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Government PiratesMany people tolerate taxes because they believe that taxes are some sort of payments for things they are using. If that is indeed the case, then it becomes easier not only to tolerate but to agree with taxes. Why wouldn't be so? If we are going to use something, we might as well pay for it to the government. But is it really so? Are taxes Pay-As-You-Go Payments?

IN FAVOUR

The argument in favor follows more or less this path. The majority of taxes can be classified in two types: overhead and consumption. This is true for every country on earth. Yes, we know that there are other, more exotic ones, but we are only interested in the bulk of them. So, we will disregard the remaining minority.

Overhead Taxes

What are these taxes? They are taxes that apply whether or not you consume. For example, "property taxes" or "capital taxes" or "municipal taxes" and so on. In this class you are being taxed on what you have, not what you consume, regardless of whether or not you are consuming. These taxes can be viewed as a drag on your wealth, just because you have a wealth.

Consumption Taxes

This class of taxes are just the opposite of the previous class. You are being taxed by your level of consumption. Taxes typifying this class are "value added taxes" or "sales taxes" or "income taxes" (because in order to have income you consume something, e.g. your time or raw materials). These taxes can be viewed as a drag on your consumption, just because you consume.

The Argument

For overhead taxes, we pay based on our level of wealth as we acquire it. Thus, the more wealth we have the more goods and services we require and a great deal of goods and services are provided by the state. Therefore, pay for those goods and services as our wealth increases, this is, we Pay-As-We-Go.

For consumption taxes, this is also true. The more we consume, the more goods and services are required to allow us to consume. Therefore we Pay-As-We-Go for the consumption we are having at that time. Correct?

IN OPPOSITION

No?

Although it is true that we pay for taxes when we commit a "taxable event", this does not mean that we are Paying-As-We-Go. It only means synchronicity. It only means correlation but not causation. Huh? Come again?

It is true that our taxes are correlated (for the most part) with our level of wealth and consumption when we have wealth and/or consume. As such, our taxes are synchronized (in time, of course) with our economic activities. As such, our payment of taxes can be statistically correlated with our economic activities. The more we act economically (successfully), the more taxes we pay. Correlation.

However, these tax payments do not cause the creation of wealth destined to pay for the goods and services we need and/or use. In other words, we are not paying for what we need with our taxes. We are paying taxes, all right, it's just that those taxes are not paying for what we want and/or need! Now you get it? Correlation, not causation.

Think!

We know that we pay enormous amounts of taxes. So, it is only fair to ask the question, where do those taxes go?

As with the classification of taxes, we can classify tax expenditures in two classes: overhead and consumption.

Overhead Expenditures

These are the purchases that governments make with our tax money that will be executed whether or not we get a good or service from the government. Think apparatchik salaries, apparatchik pensions, government buildings and properties, the military, and so on. Basically, everything necessary to maintain a working government which, up to this point in terms of expenditures, has not delivered anything in terms of goods or services. Basically, these are the expenditure which exist just because governments exist.

Consumption Expenditures

These purchases, on the other hand, are necessary to provide us with goods and services. For example health care, public schools, road, public transportation, and so on. These purchases are the opposite of the Overhead class since they exist only as far as governments provide us with goods or services.

The Counter-Argument

Are Overhead Expenditures Pay-As-We-Go? Most certainly not. Government size (and thus these expenditures) are correlated (again with this word) to bureaucratic and political whims. Typically, bureaucracies exhibit only one-way growth: upwards. In other words, it does not matter how many goods and services we get from the government, the size of bureaucracies always go up (for the most part - there are always exceptions). Overhead Expenditures are mostly (but not entirely) paid for by Overhead Taxes. This is so because as government sizes keep increasing, they require fixed or increasing and permanent tax collection levels. Therefore, Overhead Taxes cannot be dependent upon consumption which changes with economic conditions. Remember, with these tax expenditures we get exactly noting in terms of goods and services! You-Don't-Need-This-Overhead-Expenditure.

Are Consumption Taxes Pay-As-We-Go? Most certainly not. How come? Simple. Can you correlate the tax levels you are paying with the goods and services you want? But before you answer, please read the question again. We did not ask if you can correlate your tax levels with the goods and services you get, but with the goods and services you want. Big difference! We know that you are getting something in return for your taxes, but is this "stuff" that you are getting what you want? Allow us to make a leap of faith and answer: no! And allow us the sin of pride in this answer. How so? Because we are all different. We all want different things. And those desires are unique and subjective. It is therefore impossible for all of us to want what the government is forcefully giving us. But if this is the case (which it is) then we are not really Paying-As-We-Go but simply Paying-To-Get-Something-Back. Think of it in this manner. When you go to a supermarket to buy milk, do you buy orange juice instead? Or beer? Or granedine? Or malt? Of course not. You buy milk. However, in the case of the government you deposit your money on your way into the supermarket and the supermarket's owner decides what to give you on your way out. Thus, you may get orange juice or beer or grenadine or malt…or nothing at all! It's the supermarket's owner choice and you have no saying in it. Yes. This is the system we live in however ridiculous it may seem. This process is clearly not a Pay-As-You-Go scheme, it is Pay-And-Hope-For-Something scheme.

But we are not done yet.

Even in the remote scenario whereby you actually want everything, every good and service that the government provides, this is still not Pay-As-You-Go! How come? Keep reading.

Any Pay-As-You-Go scenario is based on two steps:

  • Step #1: you want something
  • Step #2: you buy it

However governments do not act in this manner. When governments expend taxes they do so (in the best case scenario) on forecasts and assumptions as to what you may want in the future. Then, once this good or service has been acquired, they give it to you. This is not Pay-As-You-Go.

Think of it as in this example. You live in the city. You like driving into the outskirts for vacations but the number of destinations is limited because the number of highways is limited. Then the government comes and it builds a new highway linking two far away cities. This creates a different option for your vacations, option that did not exist before, and so you take it. You take the highway and go somewhere else. You accepted government's good (a highway). Pay-As-You-Go, right? Well, no. Why is this so? Because before the government came and built the new highway, that new vacation spot was out of the question since there was no convenient way to get to it. As such, you didn't want that vacation spot. You were not interested in that vacation spot. Therefore Step #1 did not apply. And what about Step #2? It does not apply either. Why? Because you did not pay for the highway. At least not out of your pocket. A great deal of uninformed and not-consulted people paid for it. Sure, you paid a tiny amount, an amount which would have built perhaps one meter of the highway and not beyond that. The bottom line is that you did not pay for it. Step #2 did not apply. Again, this is not Pay-As-You-Go. You only chose to make use of the new highway because it was there and by being there it gave you a new choice that it did not previously exist and also because you didn't have to pay for it. Again, not Pay-As-You-Go.

THE PROCESS

What our argument against the Pay-As-You-Go theory contains at its core, is the standard process on which government operate and by which they wreck the economy. They steal money from your pocket, waste a great deal of it and then they force you to accept goods and services that you don't want at a cost that you would never pay for.

These goods and services that they force you to accept are not even real, they are goods and services that they forecast you will need in the future. Pay attention. We said "they forecast" and "need". Which is the opposite of "need now" and "want". Noticed the differences?

It is because of this process that we end up with highways to nowhere, sub-standard education, decaying hype-expensive public transportation systems, ridiculously costly health care and an overall rotting economy. Yes, everything is linked with everything else. There is no free lunch. You want government-provided goods and services, you (and everybody else) will pay for them, whether everybody else wants to pay for them or not.

CONCLUSION

Taxes are most definitively not Pay-As-You-Go schemes. They are Rob-Waste-And-Return-Crumbs scams. Yes, it is that simple. Don't overthink it. Or do. But the underlying facts won't change.

Unless you want to change them. Heck! You can believe anything you want. If you prefer to cling to the theory that taxes are Pay-As-You-Go processes, then all you have to do is to deny reality. And why not? You are already doing so. What's one more step forwards. Or backwards. Into economic oblivion.

Note: please see the Glossary if you are unfamiliar with certain words.

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