Why do we levy taxes, anyway?

Amartya Sen has useful thoughts on the limitations of pristine, market based capitalism here:
http://www.nybooks.com/articles/22490

pneogy --thank you for the link. I am particularly impressed by the distinction from from which the rest of the article flows --markets are clearly necessary, but not sufficient.

I don't think that it's necessarily bad that we tax to influence behavior, except that it tends to make the tax code extremely complex.

@tc125231: Yes. And I also noted his point about markets not being very effective at delivering health care or education.

The August 3, 2009 Chicago Tribune contained an editorial titled, “Clunker frenzy,” in which the editors said, “Cash for clunkers has been . . . burning through the $1 billion in taxpayers' money.” The editorial bemoans the size of the federal deficit, tells us deficit spending uses our money, and warns deficits will cause inflation.

Although similar editorials can be found in virtually every newspaper in America, they all suffer from a serious defect: They are factually incorrect on three counts:

1. Deficit spending does not use “taxpayers' money.” Taxpayers' money is money paid in taxes. Any spending that uses tax money is, by definition, not deficit spending, which uses borrowed money. Lest you believe this merely is quibbling, consider #2.

2. There is no historical relationship between tax rates and federal deficits or federal borrowing. Tax rates have not gone up in response to high deficits, nor have they gone down in response to low deficits. Instead, tax rates seem more related to whether liberals or conservatives are in power. During our periods of greatest deficits, tax rates have tended to fall. Deficits will not be paid for by your children and grandchildren.

3. Contrary to popular wisdom, there also is scant historical relationship between deficits and inflation. In the past 50 years, our highest periods of inflation came during the Carter era of modest deficits. The Reagan era of massive deficits saw inflation decline. Inflation actually is more closely associated with energy prices than with any other factor. If supply and demand make the price of oil go up, we may have inflation. But if the oil price goes down, we probably won't.

Because the media, the experts and the politicians all talk about spending taxpayers' money, and how deficit spending causes inflation, we have been programmed to believe it must be true. Except, the facts speak otherwise. You never will see the media, provide any factual basis for their claims. Ask yourself why.

Rodger Malcolm Mitchell
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http://www.rodgermitchell.com