Unlike earned income by individuals, the government doesn't earn money. It instead taxes those who earned it.
So when government elects to tax or not, the relevant decision is whether the best use of that money is for it to be redistributed by government officials or left to private individuals to do with as they please.
Through taxation government takes money or wealth from those individuals who have previously earned it and makes that money available to politicians to redistribute or spend as they choose. It is no longer available to those who earned it for spending or investment. In other words, different people can't spend the same money.
So the politicians' decision to tax or not tax specific earned income by individuals means government will spend or invest that money or it will be left to the individual person's choice as to how to spend or invest that money. It's another example of the OPM vs. MOM way of life in our society.
But let's let the editorial speak for itself. It does so in a straightforward manner:
"Suppose that year after year, you spend more than you earn. You are worried that you've become fiscally irresponsible. Which of the following could be paths back to fiscal sanity for your household?
A) Spend less.
B) Earn more.
C) Stop at the ATM more often so you'll have more cash in your pocket.
Do we all understand why C is a really bad answer? Good. Now let's try another one.
Suppose that year after year, your government spends more than it collects in taxes. You are worried that it's become fiscally irresponsible. Which of the following could be a path back to fiscal sanity for your government?
A) Spend less.
B) Collect more tax revenue.
Spending less—at least spending less on things you don't need—can be a first step toward sanity for a government just as it can for a household. So A is a pretty good answer. What about B?
As the deadline looms for the congressional super committee, there's seems to be a growing sense that tax revenue for the government is like income for the household. That's wrong. Raising taxes is nothing at all like earning income. Instead, it's a lot more like visiting the ATM.
The government's debt is the American people's debt. If we pay down that debt through higher taxes, we will, for the most part, pay those taxes by drawing down our savings. That's no more "responsible'' than drawing down those savings to finance overconsumption within the household.
If you buy a kayak you don't need and can't afford, you're unlikely to placate your spouse by saying "Don't worry, dear, I withdrew the money from our retirement account.'' If your government insists on maintaining social programs we don't need and can't afford, nobody should be placated by a congressional agreement to finance that program with money withdrawn from those same accounts.
Here's another way to say essentially the same thing: The government's chief asset—in fact, pretty much its only asset—is its ability to tax people, now and in the future. The taxpayers are the government's ATM. Make a withdrawal today, and there's less available tomorrow.
Now the ability to tax is a pretty huge asset and the government has not (yet!) come close to depleting it. In that sense, there's a lot of money in the bank. But no matter how much you've got in the bank, a policy of ever-increasing withdrawals is nothing at all like a decision to earn more income. It's important to get the analogy right. And it's clear from the blogs and the op-ed pages that not everybody gets this.
Instead, the notion persists that an extra trillion in federal spending can be converted from "irresponsible'' to "responsible'' as long as it's accompanied by an extra trillion in tax hikes. That's like saying a $500 haircut can be converted from "irresponsible'' to "responsible'' as long as you withdraw the $500 from your bank account. If the super committee loses sight of this fundamental truth, it is doomed to fail."
There's nothing left to add. The editorial said it all and said it all so well, too.
Thanks. Bob.
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