By: Maggie Winslow
“Cut taxes. Let people decide how they want to spend their money.” This has been the rallying cry of the small-government advocates for the last few decades. It is a very appealing idea. However, letting people decide how the bulk of our national income is spent is not necessarily good for social welfare nor even for individual welfare.
There are many things that people would like to have that they can not purchase on the market, such as better public schools, libraries, safety, clean air and water, climate stability, natural areas for recreation. These are public goods that individuals can only purchase collectively. This is one of the main reasons to have a government – to provide public goods. When we reduce taxes in favor or more private disposable income, we are giving up these public goods for more private goods.
Many consumer purchases are imported goods. Buying these goods does little to help provide jobs in the US, so we are poorer as a society. Incomes are lower. Our future economy is also weaker because, as we import more goods, the trade deficit is balanced with a surplus of foreigners buying our assets (stocks, bonds, real estate for example). The payment on these assets will be sent abroad in the future, rather than staying in the US. So our children will be poorer as well.
Studies have found that buying more stuff doesn’t make most people happier. Wanting more things is perhaps natural, but not to the level we see in modern society. If this were natural, why did producers spend an approximately $130 billion on advertising their goods and services in 2007? The country is awash in unwanted consumer goods.
Increasing evidence suggests that the ever-increasing rate of producing and disposing of goods is polluting our planet and harming our health.
Europeans pay more taxes than Americans. They tend to have fewer consumer goods, it’s true. However, they also have better retirement benefits, medical benefits, and more security if they have some economic misfortune.
What would it mean for us to pay more taxes? It would allow for increased government spending (not deficit spending). This spending could create jobs, improve our education system making us more competitive in the future, increase our level of innovation, improve our environment. It might even increase our salaries ultimately by allowing for a stronger economy.
Of course, the governemnt can also use tax receipts in ways we don’t like. That’s the kicker.
By Maggie Winslow, Economics Professor, Presidio Graduate School