Tax Policy

An interesting article in the NY Times today got me thinking more about US tax policy and theory. The article casts the new health care bill in terms of economic inequality and argues that it is a corrective force against the rising income inequality since the 1970s. Opponents of taxation argue that government should take as little money from its citizens as possible, and that it is a matter of freedom to be able to spend one's money as one chooses. For me, the questions that arise from this position are: How much money does the government need and how free should people be to spend their money as they wish to?
How much money the government needs depends on what the government is expected to do. Everyone basically agrees that government should provide military protection and domestic services like police and fire departments, and there is a large consensus on issues like public education, transportation infrastructure, and social safety nets for the poor, elderly, and disabled. To put it another way, the government is the best source of collective security. This security applies at least formally to all races and genders equally (though unfortunately not all sexual orientations) and covers areas like risks from attack, fire, flooding, starvation, robbery, financial hardship, and now medical disasters. Yet another way to think about these areas are protecting rights of citizens to freedom of action, belief, speech, religion, education, health, and opportunity. Really only in health care do we fall behind most other advanced nation. We in the US seem to think that it is the uninsured person's fault if they get sick without insurance, when more likely their situation getting coverage was irrational or impossible. The government needs enough money to protect these basic rights. The idea that government should be smaller is probably correct, but it's hard to disagree with the need for government to provide these goods and protections for its citizens.
The issue of a right to spend the money one earns is trickier than it sounds. First, the money we earn is predicated upon a system that we have accepted (through continuing to live here) and profited from. We are protected by US laws, given the services mentioned above, and profit from the opportunities that our citizenship entails. In addition to our debt to the government for these services, we are all living in a world that is socially, historically, and culturally biased. We know that heterosexual white males have a much easier time making money and achieving positions of power in this country than any other race or gender. While it is easy and comfortable to assume that what we earn is what we have a right to, it may not be the case where we have been unjustly privileged. Do the super-rich deserve all their after-tax income? What if they benefited from discrimination and a system that gives them a better chance for success than others? Then they have a moral claim (a right) to only a portion of their actual income. This is in fact the state of affairs in this country. There will always be structural inequality, so there must always be some level of redistribution to counteract it. This is where additional taxation and governmental policies must enter in again. No other organization has the ability or legitimate claim to correct these structural problems.
The government may not be anyone's favorite institution, but it is necessary for protecting people's rights and correcting for structural inequality and discrimination. Taxation isn't popular, but it is morally justified.

Government or Markets?

     Tea partiers would have us believe that anything that the government touches becomes inefficient and wasteful, and that they’re not operating on unsubstantiated assumptions. Many economists have written about public choice theory, which essentially points out that any time that you create a structure that gives people power you create interests that will work for their own profit. Politicians are seen as profiteers who look out for their own interests (by pleasing lobbyists who get them re-elected) and the interests of local constituents (to the detriment of the ‘public good’ eg. pork). These economists, and subsequently the tea party, advocate letting people make individual choices in their self-interest and allow the free market to balance the aggregate interests for the greatest overall benefit. They have the rhetorical advantage of both advocating individual liberty and the collective good.
    There are problems with this explanation of economic and political reality, however. First, individuals acting in their own self-interest frequently do not aggregate into the socially optimal outcomes. This failure is due to a number of characteristics of free markets: They quantify demand through price, thus shifting decision-making power to the rich. They operate on expectations of supply and demand rather than reality and are therefore vulnerable to mass optimism or pessimism (bubbles). They remove accountability of producers and consumers by stripping products of their context through the price mechanism (Where and how were your food and clothes made?).
    Second, markets allocate efficiently most of the time, but it is not clear whether efficiency should be the end goal of allocation. I don’t believe that we really want a completely efficient allocation of healthcare, because by definition it would leave ‘inefficient’ people like the old and terminally ill without care. If we do not really want complete efficiency, but rather want a principle of justice and equality to guide resources like healthcare, then we need to direct markets and create incentives to promote those principles. This is where the government comes in.
    Government is the only option we have to regulate industries as big and complex as health and finance (and sectors as important as education). Additionally, individuals in this country have direct influence over and checks and balances on government power, while they have none over markets (because we as individuals can’t interfere with others’ private property). I agree that government is not the most efficient option to allocate resources. However, in addition to efficiency being a poor moral compass free markets have inherent tendencies that are antagonistic of social goods. So let’s see how we can improve government, not get rid of it.