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4/11/05

Is Tax Money Your Money?


 

By Carolyn Kay

During the first week of my first economics class,  the teacher said the money supply includes money deposited in banks.  I raised my hand and said, “But everyone I know has very little money left in the bank after paying bills at the first of the month.”  My teacher patiently explained that the money that leaves individuals’ bank accounts to pay their bills, goes into the bank accounts of those they pay.

I felt pretty stupid, but asking the question and getting that answer taught me a lesson that has stayed with me—I can’t consider just one side of any transaction when thinking about economic issues.  I have to look beyond the obvious and the personal to see what really happens.

Which brings us to the subject of paying taxes.

When George Bush was touting his various tax cuts, he used the mantra, “Tax money is your money.”  But is it, really?  Let’s imagine what would happen if Bush were able to do away with the income tax completely—tomorrow.

Would salaried workers and wage earners continue to receive the amount shown as their gross pay on their pay stub?  Probably not.  Why would employers pay more than the amount employees currently live on, their net pay?  Most likely, companies would give their employees an immediate cut in pay—to an amount equal to their former gross pay less what they would have paid in income tax.  Consultants who work for fees would be pressured by their clients to reduce those fees, since the consultants would no longer have to pay income taxes.

Because of these windfall savings, companies would come under pressure to reduce the prices of their products and services.  A general round of deflation would ensue, along with a severe recession as millions of government workers were let go from their jobs.

The only people who would benefit substantially and permanently from an immediate end to the income tax would be those who receive a large portion of their income from passive investments—stocks and bonds, rather than wages or consulting fees.  These people would benefit in two ways—from a direct reduction in their taxes and from lower prices of products and private services.  If you’re thinking that these are the same people who benefit the most from almost every other Bush administration policy, you’re right.

The rest of us, the other 99%, would also benefit from lower prices, but we would be completely without government services.  If we decided that we needed any of those services, we would have to figure out a way to reinstate them, and pay for them, negating any benefit from the lower prices.

The right-wing elites and their many “think-tank” employees would have us all believe that we must winnow down government to provide only for our common defense.  They insist that it is  the only proper and legitimate role of government.  But they are ignoring other possible reasons for establishing a government, even those stated right in the Preamble to the U.S. Constitution:

Establish justice,
Insure domestic tranquility,
Provide for the common defense,
Promote the general welfare, and
Secure the blessings of liberty to ourselves and our posterity

Does that sound as though the only role the founders envisioned for government is defending us from foreign enemies?  Of course not.  In fact, the phrase, “promote the general welfare” sounds to me as though government can be whatever we want it to be.  We can decide which problems are better solved by a common effort than by individual efforts.  And we can decide that our common efforts are best managed by having our government handle them for us.  And that costs money.

When we don’t like what the government is doing, we can change it.  But we’ll never change it by pretending that we can do away with it altogether.  It may feel good momentarily to pretend we can do without government, but after that moment we need to get back to the real world, roll up our sleeves, and return to the responsibilities of citizenship.  We can make our government responsible to us, the people, if that is what we really want.

No one likes to pay taxes, but let’s be honest with ourselves when we think about what paying them really means.

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