The "Ideal" Federal Govt. and What It Will Cost

[CrowEpistemologist]

So to clarify the question in my mind of, “what exactly do we want?”, I’m left wondering what our actual Federal budget would be if we had a “proper” government.

I’d define that as the high-level description most Objectivists give when they are asked that question: that the government should be concerned only with law enforcement and national defense.

It occurred to me that while that operating principle would drastically reduce the Federal budget, it certainly wouldn’t make it “zero” and it would nonetheless still be quite significant.

Now, before we dive into this, I understand that there is a another completely different discussion about what our military should be doing, which certainly would weigh in on the budget discussion. I also imagine that people can rationally disagree with that (it is based on predicting what other countries and individuals will/won’t do). For purposes of this discussion however, I’ll stipulate that we will neither grow nor shrink our military budget.

First, take a look at the US Federal budget breakdown.

At the high-level, 24% of the budget is national defense, and a good chunk of the 50% of the budget spent on health care and retirements is probably spent on current and former military which would still be incurred if you cut our entitlements to everybody else. One might surmise, then, that the fully-loaded military budget is perhaps 30%?

The items called “protection” and “general government” I’ll leave in as well, again with the caveat that digging into these you’ll probably find a lot of useless stuff. That’s another 3%.

Interest on the national debt is about 7%, which we obviously have to pay in the short run but not in the long run.

Everything else there looks outside the realm of a proper Federal government, so we’re looking the “ideal” being a system where “the bill” is around 1/3 of what it is now, give or take.

I point all this out because I surmise that many imagine a “perfect” government to costs us nothing or almost nothing whereas the reality is that even in the most ideal situation we’re still certainly paying a significant overhead for the government that secures our freedoms.

Add to this that a proper voluntary system (wherein you pay for things like protected transaction fees and the like) would also necessarily mean that many would not bear the cost of this system which would necessarily shift the burden to those who would.

As such, the average citizen’s might pay what, half of what they are paying now in a “perfect government” scenario? Many would arguably even pay a lot more insofar as they opted to transact in the same ways they do now.

Certainly your Federal taxes are not everything, and other taxes (voluntary fees) may well go to zero or close to it–and cutting your Federal taxes in half is certainly a great windfall–but it’s not zero, not even close.

I point this out to anybody who would confuse “lower taxes” as a fundamental concept of Objectivist politics. It’s not.

[FeatherFall]

In a voluntary system, I would expect the biggest producers to foot the largest proportions of the bill. I’d expect such a system to be more “progressive” than a lot of leftists would expect.

[Hairnet]

My idea is this. You have to earn your right to vote by doing something for the state.

So if you want to vote, even have the chance of getting a project funded by the government, or getting any protected special legal arrangements made, you have to pay large flat tax once a year. Also you would have to do jury duty.

Maybe civil or military service could earn this also.

[realityChemist]

Ayn Rand actually wrote an essay that dealt with this subject. I believe it is published in For the New Intellectual, but I could be wrong about that. She put forward the idea of federally insured and enforced contracts. Basically, the Fed would only treat contracts as valid and enforceable if the signatories had paid a sum to the Fed in advance. Otherwise, any contract signed would be little more than an agreement (ie. it would still be unethical to violate it, but not actionable by law). This could certainly generate a steady stream of revenue, especially in a thriving capitalist economy. The amount of the sum could be adjusted based on the type of contract, so that large corporate entities would foot a larger bill for merger contracts and the like than a small business owner would have to for a hiring contract with an employee. Such measures would allow the government to generate reasonable income from this legislature, while still keeping excessive costs down for small business startups.

Obviously, this idea could not be extended into property ownership. If you sell a car to another party, it is legally now their car, and you can’t just take it back (EDIT: in a slightly more ridiculous example, a supermarket could not decide to raid the kitchens of their patrons and revoke all of the food they had previously sold them). That brings up another area that couldn’t be covered in federally backed contracts: use of force. Since, by definition, the government has a legal monopoly on the use of force, it couldn’t back contracts giving the right to use force to some other party, nor could it allow the use of force even in situations where no federally backed contract had been signed.

You can see how laws can quickly get tangled up in themselves (one good reason to keep them to a minimum). Certainly this idea would not provide enough income to back federal spending on the scale you are suggesting, but it would certainly be a step in the right direction (potentially a large step).

[Swerve_of_Shore]

This thread is specifically on point for the one I was thinking of starting. I have to say I am greatly disappointed with the level of (dis)interest shown by the community. Perhaps, I can spur greater thought and discussion.

Based on my calculations, the OP got it about right: funding the military alone would require an income tax at about half the current level. (This assumes no corporate tax, no inheritance tax, no employment taxes, etc.) Personally, I would like to see military spending at about half its current size, but many (most?) of you disagreed when I raised this in a prior post, so let’s stick with the 50% figure.

How do you all propose to fund this level of spending? Is there some kind of tax that is more fair than the income tax? If you made it truly a voluntary tax as FeatherFall suggested, I believe you would have a great many wealthy free-riders … not a strongly progressive system as FeatherFall guesses. (In any event, I would look forward to seeing the Koch brothers write a “voluntary” check to fund the military!) As for Ayn Rand herself, as far as I know, she wrote only the piece realityChemist refers to (which can be found in The Virtue of Selfishness). This piece is NOT on point because it deals only with funding the courts and other means of contract enforcement. This is a far smaller cost than the military. Nor is there any clear “rational relationship” between a tax on transactions and military spending.

I have trouble envisioning any system more fair than a non-voluntary individual income tax. (For current purposes, I’ll steer clear of questions like progressivity or capital gains preferences.) Can anyone enlighten me?

[softwareNerd]

There are a few threads on taxation. I found this one, but I’m sure there are more.

Most of the discussion is about the voluntary aspect.

There’s probably not much about how much an ideal government would cost. So, I guess I’ll not merge the two threads.

So, specifically on the topic of what such a government would cost, compared to today:

The majority (about 60%) of Federal government expenditure is on “entitlements” plus welfare. That would clearly not be a part of a proper government. So, we’ve taken over 50% off.

Then, if one goes to the state and local level, the biggest chunk is education. This too will clearly be private under a proper form of government.

So, just with those two categories, you would reduce tax by more than 50%.

But, today this is pie-in-the-sky. Is there any chance at all that this will happen in your lifetime?

As for the military, I don’t see why the U.S. needs to spend as much as it does. And, much more importantly, a government with a proper approach to foreign policy would have to spend much, much less.

Added: Some other threads on the topic: here, here and here. (That’s a few hundred posts on the topic. So, most of your questions probably have responses in those threads.)

[Nicky]

If you’re looking into American government spending, you have to look into all government spending. Picking only the half that includes the military budget, and then acting like it’s 30% of government spending, is pretty pointless.

According to wikipedia, total government spending in the US was $6.1 trillion in 2010. Military spending the same year was $661 billion. That’s 11%, not 24%.

You’re welcome to obsess over cutting military spending, but you should at least know that while doing so, you are addressing 11% of US government spending (and only 4.6% of US GDP, which is about the worldwide average percentage spent on a country’s military), and ignoring 89%. If you still think that’s gonna solve anything, go ahead and continue.

And no, I see no reason why the government should be in charge of retired military personnel’s pension plans and health care, unless they were disabled in the line of duty.

[FeatherFall]

I would look forward to seeing the Koch brothers write a “voluntary” check to fund the military!)

The Koch brothers are more than generous when it comes to causes they believe in. Fight a war they believe in and you will likely see them write checks. I’d be willing to flesh out this idea a little more in a different thread, if you’re interested.

[Nicky]

Based on my calculations, the OP got it about right: funding the military alone would require an income tax at about half the current level. (This assumes no corporate tax, no inheritance tax, no employment taxes, etc.) Personally, I would like to see military spending at about half its current size, but many (most?) of you disagreed when I raised this in a prior post, so let’s stick with the 50% figure.

NO, let’s not, because if you eliminated all other taxes and taxed income at half its current rate (17.5%), government revenue wouldn’t be half of its current revenues from income taxes. That’s not how it works. I would bet anything that if the only tax the US levied was a 17.5% income tax for high earners, and 10% for the middle class, government revenue would actually end up higher than the current income tax rates produce for the feds. That’s higher, not lower. So, in fact, a flat 10% rate on everyone would, even early on, produce at least $1 trillion dollars.

So, instead, let’s stick with the 4.6% of GDP figure I gave you in that other thread. Or with the 11% of total government spending I gave in this thread. Same figure, same $700 billion out of $6.1 trillion total spending, and out of $17+ trillion in GDP. That’s how much it costs to fund the military, currently. Not a cent more. The other $5.4 trillion is spent on other things.

Let’s add in another half a trillion for law enforcement, and figure out how that 1.2 trillion could be raised:

For instance: if all taxation was immediately eliminated, and all spending was eliminated except military and law enforcement, the government would actually be borrowing less money to fund itself that it is borrowing currently.

Or, since that’s probably not sustainable (though it would be more sustainable than the current system - but it wouldn’t be sustainable indefinitely), here’s another way: a 10% flat tax on all income.

Etc., etc. In all cases, economic growth would soon make taxation obsolete, since even a small percentage of people’s voluntarily contributed income would end up being enough to fund the same military we have today.

[Nicky]

Just to back up my point above with some facts. Hong Kong levies a 15% income tax, and corporate taxes top out at 17%. Hong Kong collects 13.9% of its GDP, in taxes.

It stands to reason that if the US had only those two taxes, at those levels, it would also collect around the same percentage of GDP: that would be 2.36 trillion. That’s without factoring in any of the positive effects cutting taxes would have on the economy.

[Swerve_of_Shore]

@Nicky, I took all non-military spending out of the equation, as well as all taxes other than the personal income tax, in order to isolate the question of whether a personal income tax at approximately half its current level (it could be one-quarter, the exact number doesn’t matter) is the appropriate way to fund the military.

But I still haven’t heard anyone address this specific question. To rephrase: Everyone agrees we should fund the military. So, what kind of tax is the right kind to fund it?

(Oh, and thanks for the links to other threads, @softwareNerd - you may well be right that someone has addressed my question in there. When I have the time (unfortunately, not now), I will delve into them.)

[Nicky]

@Nicky, I took all non-military spending out of the equation, as well as all taxes other than the personal income tax, in order to isolate the question of whether a personal income tax at approximately half its current level (it could be one-quarter, the exact number doesn’t matter) is the appropriate way to fund the military.

But I still haven’t heard anyone address this specific question. To rephrase: Everyone agrees we should fund the military. So, what kind of tax is the right kind to fund it?

Right now? That would be a very low (under 5%) flat tax on personal income (but only direct income, not capital gains), sales and profits.

In a fully capitalist society, the military should be funded through voluntary contributions. There might be a flat contribution rate lower limit that would be the condition of citizenship. But not a condition of residency and access to the justice system, only citizenship (which would come with voting rights, the right to run for political office, a US passport, and US diplomatic and military assistance if one runs into trouble abroad).

[Swerve_of_Shore]

Thanks, Nicky. If I understand correctly, for “right now”, you are suggesting a 5% personal income tax (i.e., “peronsal income”) plus a 5% corporate tax (i.e., “sales and profits”) would be sufficient and not too unreasonable. I am not sure, but I doubt those rates are sufficient … it is probably closer to 10%. But on a fundamental basis, I prefer an all individual income tax solution because (1) the incidence of the corporate tax is unclear (i.e., whether it is “borne” by shareholders, consumers or employees) and (2) whoever bears it, it is a double tax if the income is again taxed at the individual level. The exclusion of capital gains you refer to is a rough way of accomplishing the same thing … but only if capital gains is defined as gains on corporate shares, not on land, bonds, or other items that are not subject to a first level of taxation.

I do not believe a voluntary tax can work because of the well-known economic concept of “free-riding” but I’ll leave that discussion to other threads.

I prefer a personal income tax to other taxes for funding the military and police because the function of these institutions is largely the protection of wealth. Perhaps, some base level of per capita taxation would be appropriate to provide for their personal security functions. There is some argument for a wealth tax instead of an income tax, but I’m inclined to think taxing the wealth once (when it is earned) is fairer than taxing it on a yearly basis (although a annual wealth tax should clearly be at a lower rate). That is, I am uncomfortable with the idea that the thrifty should be taxed more heavily than the spendthrift.

Anyone else have any thoughts on the appropriate type of tax for military funding?

[Nicky]

Thanks, Nicky. If I understand correctly, for “right now”, you are suggesting a 5% personal income tax (i.e., “peronsal income”) plus a 5% corporate tax (i.e., “sales and profits”) would be sufficient and not too unreasonable. I am not sure, but I doubt those rates are sufficient … it is probably closer to 10%.

1. I also mentioned a sales tax.

2. The numbers I posted (in the previous two posts) prove that the three pronged tax (UNDER 5%, not 5%) that I described would collect the $700 billion needed, from an economy that has a GDP of $17 trillion.

3. I didn’t say anything about law enforcement, because you didn’t ask, you asked about the military. Local law enforcement would likely be (also temporarily) funded from a local property tax. Federal law enforcement shouldn’t cost enough to make a noticeable dent in the budget.

In a fully Capitalist society, those too would have to be funded from voluntary contributions. In tight knit local communities, the non-coercive consequences of refusing to contribute would be even more unpleasant for so called “free riders” than on the federal level.

Besides, a lot of the current functions of law enforcement (like drug enforcement, but there are many other illegitimate Police duties) would disappear, others (traffic management, neighborhood patrols) would be handled by private security. The apprehension of thieves and dangerous criminals is a surprisingly small component of today’s Police activities. If that’s all they did, it would cost a whole lot less.

But on a fundamental basis, I prefer an all individual income tax solution because (1) the incidence of the corporate tax is unclear (i.e., whether it is “borne” by shareholders, consumers or employees) and (2) whoever bears it, it is a double tax if the income is again taxed at the individual level.

It’s very clear who is being taxed by corporate taxes (and taxes on all profits of a business): the owners.

And no, it’s not a double tax, because I specifically excluded capital gains as taxable income. I didn’t add in dividends, but I am now: dividends should be excluded too. Any other cases I’m missing, that would lead to double tax, should be taxed only on the corporate/business level, but not on a personal level.

The reason is that the American government cannot and should not try to tax the income of foreigners who own shares in US businesses. But it would be unfair to tax American shareholders but not foreign ones. It would also be unfair to tax Americans who own shares in foreign corporations. That economic activity isn’t taking place in the US, so it makes no sense for it to be taxed by the US government. The solution, in both cases, is to tax the profits of the business (in the case of multinational corporations, only those profits that are made due to production taking place in the US).

I do not believe a voluntary tax can work because of the well-known economic concept of “free-riding” but I’ll leave that discussion to other threads.

You didn’t leave it to other threads, you just brought it up in this thread. And it’s an appeal to authority, at that. I guess you’ll leave any rational arguments in favor of your claim to other threads B) ?

Meanwhile, I have overwhelming evidence that voluntary contributions work: churches and charities collect them all the time. This free , and free of advertising, website exists in spite of your alleged “well known concept”. On a larger scale, so does Wikipedia. There are countless others. And Americans have been known to volunteer a lot more than just a small portion of their money to defend their country: their lives, all through history.

All that, because the free rider principle doesn’t apply as liberally as people try to apply it. It is about specific situations where a resource of very little moral consequence is scarce and freely available, not about contributions to a moral, essential cause.

I also suggested a compelling incentive for being a contributor: citizenship. I literally know no Americans who wouldn’t be willing to pay it to be a US citizen. Would you refuse to pay it, and take the social stigma and inconvenience that goes along with it? You should know that, if you did, patriotic Americans would probably refuse to be your friends or even do business with you. You might even be getting thrown out or restaurants for it. In fact, we wouldn’t be having this conversation, if you did, because I don’t talk to moochers.

Moral issues aside, do you think that would count as a “free ride”? In my estimation, as long as the contribution quotas remained small and percentage based (meaning everyone can easily afford them), the treatment people would get for not paying them would closer resemble the experience of being a recently released sex offender than a happy go lucky free voyage on the USS Capitalism.

[Nicky]

P.S. I hate it when people hear “voluntary contributions”, and automatically jump to the conclusion that the government is going to be relying on a guy holding out his hat on a street corner for funding.

There is nothing wrong with using “church tactics” as I like to call them (strict quotas, public moral shaming and instigating peer pressure) to collect people’s contributions toward a worthy cause. But there is everything wrong with using force instead. The power to initiate force corrupts precisely because you no longer need arguments, leadership skills or any other non-coercive tactics once you have it.

A voluntary system would not only be effective in funding the government, it would also lead to a better run government.

[softwareNerd]

Meanwhile, I have overwhelming evidence that voluntary contributions work: churches and charities collect them all the time. This free , and free of advertising, website exists in spite of your alleged “well known concept”. On a larger scale, so does Wikipedia. There are countless others. And Americans have been known to volunteer a lot more than just a small portion of their money to defend their country: their lives, all through history.

And I always wonder why economists don’t use these as prime examples when talking about their “free-rider” problem. And, do economists mean to say there are no free-riders in our current system? Also consider how Americans signed up to go fight in Europe in two world wars. Was the war effort severely hampered by free-riders not signing up.

P.S. I hate it when people hear “voluntary contributions”, and automatically jump to the conclusion that the government is going to be relying on a guy holding out his hat on a street corner for funding.

Also, there are all sorts of creative ways to ensure steadier funding. For instance, Harvard has an endowment fund into which volunteers put money and out of which they fund many of their activities. To some limited extent, this could work for voluntary taxation. Some voluntary organizations ask supporters to pre-commit future donations by a non-binding promise, so that they can get a better handle on what to expect next year. There’s no reason the government could not do the same. Some voluntary organizations will organize special ear-marked donation campaigns, say to build a new house for the priest. No reason why one could not do the same to replace a 911 system, etc

Also, to a limited extent, it is possible that a fee-based component could work for certain local government courts and police services.

[CrowEpistemologist]

Insofar as you can create a more equitable system–one wherein you pay for exactly what you consume–then we should work toward that.

It would seem to me that any sort of “voluntary” system is a failure in that regard.

Now, this gets tricky when you imagine that there are things you “consume” through no fault of your own, such as our relative safety here in the US from foreign invaders.

Across the board, “safety” is not free. Just ask any insurance company.

[Nicky]

Insofar as you can create a more equitable system–one wherein you pay for exactly what you consume–then we should work toward that.

It would seem to me that any sort of “voluntary” system is a failure in that regard.

If your standard is for everyone to pay EXACTLY for what they consume, then every human interaction in history is a failure in your book.

But there’s no need for everyone to pay for exactly what they consume. A rough estimate will do just fine, and free riders are not the disaster you make it out to be.

Furthermore, none of us pay for exactly what we “consume”. We use fire and the wheel for instance, and none of us have paid a dime for the discovery of fire or the invention of the wheel.

Across the board, “safety” is not free. Just ask any insurance company.

The protection of rights is a government function precisely because it is fundamentally different from economic activity. The whole point of having a government is that you cannot trade in protection. Just ask anyone who ever dealt with the Mob. I doubt any of them would call the interaction “trade”.

Insurance companies, just like any other business entity, are vehicles for trade. The government isn’t. The government has a monopoly on justice, and that is precisely the reason why it should never be allowed to “trade” it for money. Such an interaction wouldn’t be a proper trade.

[CrowEpistemologist]

If your standard is for everyone to pay EXACTLY for what they consume, then every human interaction in history is a failure in your book.

But there’s no need for everyone to pay for exactly what they consume. A rough estimate will do just fine, and free riders are not the disaster you make it out to be.

I don’t recall making anything out to be a disaster…

Furthermore, none of us pay for exactly what we “consume”. We use fire and the wheel for instance, and none of us have paid a dime for the discovery of fire or the invention of the wheel.

The protection of rights is a government function precisely because it is fundamentally different from economic activity. The whole point of having a government is that you cannot trade in protection. Just ask anyone who ever dealt with the Mob. I doubt any of them would call the interaction “trade”.

Insurance companies, just like any other business entity, are vehicles for trade. The government isn’t. The government has a monopoly on justice, and that is precisely the reason why it should never be allowed to “trade” it for money. Such an interaction wouldn’t be a proper trade.

I’m totally lost.

Anyhow, my point was that non-voluntary, usage-based fees are better than voluntary (“honor system”) financing, and you should employ these where possible. Moreover, with a little creativity, I suspect you can largely eliminate the need for a inferior voluntary model.

[Craig24]

Anyhow, my point was that non-voluntary, usage-based fees are better than voluntary

Explain what is meant here by “non-voluntary”. A user fee sounds like a form of voluntary exchange as in “I voluntarily choose to purchase x” where x=a particular government service which you only receive if you pay the fee, not unlike any voluntary exchange for goods and services in the private sector.