Taxation, Needs, and Wants

By James Schaefer

All discussions about taxation must begin with a single premise: there will never, ever be enough tax revenue to satisfy the political appetite.  With apologies to General Chesty Puller, “Men, we’re surrounded.  This simplifies our problem.”

America’s citizens are surrounded by taxes, and demands for additional taxes.  No matter how much citizens pay, it will never be enough, and there will always be additional services and programs government would like to offer, or will deem necessary.  Further, politicians will always come up with additional sources for tax revenue to fund those activities, the recent discussion about a VAT in the U.S. being only the latest example.

The current level of federal spending, $3.5 trillion on tax revenue of $2.1 trillion (, is clearly unsustainable, and is fully 67% above revenue.  Households doing the same thing – spending way above their income – is part of what helped create our present economic situation.  Government has set the example.

We cannot live indefinitely on deficit spending, either as families, as businesses, or as government.  We can have that as policy and still make allowances for the necessary and rare exceptions of wartime, or severe recession, or perhaps a pandemic.

This is not about hating government, or hating government employees, or hating government programs.  This is about fiscal sanity, and the need for government to show responsible stewardship of the tax resources that citizens have given up, to provide for the necessary functions of government.  It is about the need for government to live within its means, just as citizens and businesses must do.

To accomplish this, both citizens and government must differentiate between what they need, and what they want.  There will always be more great ideas – within both business and government – on what to spend money on than there is revenue to support.  Unfortunately, they are not all affordable.  Businesses have Capital review committees, and, in the process, some great ideas get left by the wayside, because they don’t pass a ROCE hurdle, or don’t have a good payback period.

Business and government have one thing in common: they both have to manage scarce resources.  And the two main scarce resources are capital, and human capital.

Government must live within its means – a balanced budget, no deficit spending –  and it must be limited in size, to 19% or 20% of GDP.  The rest is details.

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