Tuesday, July 27, 2010

Rethinking taxes

We need to change the way we talk about taxes at a fundamental level. We should stop thinking of taxes as money that goes to the government. Sure, that pretty much is the definition of tax. Only government can levy taxes, and enforce collection. But the point of the money isn't where it goes. The point is who has it and who doesn't. Right now we simply think of money we don't have because we have to fork it over to the government. For most of us, we don't even fork it over, it gets taken out of our paycheck, and we file paperwork to get some of it back.

However, there are lots of things we have to fork over money for: Health insurance, gas and electric bills, phone bills, gas for the car, a mortgage to name a few. You might argue that you are getting something for that money, and you'd be right, of course. But imagine if you could get the same thing for less money. In purely hypothetical terms, in other words I have done no actuarial research, imagine that the government levied a $0.50 tax per gallon of gas. This is clearly a tax hike. But what if, as a result, people drove less, or bought more fuel efficient vehicles and the lower demand dropped the price of a gallon of gas by the same $0.50

You break even. The government has extra revenue to build a wider highway or spend on research on alternative fuels, or other activities that could end up driving costs down further. Otherwise that $0.50 might end up in BP's CEO's pocket or Saudi Arabia. The point is it's coming out of your pocket anyway. I'd rather our government have it than BP or Saudi Arabia- at least there is a chance it'll do you some good.

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