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Funding Government Without Theft “the power
to tax involves the power to destroy”,
It is not so surprising then that, while most people believe in a “Right to Life” (we don’t want the government to kill us if we haven’t murdered another innocent) and most people think the concept of “Right to Property” sounds pretty nice (we’d like to keep some of our stuff), they hold back on signing up to a real belief in our “Right to Property”. Why? Because if we really have a “Right to Property” (not a privilege granted by government or a permission but a real “right”), then our property cannot be taken from us without our permission, the government cannot impose taxes, and therefore it is assumed that the government cannot finance itself. And that is the rub: people see that one consequence of the “Right to Property” might be that we wouldn’t be able to fund government (even core services like police, the courts, and the armed forces). Since this is unacceptable (and most people see this consequence coming), they water down any assertion of a “Right to Property” before the consequence is logically concluded. Unfortunately, you can’t logically “water down” our right to property and still have it. You either have it or you don’t. And, if you don’t have a right to property, you don’t have a right to life [try sustaining your life without being able to own food or the means to grow food1]. You end up with a “sometimes” permission to keep or use property and, consequently, a “sometimes” permission to live … until the state changes its mind … then you die. It is pretty inconvenient when that happens. The apparent choice of either rejecting our right to property (and consequently our right to life) or accepting a government dependent on alms is a false choice. Governments can generate substantial revenues while still strictly recognizing and protecting our right to property. Before outlining how these substantial revenues can be generated, I want you to reflect on what a fantastic breakthrough this would be. What if you could have a government reasonably funded to perform its needed functions while knowing that you could retain 100% of what you create … by right [No income taxes, no property taxes, no sales taxes, no excise taxes, …]. Your property is yours and nobody can take it from you. You can grow your standard of living, enhance your security, and accumulate assets for your retirement, your children, and your grandchildren. You can accumulate capital that improves productivity, develop new products and technologies, create jobs, … and generate a continuing stream of income2. You can even provide charitable contributions to help those that have met with misfortune. With essentially 100% of our GDP being re-invested in the economy each year (instead of ~ 65% now), the growth in our standard of living would far outpace its current growth rate. With the current definition of poverty held fixed, the number of people below the poverty line would rapidly diminish. Of course there will always be the poorest 10%, but that poorest 10% will rapidly become rich by today’s standards. The very few who have terrible misfortune and who really need a helping hand, can be substantially supported by charity from the rapidly growing wealth of the broader community. If government programs are needed, they can be substantially smaller (as a percentage of GDP) than today’s programs. Ok, so how can this be possible? How can the government generate the needed revenue without engaging in the theft of our property? There are three main mechanisms – two we use now and one (the largest) that is not currently being used. All share a key characteristic: the revenue is generated based on a voluntary exchange for services (i.e., it is not extracted by force). First, let’s briefly note the two we’re using now. These are: *
Government run lotteries (or equivalent gambling services
offered by the government *
Fees for services rendered (paid voluntarily by While these will provide some needed revenue, a fair assessment will note several limitations. First, if the government fully recognizes our rights it must recognize our “right to contract” and thus has no choice but to recognize the right to gamble (including corporations specializing in offering gambling to their constituents). Thus, government will not be able to sustain a monopoly on gambling-related services and its revenue might suffer when faced with free-market competition. Similarly, with some key exceptions to be noted below, most services that the government might charge a fee for will also be subject to free-market competition. Fees from these services may, therefore, also be modest. But note: if the services are taken over by the free-market, the government’s costs for providing these services are also eliminated. If not, the fees collected cover the service costs. Either way the government breaks even. So far this doesn’t look very promising, but it is about to get better. One of the major expenses of government is the development and maintenance of roads and bridges. While a few highways or bridges could conceivably be privately owned and operated (in fact there are a few today), running the vast majority of these is the natural providence of government, and these cost a lot! A fee for use of these assets is clearly justified to cover costs. While fees could be extracted by tollbooths on every back street or monitored electronically with smart cards and billed to the user, we already have an acceptable way … tolls on unique, high-cost assets (e.g., major bridges and tunnels) plus a surcharge on fuel for use of the broader road/highway infrastructure. This is one tax that is really just a usage fee in disguise. If smart card technology someday becomes ubiquitous, the usage fee attached to fuel purchases could be eliminated. In the meantime, it is a convenient way to collect the revenues needed to support our roads, bridges, and tunnels. Well that is a start, but we haven’t addressed critical services that cannot be paid for via fees: public safety, the courts, or national defense … and maybe even a few other services we might disagree about. So let’s discuss the “magic bullet” that saves the day for government funding and which preserves our right to property. What other natural monopoly does the government have that people will pay for voluntarily and that may be big enough to solve our revenue shortfall? The answer is simple … it’s a service that, currently, the government substantially gives away. It is the protection of and the guaranteeing of contracts. We all engage in contractual activity every day. When we write a check we enter into a contract. When we use a charge card we make a contractual commitment. Sign up for a life insurance policy? Mortgage your house? Enter a lease? Yep, these are all contracts. Buy a car? Buy a TV? Even if you pay cash for these, there is a warrantee … that’s a contract. Have your house painted? Get a job with agreed salary and benefits? Stock options? Medical insurance? Have your lawn fertilized? All involve contracts! But that is just you and I. When it comes to contracts, we’re pikers when compared to corporations. When GM contracts with a major steel manufacturer for rolled steel for the next 5 years we’re talking Big Bucks! Think of all the contracts between all US companies and their US suppliers and all international contracts involving US companies? The total value is enormous. So what does this have to do with government revenue? Well, right now the government guarantees these contracts for free. If one party defaults on a contract (whether it is you or I on a $10 check or on a $25 charge card transaction, or it is GM on a $10 billion steel contract), the government provides the courts and police to stand behind these contractual commitments. It guarantees that the parties to the contract honor the contract’s terms. It is precisely because the government guarantees enforcement of these contracts that over 99% of contracts are never violated. Since the government retains a monopoly on the use of force in society, it is uniquely suited to this job … it has a natural monopoly in providing this service that a private entity cannot possibly duplicate. How can a private company provide such a service if it can’t use force to extract payments or incarcerate those who commit fraud? So how would this work? It is simple. The government would charge a percentage fee on the value of a contract for the service of guaranteeing the legal enforcement of the contract. The fee would be voluntary (it is not a tax), but if you entered a contract and you chose not to pay the fee (perfectly legal), you would have no recourse if either party violated the terms of the agreement. If the fee were not paid, the courts would be blind to the contract. What percentage makes sense? Probably ¼% to ½% of the value of the contract would suffice. Almost 100% of contracts would voluntarily generate this fee if the fee were kept this low. For large corporate contracts, the fee would be computed and paid at the time the contract is signed. For routine, “guaranteed” transactions (e.g., guaranteed checks), the fee would be automatically deducted by the bank. Credit cards would operate similarly with the credit card company charging the fee when you executed a “guaranteed” transaction. How much revenue would this generate? Federal Reserve estimates of US bank debits (Commercial Bank demand deposits and checks … an approximation to annual net contract values) totaled $410 trillion in 1996 and are estimated to be near $600 trillion currently … approximately 55 times our current $11 trillion Gross Domestic Product (GDP). Assuming 50%-80% choosing
to purchase the contract protection, this mechanism alone
would raise $1.0 to $2.0 Trillion annually; without
theft, coercion, accountants, payroll deductions, IRS
forms, or IRS agents. Add the aforementioned tolls and
fuel surcharges to cover roads/highways/bridges, fees on
services, and any lottery receipts to this trillion
dollar revenue source, and you have more than enough to
pay for needed government services. Social
engineers might want to think about how progressive such
a revenue-generating mechanism might be [i.e., does it
soak the rich sufficiently?]. Well, they will be very
pleased to note that it would, in fact, be very
progressive. The poor tend to engage in both fewer and
much smaller contracts than those who have greater
incomes and/or greater wealth3. The wealthy (and
especially the larger corporations) routinely enter into
very large contracts and would pay an overwhelming
majority of the resulting fees (remember, nobody pays
taxes). But that is the way it should be. The wealthy and
the larger corporations have a greater direct stake in
the guaranteeing of contracts and in the protection of
their property rights (both by the police and the
military) … they have more at stake and therefore
they should pay more. It is both a rational and a just
system. Finally, we have several big bonuses
resulting from this approach to funding our government:
no economic distortions caused by the tax code, fewer
unproductive CPAs and lawyers, greater privacy,
substantially faster growth of both our overall economy
and our standard of living, AND we can consistently claim
and defend our rights as human beings. Freedom is so
sweet! Now we just need to claim it. (Footnotes) Send your questions
comments to ValleyPatriot@aol.com |
When
people reflect on political assertions and arguments they
do so in the context of core beliefs and values that they
have long ago established as sacrosanct. They rarely
embrace thoughts or arguments (regardless of how
compelling they may be) if they can see that the current
argument, when logically extended, can undercut or
invalidate their core beliefs or values.