Whose Money is It?

Paul Ryan, supposed "intellectual" leader of the right in congress, on Dec 16 repeated the often heard conservative line that "it's their money", that taxes are in effect confiscation of what private individuals have earned on their own. The implication is that all taxes are a kind of theft, morally offensive, and should be eliminated as much as possible.

Representative Ryan's intellectual prowess apparently doesn't extend to reading what it says on the dollar bill, which is "The United States of America," and not the name of any private individual or private individual's bank. The dollar bill is worth something because the US government has passed a law that it must be accepted as payment for goods and services, and because the US government is trusted to enforce the law. Pointing to what is written on the money is not just being cute, but goes to the heart of the matter. Money is a social product, and not a private good.

Money is only as good as the government. The advocates of minimal government are free to move to Mogadishu, Somalia, where it is reported that there is effectively no government, and there they can enjoy the paradise of walking down the street and dodging bullets from warring gangs and militias at any time of day or night. Or they can go to Zimbabwe, where the inflation rate reached nearly 100% per day, and people switched to using foreign currency.

Money being good depends the whole banking system, which in this country has evolved in a series of reforms in response to a series of financial crises over several hundred years. And this is by no means the only necessary intervention of government for a thriving economy. Adam Smith, patron saint of free market advocates, in fact in his great The Wealth of Nations cites a long list of proper functions of government action to make the economy thrive. He said that among the requirements of a good government are (quoting from the Wikipedia summary):

“To enforce contracts and provide justice system, grant patents and copy rights, provide public goods such as infrastructure, provide national defense and regulate banking. It was the role of the government to provide goods ‘of such a nature that the profit could never repay the expense to any individual’ such as roads, bridges, canals, and harbors. He also encouraged invention and new ideas through his patent enforcement and support of infant industry monopolies. He supported public education and religious institutions as providing general benefit to the society.”

Further, Smith supported the obligation of citizens to contribute to the state in proportion to their wealth, and in fact even more. That is he supported progressive taxation:

“The subjects of every state ought to contribute towards the support of the government, … in proportion to the revenue which they respectively enjoy under the protection of the state. … The rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion. …Every tax, however, is, to the person who pays it, a badge, not of slavery, but of liberty.”

In other words, Smith supported the idea, which Vice President Biden expressed in the 2008 campaign, that the rich paying generous taxes is a patriotic act.

The reality is that the slogan that “it’s your money” has no intellectual foundation. The ability of individual to earn a lot of money depends on effective government. And taxes are necessary to support that effective government, in a capitalist society. Thus a portion of what a person earns is not his or hers but rightly belongs to the government. What government should be involved in to help the economy is a legitimate debate. But the idea that taxes are confiscating what is rightly “yours” is sheer demagoguery. Furthermore it is unpatriotic, because encourages people to press for unwise tax cuts, and even not to pay their taxes.