Taxation is nothing more than a redistribution of wealth from some members of society to others. In exchange, taxpayers should expect services to society from the recipients of taxes, unless the recipients are unable to provide services due to significant disabilities. Taxes are very effective in providing for the social basics in society, public goods/services such as defence, law enforcement, fire services, hospitals, schools etc., that individuals are not independently motivated to or capable of providing in a way that benefits society broadly enough.
Productive members of society generally accept a base level of taxes to provide such services, and these base tax levels can often result in higher levels of utility across all individuals, even those that pay taxes. This is because the PTC associated with paying some base level of tax can be much smaller than the PTB associated with the existence of important programs they fund, even if these are not always directly used by the individual taxpayer.
Taxes take current and/or future wealth directly from some individuals and provide it to others. Excessive taxes are one of the most direct forms of decoupling PTB and PTC and as such are one of the most destructive economic tools when they get out of control. Recipients of tax funds, including the government intermediary itself, continuously receive personal total benefit in excess of personal total costs. For example, it is not a coincidence that study after study shows that public sector pensions and benefits exceed those of the private sector.
Give & Take Economics Theory provides clarity regarding the flaw inherent in tax systems that are fully ‘progressive’, taking a percentage of each dollar earned. A non-coercive tax regime would identify what costs are suggested and then reach out to obtain those funds from the public by way of a vote, effectively coupling PTB and PTC. Tax regimes that take a share of each and every incremental dollar earned, without limit, are driven by government intermediary power rather than by societal needs, providing the opportunity to the government that its PTB can consistently exceed its PTC. The figure below illustrates how ‘progressive’ and flat tax regimes compare from the perspective of the taxpayer.
Critics of the approach of taxing for specific approved spending will often point to the ‘challenges’ of tracking such a system, however, they ironically do not see the challenges of tracking the collection and spending of taxes today. Raising a specific tax dollar to fund a specific usage and tracking that spend are fundamental elements of measuring the level and effectiveness of taxes.
The tax systems of many nations in the West reflect the intermediary power of governments and of the powerful lobbies that guide the government mandate. Within this context intermediary power is typically used to extract gains for government and lobbies – an example of organizational free-riding. The general public knows these as ‘Pork Barrell’ funds and ‘earmarks’.
To demonstrate free-riding within the Give and Take Economics model, we consider a very simple and hopefully not controversial example at the individual level – that of litterers. Individuals should reasonably know there may be costs to taxpayers to clean up their garbage and that a very simple solution is for them to not litter in the first place. However, these individuals value leisure and absence of responsibility to the degree that they don’t even want to take the minimal amount of effort required to discard of the trash. They don’t attach any PTB to playing their part in society.
Public goods and the associated free rider problem are in many respects a direct outgrowth of testing behaviour and a decoupling of PTB and PTC. Some individuals are conditioned with an entitlement mentality, perceiving that no PTB should exist without PTC. However, many individuals conceptually understand the notion that a lack of accountability to society in pursuit of only their own direct personal total benefit will produce less effective public goods, and also realize that if everyone took greater action for the good of society that society would in fact be better off. Even so, these individuals hope with reasonable probability that others in society will ‘pick up the slack’. In practice they test the conviction of others in society.
As a result, in any population there are a set of individuals that generally pick up the slack by making major contributions (those that attach higher PTB/PTC to the action), a group that ‘puts in’ and ‘gets out’ moderate amounts, and a final group that free rides (those that attach the lowest PTB/PTC to the action), contributing minimal effort and obtaining full value obtained from public goods.
Give and Take Decision Theory shows us that societal results are maximized when this type of decoupling is minimized, when there is no extensive accommodation of serial free riders. An individual’s decision on whether or not to litter serves as an illustrative example. Attaching a fine to littering would help, but it would certainly be cost prohibitive to rely upon professional police forces to enforce it. In contrast, if fellow citizens socially scorned such actions it would soon be effectively policed by the public at large, which is really a small example of direct participatory governing in action. Penalties and fines will be discussed further in the next section.