Tag Archives: Taxes

The Economics of Taking and Giving

I often hear, when talking to people about government debt and deficits, that social programs are vital to our society and provide great benefits.  This always gives me pause as I try to break this down in my mind of how exactly government social programs benefit society and what are the costs and benefits.  First, and the most easily recognizable benefit, is that some people receive assistance – food subsidies, healthcare subsidies, housing subsidies, and direct money transfers.  It is good that people who need help can get help, but then I start to brood over how exactly this is accomplished and if they are truly beneficial.

The government can only give what it first must take.  This is the side of social programs people rarely examine in any great detail because the surface level observation is that people are getting help and this makes people feel good.  If the government is to deliver one dollar of assistance, it must first extract that dollar out of the economy.  So how does the government extract money out of the economy and what effects does this have?

Most often, people assume that a dollar can be taken from one person and given to another with a costless mechanism.  That is, there are no costs associated with the gathering, accounting, and delivery of the dollar to be transferred.  According to James R. Edwards, in his essay “The Costs of Public Income Redistribution and Private Charity”…

…public income redistribution agencies are estimated to absorb about two-thirds of each dollar budgeted to them in overhead costs, and in some cases as much as three-quarters of each dollar. Using government data, Robert L. Woodson (1989, p. 63) calculated that, on average, 70 cents of each dollar budgeted for government assistance goes not to the poor, but to the members of the welfare bureaucracy and others serving the poor. Michael Tanner (1996, p. 136 n. 18) cites regional studies supporting this 70/30 split. Read the rest of this entry »

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Posted by on January 14, 2012 in Uncategorized


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Consumption, Production, Capital, and Wealth Redistribution

This article developed during a discussion with Rainbow Camouflage and his post.  It was his post and the ensuing discussion that spurred my research and inspired the below post. I hope it is cogent and that my many references are integrated in an understandable fashion considering this post was by no means a linear creation.  Thank you.

I recently read an article titled “Raise Taxes on Rich to Reward True Job Creators”, by Nick Hanauer.  In his piece he makes the argument that rich people do not create jobs but it is the middle class that creates jobs.  What he is claiming is that the demand the middle class has for consumer goods is what creates jobs and that the top 1% of income earners should pay more in taxes in order to help the middle class spend more on pants, shirts, shoes, TVs, and all manner of disposable consumer goods.  While I agree that in a free market the consumer is boss I think it is short-sighted to focus only on the middle class consumers when in it comes to the overall economy.  If you want jobs and the middle class to have more disposable income, the only long-term solution is to grow the economy. 

I think the author has missed a key ingredient that has got our economy to where it is today – Capital accumulation.  There is no doubt that in a free market economy, the consumer is boss. That is a great thing and something we should all be protecting.  That is also what is plainly obvious.  There’s more to the story. Read the rest of this entry »

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Posted by on December 20, 2011 in Uncategorized


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At the age of 16, I worked at a cabinet factory over the summer delivering counter tops, cleaning up around the shop, installing hardware, and performing whatever odd job that happened to arise.  After two weeks of working 40 hours each week, I received my pay and pay stub.  I saw that a fairly large portion had been taken in taxes.  I accepted this because I did not know any better.  It was the income tax and everybody paid it. 

What I did not know at that time was this:  For two weeks I had been advancing my labor and incurring a credit for work performed.  So what does this mean?  This means that the cabinet factory had incurred a debt and I a credit.  The debt was the wage promised by the cabinet factory and the credit was the money owed at the end of the agreed upon pay period.  How was such an arrangement agreed to?  The cabinet factory proposed a wage and a pay period and I, having the choice to accept, deny, or renegotiate, chose to agree to their terms. 

So I pose this question to you:  Does the government have the authority to step between two private parties who have a private agreement and confiscate a portion of a debt owed?  Was the money handed to me by the cabinet factory really “income” and had I earned a profit?  Or had I just broke even?  Both the cabinet factory and I agreed to the terms, so both of us must have benefited from the transaction.  But, can this be considered profit or even income?  Read the rest of this entry »

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Posted by on November 29, 2011 in Uncategorized


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