Dan Henninger of the Wall Street Journal wrote a column in the December 16, 2010, issue entitled “What are Taxes For?” This simple question triggered a thought in my mind about the broader purposes of government.
Most people would agree that government has certain roles as a provider of security, a deliverer of basic services, a regulator, an enforcer of societal norms through criminal and civil laws and the court systems that enforce them, and a provider or a creator of certain “safety net” services, such as unemployment compensation and welfare.
There may be people on both political extremes who either believe the government has a broader role, such as redistributing wealth and equalizing income (the far left) or that government should have a much narrower role (the far right). However, most people would conceptually agree on the various roles of government, and, therefore, would agree on what purposes should trigger the collection of taxes.
What has broken down in the last few decades and called our tax system into question is the fact that government has failed to fulfill its traditional missions well. I believe there are three reasons for that, aside from the hyper-partisanship with which we are all familiar:
In most cases, the decisions that make government ineffective and cause Americans to rebel against paying taxes to enable government to get bigger or even stay the same size are made one at a time, and their cumulative impact is not understood until it reaches a critical mass. That is what happened over the last two years, and why the Obama Administration and the Democrats who supported the President were so soundly defeated in the 2010 elections. We crossed a line beyond which Americans were saying: “Whatever has been done has gone too far.” They are communicating that government has to shrink or, in the alternative, become far more effective in fulfilling its core missions. The message Americans are sending is quite simple: we are unwilling to pay more taxes when we are not getting anything sufficiently good for them.
The recent tax legislation reflects another failed premise of government today: governments do not stimulate long-term economic growth solely by lowering taxes broadly or selectively. Lowering taxes can eliminate a financial obstacle to the creation or growth of businesses that would otherwise take root. However, businesses get started or grow bigger because they offer goods and services the public wants to buy. People get employed because they have skills the marketplace needs. Simply making more money available will help businesses at the margins, but it cannot overcome an unemployment problem largely caused by the fact that many individuals have obsolete or inadequate skills. The businesses will start and grow, but getting people who are unemployed back to work will require multiple steps and take a long time. They will need new skills, and to be more flexible in their career paths, and to be passionate about lifelong learning.