In this campaign, the Democratic Party has achieved something notable. While we were taught, in
Economics and Political Science, that one of the more unlikely events was an electorate’s
choosing higher taxes, we now have voters clamoring for higher taxes, rollbacks on tax cuts and
no more tax cuts, please! How did this happen?
Well, I don’t know how it happened, but it’s part of a return to the old illusion of one party’s being
on the side of the people while the other is on the side of the government. Democracy is good, the
story goes, but only if you vote for this party. Vote for that party and you become a traitor. By
this logic, elimination of the other primary party in a two-party system will make the whole
process so much more democratic. With only one option at the voting booth, everyone will make
the correct choice, right? Wrong.
In calmer times during non-election years, most folks are willing to concede that all politicians are
dishonest and stupid. It’s only during the campaigns that voters start to see wings and halos on
their own candidates and forked tails, horns and pitchforks on the opposition.
So, what are taxes? To label them as mere redistributions of money is to miss the point of the
definition. It would be like describing an economy only in terms of dollars spent and received,
without any reference to what those dollars amount to in terms of food, clothing and shelter, tools,
raw materials, labor, skill and experience.
So it is with taxes. Before there was currency of any kind, there was taxes. The image of a
couple of mounted warriors leading away the farmer’s plump steer is accurate. Soldiers need to
eat too.
When barter was the normal transaction, it was easy to recognize taxation for what it was and is.
The development of currency made it possible for these transfers of wealth to proceed with a
more peaceful and orderly air. Whether it’s wampum, gold dust, nuggets, jewels, coins of the
realm, paper or credit, money makes it easier to keep track of the whole process. An added plus
is that when the family of the baron comes to the market, the vendors are eager to trade.
Chickens, wheat, woven cloth or wooden doors are all available with a smile to the shopper with a
fistful of cash.
Inevitably hatches the illusion that farmers and craftsmen and vendors are dependent on their
commerce with the warrior class for prosperity. The truth is that workers are not dependent on
the rulers for the material goods of life. On the contrary, government depends on the miners,
ranchers, farmers, loggers, fishermen, truckers and factory workers for everything that they eat,
wear or own.
The working class only depends on the ruling class not to kill, imprison or impoverish them, and
yes, we depend on them to defend us from foreign powers and domestic criminals.
These days, most money is created by establishing debt. We still have coins and printed bills, but
they amount to a small portion of the total money supply, which is the sum of currency and M-1,
M-2 and M-3. The latter are sometimes referred to as “checkbook money.” Check out Money
Supply. From the chart on that site titled "Components of US money supply," it’s easy to see that
currency, that is, bills and coins, comprise a very small part of the money in circulation. Virtually
all of the rest is in various accounts on paper. Of those accounts, virtually all of it is considered to
be debt. The same money is considered to be an asset by whoever owns the debt. No coin of the
realm needs to be present to make this real, although banks do keep reserves of folding money.
If you own a bank account, you are owed that money by the bank. Anytime you want, within
limits, you can get cash from that account. That is one of the things that confers validity on
checkbook money: if it converts easily to cash, it is real money.
However, the larger confirmation of validity comes with the transfers of money from one account
to another. These days you don’t even need to write a check; a few clicks on your computer can
equal sacks of silver and paper.
The economy has grown tremendously in our lifetimes, no matter how old you or I might be. For
efficient production, shipping, marketing and consumption, a larger economy requires a larger
money supply. Since most money is created by increasing debt, one of the results of a larger
economy is a larger debt total. This is nothing to panic over.
The same applies to the so-called income disparity, or wage gap. In a bigger economy, the people
at the top will be making more money. The folks at the very bottom will be making close to
nothing, as always. All of the levels between these extremes have gaps between them that will
expand like a stretched universe as wages and income grow. This is also not a reason to panic, but
people do. More accurately, people try to make us panic.
Shrinking debt and contracting wage gaps would be signs of a severely recessive economy. The
actual recessions that we experience are usually only slowdowns in the growth of the whole thing.
Even the slowdowns can be considered as mere fluctuations in the long-term speed of growth.
A lot of the money raised by the government comes in the form of loans rather than taxes. On a
local level we see this when a bond proposal hits the ballot for expansion of the school or park
maintenance. At the Federal level, I find it interesting that about half of the national debt is
owned by the government of the United States.
We might wonder why our national governments levies any taxes if it is so easy to raise money by
selling bonds. The corporate world and the homebuyers of America do the same things. The next
chart on that site demonstrates that the national debt, currently in the $7 trillion neighborhood, is
a small fraction of all of the money owed. Again, this also represents most of the money in
circulation.
One reason that the government levies taxes is to moderate the growth of the national debt.
Higher taxes equal lower deficits. I believe that another big reason is just to demonstrate the
power of the rulers: Congress and the President. Just as the bank will give you hard currency for
a check if you ask, the government doesn’t want anyone to forget that, even though they are
borrowing money now, they can just take it if they so choose.
However, taxes have other effects. Taxes reduce the amount of funds available for investment
and consumption. Some people feel that part of the responsibility of the legislative and executive
branches of our government is to put the brakes on growth that might otherwise be too rapid. I’m
not sure which of them has the wisdom to know what the optimum rate of growth might be in this
booming world of ours. I do know that the mire of bureaucracy can bog down progress in every
phase of our lives. Food, clothing, shelter, transportation, justice and peace must all do the best
they can within the harness of waste, greed, corruption, inefficiency and foolishness that excess
taxes pay for.
I say this. Vote for whomever you want. But whoever they turn out to be, don’t ask them to raise
our taxes.
Please!