The Cost of Government is What It Spends, Not What It Taxes

The cost of government is the quantity it spends, not the quantity it taxes; that cost representing the financial burden imposed upon those who pay the taxes and all who transact within that economy or through its common currency. Likewise, governments can either take the people’s money through taxation or they can take the people’s purchasing power through money-printing (or the like).

Therefore, the argument against tax cuts requires further context to appreciate why tax cuts have failed and will continue to fail to deliver economic growth, especially where those tax cuts promote or serve excess indulgence and cheap speculation. In short, it’s not that tax cuts are inherently destructive, or that reducing the tax liability of the wealthiest in society “doesn’t work”; rather, the fact is that the public debt is so high that the country simply cannot afford those tax cuts without defaulting on its debts or — which is the same — covering them through inflation (i.e. money-printing, or the like).

It’s not that tax cuts are inherently destructive to economic growth, but that the deficits run higher by profligate government spending, the protracted low interest rate policy, and the onerous obstacles to real business investment have coalesced to favor stock buybacks and stock market speculation, which disproportionately advantages the wealthy without the kind of capital formation which otherwise benefits the lower classes; combined with an inflationary monetary policy undermining the real incomes and paltry savings of the lower classes, imposing artificial risks upon laymen ill-equipped to manage them and ill-suited for activities as unnatural and unintuitive as stock market speculation, these are some of the primary drivers of decadence and economic inequality. Note that this is not a symptom of capitalism but the consequences of a controlled economy.

Free enterprise, on the other hand, actually offers the greater benefit to the laborer, whereby capital formation increases both his absolute and proportional share of the total production. The reverse of this happens where capital is decreased, where capital is syphoned from business investment toward ends unaccountable to the payers.

The truth is that it is only through savings and scaled production, accomplished through economic efficiencies and labor-saving devices, and thereby the business investment of those managing a surplus of wealth, that capital increases and new enterprises are possible; a process specifically promoted by reducing the tax burden on those who invest in capital formation. Contrary to the socialist myths, insofar as the capitalist increases his absolute share of the total production, the absolute and proportional share of the total production going to the laborer will also increase. It turns out that the socialist is so confused that he has it entirely backwards. Indeed, it is the capitalist, not the laborer, who stands to benefit least in proportion to the increase in total production; ironically, it is in the opposite case, where capital is decreased, that the laborer stands to suffer most.

It was the French economist Frédéric Bastiat who so neatly summarized this phenomenon: “In proportion as capital is accumulated, the absolute shares of the total production going to the capitalist increases, and the proportional share going to the capitalist decreases; both the absolute and proportional share of the total production going to the laborer increases. The reverse of this happens when capital is decreased.”

This matter involves a multitude of issues, and it is essential to account for the complete context and overall conditions in the market before rushing to judgment.

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