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by Carolyn Bickford

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The Taxing Equilibrium

Posted on June 22, 2010 by cjbickford

Like most citizens, I don’t like paying taxes, and as a sole proprietor, I’m acutely aware of what I pay in income tax, because I have to pay it directly in big chunks (rather than having it taken out of my paycheck bit by bit.) But a weekend helping out a friend in the rugged wilderness (and that, a wilderness not too distant from a paved road and only 18 miles away from a real town) also left me appreciating public services.

I found myself in a place where the nearest neighbors were 1/2 mile away, but rarely at home, since they were working on their ranches; where all roads had been cut, graded, and gravelled by the few residents there; where water had to be drawn up from the land with a pump, and pipes laid and dug in by each homeowner; and electricity had only recently (as in about 15 years ago) become available, albeit not uniformly. The return on this is a measure of freedom we city people don’t know: keep all the animals you want without running afoul of zoning laws; build your own shooting range in your vast backyard, and bag some wild deer for dinner when you feel like it. No homeowners’ association biddy will take you to court for failing to keep and properly maintain a stick lamp, or putting up an extra shed. I had an illicit thrill just riding in the back of a truck without my seat belt on, a crime which would have cost me $20 in San Jose. In fact, no one in the truck was wearing a seat belt, and they would have thought it odd for me to do so. Take that, nanny state laws! I’m a rebel!

But I also learned the value of public services, especially since my friend is a widow who can’t do all the work wilderness life demands herself. For instance, when her water system failed, she couldn’t call the local water company and have them send in a repairman; it took a helpful neighbor to drive over (on Christmas day, no less) and dig up and replace a pipe that had burst. If she wants the mesquite cleared, she can’t hire a day laborer for few days; she’ll have to depend on a friend with a backhoe and a shovel. It’s tough to get the gravel relaid, and few who will do it on property so far from anything else at a fathomable price. All I did was apply waterproofing to her deck, which is about the wussiest task there could be out there. Like me, my friend has city skills, and I suspect we’d both be happy watching a movie together rather than chasing coyotes away from goats.

In short, she lives a ratherĀ  libertarian life, which is the natural state of things. But at a certain population density, taxes do improve your life. For instance, let’s say we have a rural area with 100 successful farmers earning on average $50K a year each from their crops and cattle. There are no services now, but they could pitch in about 10% of their income and collectively have $500K for a teacher, a judge, paved roads, and some stop signs. As they continue, a wisely vested fund can buy more municipal utilities, and better yet, the existence of such services will bring in more working people, each of which add their 10% to the fund. Soon enough, you have a school, a mayor, a council, a police force, firemen, and pensions for the state workers so they have reason to stay in your far-away area. This is all good; it adds to the standard of living; and the collective cost is far more efficient than having it done individually. But it goes awry all too easily.

For one thing, the citizens, now enjoying the basics, see they’re rich enough to expand beyond these basics. It’s painful to see the aged and injured citizens barely scraping by, so let’s be humane and pitch in to make their lives easier. There aren’t enough parks, playgrounds, libraries and community centers, so we can build them, and these, too, are all well and good and will make for a better life. And as the amount of services go up, all need to pay in more and more, bit by bit, which is fine when things are going well, and especially when the public services set off costs the individuals would have to bear themselves otherwise. But when matters have a downturn and that tax rate, perhaps now 25% or 40% or 60% means some of the farmers may lose their land, because they don’t have enough money left to make it on their own, it’s hard to remove all the services you’ve put in place. Digging up the playground could cost just as much as it costs to maintain it, so what do you do, short of abandoning it to the weeds? Do you suddenly stop all disability payments to the poor girl who’s been bravely persevering despite a childhood accident that left her quadriplegic?

And then, there’s the aspect of corruption and human nature. Once you help your own weak and neediest citizens, it’s awfully tempting for those who are suffering and would have nothing in their own town to move over to yours, where they’d be entitled to more. And those who have the power to disburse the tax money may find their own interests worth funding as well, especially when the coffer is full, or you’d only have to raise taxes by a teeny tiny bit (like .25%) to get everything you want.

When this happens, pretty soon you find that those who were paying more taxes than they feel they should for their own community, and for the public services they’d otherwise pay for individually, start shirking one way or another. Some income is undeclared, or the worker moves to another new community where he can still work, receive less in the way of services and be responsible for more of it himself, and pay less in taxes. In history, this has happened before, and it continues to happen now. But there is a balance that can be struck, short of homesteading, albeit it’s one that has to be determined and chosen by a majority of the citizens and by those with control over the funds.

Hauser’s Law noticed that no matter what the tax rates are, federal tax receipts always average out to about 19.5% of GDP. At it’s simplest, when taxes get considerably higher, people evade taxes, to the point of not working or leaving; when they’re lower, more people start earning money. Now, on top of that federal tax rate, you also have to think of state taxes, sales taxes, estate taxes, and more, but it gives you an idea that there is an equilibrium at which you can get the most in the way of public services, and not resort to a simple do-it-yourself livlihood. I wish we could find that percentage, not just for federal taxes, but for other taxes as well. And from there, we could prudently calculate how much we, collectively, can provide in public services, rather than always growing in good times. As it is, my own state is in danger of insolvency because the taxes are too high, as evidence by the people fleeing the state. And while I don’t want to be laying my own water pipes, and rationing the propane tank I need to keep myself warm in winter, I, too, could find myself doing it if the cost of public services becomes too high enough.

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