivision -- it is easy to see a fee written into the original contract, just as is currently done for the home-owner-association, which will be sent in as the contribution for police in that city.

Edited by softwareNerd
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Bonds are a way of voluntary funding.

Actually, no they aren't--because bonds just mean that the government is going to pay you back *more* money *later*. They're a short-term way of getting a LOT of money that the government can then pay back over time, but it needs some *other* revenue source to pay the bonds back.

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Even after convincing people that the primary purpose of government is to protect individual rights and that in order to do this the government only needs to run three things, the police, army, and courts. I generally run into these two arguments when discussing a donation system. Any input would help.

1. The cost of a single F-22 Raptor costs 137 million dollars according to wikipedia. How would a donation system cover the tremendous expense of the police, army, and courts?

2. It would have to be a perfect society where everyone donated vast amounts of money, but what makes you think you can create this perfect society? What makes you think people will donate money with out being forced? What if people act in there selfish interest, but don't come to the conclusion or don't think they need to pay for such services? For instance, whens the last time you called the police for help? or needed to use the courts? People wont pay for what they don't use or don't think they need.

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The reason the government shouldn't impose taxation is because taxation is theft, and theft is an initiation of force. No one has the right or should initiate force against others. After all, the government is just a group of people doing a job, having no higher authority over you.

Rob

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Even after convincing people that the primary purpose of government is to protect individual rights and that in order to do this the government only needs to run three things, the police, army, and courts.

What about keeping up interest payments on the existing national debt (around $400 billion a year)? Defaulting on it is possible but it would pretty much ruin the economy.

You have to decide whether youre just making up blueprints for some theoretical utopian society, or talking about the actual US today. If America was going to move towards a minarchist political system then the existing national debt would be a fairly serious problem and its not clear what could be done about it without causing a disasterous global recession.

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I generally run into these two arguments when discussing a donation system.
Well, first, imagine a situation where people do not want a Capitalist system. In a situation like that, there's no point even discussing how to fund a Capitalist system. Therefore, imagine the alternative: what would it take to have a situation where enough people want to have a Capitalist system? What type of attitude would all these millions of people have? In essence, they will have an attitude like most Objectivists have today: where you think you would be more than happy to pay for government services, but did not want to be the sole sucker paying the bills; also, you would want a system that is enduring.

Therefore, one begins from a basic assumption that a substantial number of people -- more than a simple majority -- want to implement such a system and make it work. So, the only question is: how to design something that is not range-of-the-moment whimsical. It's not going to be easy; and, not having a clean slate makes it even more complex. However, by fundamental assumption, it should be able to come up with a system where a substantial majority is willing to make some type of commitment. Any roll back of taxes can be conditional upon a certain minimum aggregate commitment. But wait... this already becomes extremely speculative.

As for convincing others, I would not get into any type of detail with someone who is not already convinced about Capitalism. My approach would be to focus on the essence: the government should focus on protection of rights, and that should be its only spending. Suppose we assume that taxation is the only system that works, what then? As an odd hypothetical, suppose there is some fact of reality of which we (Objectivists) are not yet aware, which makes it impossible for human beings to design a society without using taxation. What of it? Almost everything we want the government to do for the next 50 years (i.e. stop abridging all sorts of individual rights and roll back governmental functions) stays unchanged.

What about keeping up interest payments on the existing national debt (around $400 billion a year)? Defaulting on it is possible but it would pretty much ruin the economy.
Some people consider it controversial, but I think the U.S. should pay off all its debt. Not only this, if one really wants to dream about this happening in the U.S., then one must also take into account certain current "entitlement" programs -- it would be unjust to shut some of those down completely.
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What about registrations?

I mean if you invent something you want to protect your patent and since the government of a laissez faire nation is a paid servant of the people then there should be a fee associated with registering (protecting) a patent. Now to continue to ensure that protection by the government through the lifetime of the patent a small, fraction of a percentage could be charged by the government to ensure ongoing protection. Looking at a popular item like the Ipod you can imagine how much revenue that would generate.

This principal could also include registering business names and product names and any other form of property that you want to claim legal ownership of.

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What about registrations?
Yes, that would be within a whole area of "fees". There are pros and cons with various fees and about what exactly to do if fees are not paid and so on.

One more thing to the OP: sometimes people think of philosophy and ethics and law as being different from science and invention. They think you come up with some ideal plan with less reference to experience; but, it is not so. As an analogy: voluntary funding is a weakness to Capitalism in the sense that trans-Atlantic flight was a weakness to early makers of inter-city passenger planes. We know how to do much better than trains, and we have some ideas about how to go the next step...but, one cannot go straight to supersonic, simply because that's not how knowledge is acquired.

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The transition to voluntary government financing would be a gradual one. of course if the choice to no longer pay any taxes were offered now, few people would voluntarily pay them.

But suppose the federal budget were trimmed in stages, reducing it unltimately to that required by legitimate government functions. Then taxes would perforce be much lower than they are today, and more people would be willing to continue making such payments.

But there's another thing to consider. Most people pay no net direct taxes. Instead they pay taxes indirectly, be it by receiving lower salaries, or in the form of sales and excise taxes, or in the form of higher prices for goods and services. Such people probably wouldn't volunteer to pay taxes either, but they'd continue their indirect funding without being much aware of it.

Think of insurance. A lot of people think of insurance as a scam or a kind of gamble. They figure if you pay car insurance for 2008 and have no accidents that year, you've wasted your money. Likewsie they'd think funding government in 2008 would be a waste if there were no war, their possesions weren't stolen, or they dind't sue anyone.

With insurance payments what you do is fund the insurance companies' business whether you use your insurance or not. But since chances are you will use it eventually, then it makes sense to keep the insurers funded. It's almost certain someday you'll need medical insurance, and it's certain your life insurance will be paid to someone (or even yourself, since the option of cashing-in your own policy is available).

Well, eventually there will be a war, you may get sued (or you may sue someone), you may be robbed, and in general the police do keep crime rates down by doing their work. So it also makes sense to keep the governemnt funded.

I agree not everyone thinks this way. I know lots of people who have never bought insurance nor ever intend to. Some save the moey they'd have used for insurance and invest it (and don't touch it), in order to have it available in case of missfortune; essentially they insure themselves. Others don't and simply consume their money in other ways, then who knows what they do if they have their car stolen, get in an accident or fall ill.

But as there are enough people to fund insurance in order to make it a profitable business, I should think there will be enough people willing to fund the government to keep it functioning properly.

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But there's another thing to consider. Most people pay no net direct taxes.

In the United States, everyone who collects a paycheck, which is most people, automatically pays into Social Security and Medicare. This is true even for most illegal immigrants, who can't make use of the services.

But as there are enough people to fund insurance in order to make it a profitable business, I should think there will be enough people willing to fund the government to keep it functioning properly.

I don't think you can conflate paying for insurance with paying taxes. In the case of insurance, there is the tacit agreement that the insurance company will pay to fix your car, pay your medical bills, etc., in exchange for your premium. So there is a direct incentive to keep paying into the system. In the case of voluntary government funding, if you don't pay, you still get use of the benefits of the government. The ever-present free rider problem.

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Eliminating taxes would not happen overnight, it would be a slow process. Think about how long it might take to get enough people to throw collectivist ideas out. By the time only user fees would finance defense, law, contract-enforcement the wages would have arrived at a level where no change needs to be made.

Mostly people and corporations who have to protect their property would be more than glad to pay the costs either directly or through insurance. The little guy would have a free ride, no costs to him for major issues, benefits such as that would be part of his pay through the employer or through the fact that there are enough people around who have the need for protection.

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I don't think you can conflate paying for insurance with paying taxes. In the case of insurance, there is the tacit agreement that the insurance company will pay to fix your car, pay your medical bills, etc., in exchange for your premium. So there is a direct incentive to keep paying into the system. In the case of voluntary government funding, if you don't pay, you still get use of the benefits of the government. The ever-present free rider problem.

Free riders aren't a *problem*, and the "solution" certainly isn't therefore to put a gun to everyone's head and make them pay.

This is SUCH an academic discussion at this stage. We don't even have a remotely valid way of figuring out just how much a proper government would actually cost and what type of methods would serve best to fund it.

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This is SUCH an academic discussion at this stage. We don't even have a remotely valid way of figuring out just how much a proper government would actually cost and what type of methods would serve best to fund it.

But could you not agree that academic discussions will drive ideas to the point where you will be able to find out if a particular approach is even feasible. The results of those discussions become in the end concretized goals we want to strive for.

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A much more effective argument would be to use a hypothetical Objectivist country in which to argue about principles of taxation, with a given that the country has already been founded on Objectivist principles.
Why not instead use a hypothetical America where the people are simply convinced they need police, military and courts? Does your hypothetical imply that a voluntary taxation system would work only in a country that has already been founded on Objectivist principles?

What if people act in there selfish interest, but don't come to the conclusion or don't think they need to pay for such services?
Then they wouldn't be acting in their rational self interest.

The people who ask those type of questions seem to take it as a (metaphysical) given that Americans will keep on "voluntarily" paying for services they "don't think they need" via forced taxation, and ironically question whether Americans would voluntarily pay for services they do need if they weren't forced to do so.

Some local places here in the U.S. require voters to approve tax increases. The fact that such a system works implies to me that citizens will voluntarily pay for the services they think they need.

What about keeping up interest payments on the existing national debt (around $400 billion a year)? Defaulting on it is possible but it would pretty much ruin the economy.
Why would it ruin the economy?
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If it turns out that for whatever reason, the government does not raise enough money without taxes, then what? What's plan B?

If I had to answer in a sentence, it would be: There is no plan B. But I don't, so I'm gonna identify three major areas of government, and treat them separately, because some of the don't really need that much voluntary funding, while others do.

1.There should be a set percentage (small, and set by the Constitution, preferably) tax on the value of the contract, voluntary of course, for businesses and people who want their contracts enforced by gov.(like any insurance, but done by the government). If someone decides they don't need that, they can still come to the government about a contract, but this time they would have to pay in full for any costs, on the gov's parts, to have their contract enforced.

That type of an arrangement would without a doubt take care of the economy, without the need for voluntary contributions, and therefor allow people the means to pay for the other things - law enforcement, defense - should they wish to. So in this area there is no need for a plan B.

As far as police and defense, those are once again two separate issues:

2. Defense: The US has a nuclear arsenal that can take out any country on the globe. Even with minimal contributions, that can be maintained, and history has shown us that we will always have heroes who will sign up for the defense of this country, no matter how little they get payed (I honestly doubt Americans would ever allow them to go unpaid, but that is for americans to decide, not for a tyrant to loot and pay them. If somehow, for a period, Americans decided not to contribute enough for them to get the money they deserve, it would be a grave injustice, but not the end of the country. )

So again, there i no need for a plan B, which would bring with it major evils.

3. Law enforcement:

There is no plan B. People can choose to invest in police protection, or they can choose to buy guns and defend themselves and make their own to the degree the government cannot afford to step in, and provide an objectively defined justice for them. (Which, while a bad idea, would still be better than the evils of today)

However, I think such a phenomena of insufficient funding for law enforcement would be extremely rare in a society that is as moral and as prosperous as a capitalist society would have to be. (it would have to be moral to adopt this system in the first place, prosperous for obvious reasons) When this would happen in some areas, it would still be far less prevalent than it is in today's America: there are neighborhoods in many American cities today, where the police is afraid to go into regularly (because they aren't strong-well funded- enough to deal with the threats safely), where mail service has been discontinued., more americans were killed in Chicago than in Iraq and Afghanistan combined this summer, etc.

In closing: government is not free of charge, and while we have a right--given by nature-- to freedom, property, pursuit of happiness - we do not have a right to protection by government. Where would such a right come from? We certainly aren't born with a policeman at our side, nor does nature provide one for us when we're five or something. If people chose not to pay, that's tough, but it doesn't justify using force against anyone.

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What about keeping up interest payments on the existing national debt (around $400 billion a year)? Defaulting on it is possible but it would pretty much ruin the economy.

You have to decide whether youre just making up blueprints for some theoretical utopian society, or talking about the actual US today. If America was going to move towards a minarchist political system then the existing national debt would be a fairly serious problem and its not clear what could be done about it without causing a disasterous global recession.

American national debt should be payed out before taxes are abolished: the government owns huge amounts of land (an obscene amount), oil reserves, etc. which should be sold first, gradually, and then, if it's not enough (it would be many-fold, but let's say it wasn't), the right thing to do would be to pay it out of tax-money, and only then stop collecting taxes.

By national debt of course I don't just mean money the gov. borows from abroad-which actually isn't that much-, I also mean the trillions it collects in social secirity and Medicare programs.

It would take many years to both sell everything the US owns, and pay out all the debts, all the while moving towards a free economy slowly but deliberately, but it is more than possible to do: it would be beneficial, even for the older generations, and certainly for the younger ones. Freeing up all the productiv power creative and hard working individuals in this country have would result in an amazing economic boom, especially if at the same time the borders are opened up for people to come in and take advantage of all the land that's on the market:).(that's mostly a joke, even without that land, there is plenty of room in the US for many millions of immigrants)

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