Saturday, June 11, 2011

The thing about taxes

Think about your checkbook for a minute. There are things you have to spend money on:
  • Mortgage/rent
  • Phone
  • Electricity/gas/water/sewer/garbage
  • Credit Cards
  • Car payment/maintenance/fuel
  • Food
  • Health care
And there are things you like to spend money on:
  • Clothing
  • Entertainment
  • Being clean and having nice skin
You find all the money to pay for these things by having a job. You provide a service to an employer or clients/customers, and they pay you. That's how it works. If the cost of your bills go up, you might try to cut back your spending in he optional areas -- like, maybe you won't buy new clothes -- and there are some things that are super-necessary that you might be able to reduce by moving things around -- like you might decide to find cheaper health insurance, or drive less, or conserve electricity.

But if you try to reduce spending by refusing to pay your bills, you're just being irresponsible. And in most cases, when you need more money you find some way to earn more money. You might ask for a raise. You might find a second job. You might cash out some of your investments or dip into savings (if you have any). As a last resort, you might try to coast on your credit cards until things get better.

Usually, if you ask for a raise or get a different or second job, your problems end up leveling out financially. Cashing out investments or savings creates problems down the road, and you end up having to earn double to replace what you took out. Meanwhile, trying to live on credit cards for too long is going to land you in bankruptcy court.

So, think for a minute about the government. There are things that the fed has to spend money on (as defined in the Preamble to the Constitution):
  • Forming a more perfect union
  • Establishing justice
  • Ensuring domestic tranquility
  • Providing for the common defense
  • Promoting the general welfare
  • Securing the blessings of liberty to ourselves and our prosperity
And there are things we like to spend money on:
  • Helping our neighbors when they're in trouble or struggling
  • Encouraging innovation in the private sector

And federal, state, and local governments pay for these things by having a job. Unlike us as individuals, though, "paying the bills" as it were, is the job in question; also unlike us as individuals (or corporations), the government isn't supposed to make more money than it needs to do its job. But, when the output becomes higher than the income, more people are in trouble.

As citizens and constituents, we are the boss of the government. We pay the government to do its job. That's what taxes are. That's why the people who wrote our founding documents made sure to put a little note in Article I, Section VIII that "Congress shall have Power to lay and collect Taxes". So, when the bills start piling up, the best option for this particular checkbook, is to ask for a raise (raise taxes) or find another job (lay new taxes).

The other thing the government could do is cash out its investments, by cutting spending on education. But, as we've already established with our own checkbooks, is a bad idea. However, this is an even worse idea on a federal level, because reducing spending on things like education reduces the earning potential of the next generation; which obviously compounds problems down the road.

Finally, governments can try to live off credit cards and loans from other countries (which is what the go-to policy has been for the last 30 years). And look where it's gotten us.

Instead of being responsible with spending on essentials (like NOT spending trillions of dollars on wars that we had no business waging), or asking to be paid what it's worth (raising taxes), or finding alternate sources of revenue; governments have been living off credit cards and are now trying to cash out their investments (education, social security, medicare, etc) in order to make ends meet.

But there's a very simple solution. Some of the government's employers (like the top 1% of income earners) and clients (giant corporations) haven't been paying the fed for the work it does, and if those employers would just pay their taxes, we'd have enough money to pay all of our bills, and maybe get some health insurance.