Why wait to ask users pay directly for government services?

Political Philosophy
1

In OPAR, Peikoff presents Ayn’s conviction that it was too soon to begin reforming government revenue generating methodology.

I never understood this. Reform requires both a better system, and a means to convert to that better system.

Of course the conversion will be difficult, but the idea is correct, and if there is one thing I have learned in my experience, it is that nothing gets done by doing nothing.

Can someone explain the rationale behind Ayn’s position to me?

I think the good ol’ USA needs a new constitution, written to ensure the government is not allowed to take moral positions, nor initiate the use of force against normal (non-criminal) citizens.

  • David

  • David

2

As I understand it, Ayn Rand wanted to get rid of taxation last, because it is first necessary to drastically cut spending, by reducing government to its proper functions. If we were to eliminate taxation first, then, for however long it took to get rid of all of those illegitimate functions, those functions–well over half what government spends–would be financed purely by deficit. And unfortunately it will take time (years if not decades) to get rid of those functions if we want to do so without causing either social or economic collapse.

3

That is the argument, yes.

Do you think it holds water?

Seems like we are caught in a chicken and egg situation, because without the political will, how can we wind down the illegitimate government programs?

In my experience, most people don’t change their political attitudes and behavior until they have little or no choice (one way this happens is when a rational individual is shown incontrovertible evidence and/or logic – being rational, the individual has no choice but to accept rational conclusions based on factual evidence – that’s called “learning” in my lexicon).

So, how are the problems going to disappear unless the law is laid down first? In other words, the government’s job is to enforce the law, but the current law allows the government to finance itself via taxation, so how will the individuals in the government be incented to change things, to reduce unwarranted programs, unless they are told to by law?

  • David
4

If you take note of video interviews and writings by other big free market, small government thinkers, particularly economists but sometimes other big names not in that field, that stress the political theory, with the former being the likes of the Austrian school and to an extent the Chicago school there is a consensus on this. Milton Friedman and Thomas Sowell for instance, both favor a slow transition to free markets. It is usually referred to as a “wind-down” process but I think there is a specific term for it that is evading me currently. It is just simple economic fact. In this case the moral is most certainly the practical. We must engage in the full context of our knowledge. We know, for a fact, that we cannot simply end an entire supportive structure that many have become dependent on to at least some moderate degree. If we are to ensure the stability of a future society, we must also preserve as much as we can of the peoples economic state of affairs so as to create the necessary transitional stability. The only other option would lead any society into anarchistic chaos, and we all know what happens then.

5

If we don’t change the prevailing philosophy enough that the government will divest itself of the stuff it shouldn’t be doing, we won’t be able to get it to cut taxes either. The logical progression is a) fix the culture B) get government out of illegitimately providing “services” other than rights protection, and c) end taxation. B and C can happen virtually simultaneously, but C cannot happen before B, and C couldn’t be used to force B to happen, because no one who believes the government should be doing what it is doing today will ever allow taxation to end. So people must be persuaded of the proper role of government, and hold it to that limit, before we can eliminate taxation.

6

I don’t think that will work.

I think we need to make sure the government has the cash to fund it’s current obligations, but switch the source of revenue so that the wind down can occur in a rational legal context (and I advocate changing the Constitution to ensure no slide backs).

Understood there must be an orderly transition, but if a system for charging for civil court services, including contract guarantees, can at least be conceptualized and worked out in enough detail to determine what the funding overhang would be at different cost levels, then there would be a basis for beginning to make the necessary changes.

The first step, IMHO, is to separate the concerns of revenue generation and (the moral equivalent of) spending that have become so conflated in the current tax rules. The problem is that with these concerns intertwined as they currently are, government prejudice in allocating the backdoor “spending” hidden in the tax code is rampant and almost impossible to control or account transparently: credits, deductions, etc., are the moral issue, because they single out specific economic and political groups for special treatment; but the practical issues of inefficiency and uncertainty in planning are also huge problems.

Now, if I told you it was possible to convert to a graduated flat tax system with minimal impact on the net income of individuals and corporations (btw, why should corporations pay tax?), would you believe me?

Here’s how: in the year of the switchover, each tax paying entity would use a rate equal to the ratio of the actual tax paid to the gross income (perhaps averaged over 3 years to smooth out the data). In the second year, the tax rate would be obtained by computing the best fit function for the rate-vs-income data, and from then on, the tax for any payer is just the result of the best fit function with the considered gross income as input. Done.

But that’s just the first step. After that, I think removing the notion of corporate profit from the system is imperative. A corporation is a collection of individual owners, and its profit cannot be anything other than the sum of the profits of its owners – so write the rules to reflect that, i.e., make sure all profit is partitioned to the owners so they can pay the taxes, and eliminate corporate taxes.

Eliminate all other taxes, except property taxes (which are actually the one form of tax I think is morally justifiable under certain circumstances): dividend, capital gain, sales, VAT, etc. Raise the flat income tax rate to make up the revenue.

Once all that is done, the tax code will be simple, Simple, SIMPLE, and the actual rate of taxes paid will be clear and transparent and predictable.

Then we can consider how to reduce the tax rate by converting to a pay-to-play system.

  • David
7

I think the first flaw in this argument is that revenue generation is a necessity which ought to be maintained then expanded wherever and whenever possible.

The level of revenue into government is an outcome of what government has been incorrectly charged to do.

As a population, we display an ignorance of governance and see instead the state as a caretaker.

We submit to onerous taxation and assume a commensurate level of service is an outcome of that income we allow to be confiscated.

This has in nearly a century been proven wrong.

And has been proven wrong in repeated attempts to make the model work.

We do not get a dollars’ worth of governance for every dollar in taxation.

The good ol’ USA does not need a new constitution and needs a population which understands the Constitution we have in addition to the principles on which it is anchored.

Given the proclivities of the ruling class which inhabit the state today, any new Constitution would read like the tax code.

A voluminous collection of obtuse and contradictory edits and rulings which would only necessitate an expanded state to interpret and carry out its instructions.

8

The first step to changing the way gov’t is funded is to allow trading by other means (alternate currencies, commodities, and bartering), which would not be protected by the government against fraud, counterfeiting, etc. Let people take and understand the additional risks involved in a monetary system that is not protected by the rule of law, and they will very quickly price in the value of a protected currency, and pay some percentage of that value voluntarily in a transaction tax.

The government will then have a natural valve placed on its spending - if it spends on improper functions and increases taxes, transactions will shift to other means of exchange and it will lose revenue. Likewise if it prints additional currency to pay for those improper functions, transactions and savings will shift to other stores of value.

The result is a completely voluntary means of funding government, without requiring some to sacrifice wealth for the collective good of society. It is the reliance on the altruistic tendencies of voluntary contributors that is the contradiction in a voluntary donation system to fund government. Alternatively, it is the conflict of interest of government becoming beholden to large donors, at the expense of equal protection of all individuals, that is the fatal flaw.

9

The first step to changing the way gov’t is funded is to allow trading by other means (alternate currencies, commodities, and bartering), which would not be protected by the government against fraud, counterfeiting, etc. Let people take and understand the additional risks involved in a monetary system that is not protected by the rule of law, and they will very quickly price in the value of a protected currency, and pay some percentage of that value voluntarily in a transaction tax.

The problem is that without credit protection, i.e., recourse to legal intervention in case of contract violations, none of these markets you envision will take root.

Credit is an essential feature of trade beyond spot exchanges, and relying solely on the good will of counterparties is naive. Currency is the most fungible credit, but all forms of security are more or less fungible. Only tangible commodities can be considered “hard” and without credit implications, and even then, since the finished goods produced will be a function of credit, smoothly functioning commodity markets are also contingent on a stable, enforceable, standard, fungible credit environment.

Markets are built on trust. Trust is not an arbitrary agreement, but is based on track record and commitment (e.g., of collateral in financial loans).

Without trust, you can’t have all those other new markets you envision. Without an agreed agent in charge of enforcing contracts and adjudicating civil disputes, you can’t have trust beyond your circle of friends and family at best.

  • ico
10

Markets are built on trust. … Without an agreed agent in charge of enforcing contracts and adjudicating civil disputes, you can’t have trust beyond your circle of friends and family at best.

When you buy an electrical machine, look for the UL tag. Look also for the CSA (Canadian Safety Association) logo. You will probably find others, as well, from Japan, Europe and China, regardless of where the appliance was made. It is where the appliance is to be sold that counts. Underwriters Laboratories and the CSA are privately owned and operated. They are not government agencies. I am not sure how much weight the Good Housekeeping Seal of Approval carries, but Consumer Reports is highly respected.

On the other hand, Bernard Madoff and Kenneth Lay were both government regulators, enforcers of trust.

Also, though I learned to fly and have some solo hours, I have not followed this in some years. The fact is (I believe) that in Canada, pilots pay for government services of air traffic control. This comes here in the USA in Congress and the Aircraft Owners and Pilots Association (AOPA) fights it tooth and nail declaring that we pilots have a public interest right to free services from the government. (Other arguments are trotted out as well, but that one is the basic complaint.) So, just to say, in Canada, at least one government service comes with fees.

Also, it depends on where you live, but things like building inspections can be govenment mandated and require payment of a fee to the government for the service. Your driver’s license is an example of that. Taxes on fuels are the sine qua non citation for how to privately finance roads. And commercial truckers pay extra taxes and fees as well, at the state level, again, mandarory licensing for which the user pays the cost of regulation.

We have a city monopoly on garbage collection here, with a strong recycling program. We pay for the containers, in addition to the general city taxes.

Come to think of it… it seems that users do already pay directly for government services…