INCITE
Incite -- (v) 1: give an incentive; 2: provoke or stir up; "incite a riot"; 3: urge on; cause to act
Friday, April 30, 2004

 
Tariffs and Taxes
Written by: Answerman

I've been holding this one in my quiver for some time, but now seems like the appropriate time to let it fly.

Modern governments have tended to finance themselves primarily by one of two means -- tariffs and taxes. Most recently, because governments have gotten so big in size, taxes has specifically meant income taxes. Prior to the income tax in the United States, when other types of taxes were rather low and inconsequential, the American government financed itself through the tariff. When we became rabid free traders, we were forced to turn to the income tax. It is no coincidence that the platform of early-century Progressives such as Wilson called for repeal of the tariff and amendment of the Constitution to permit an income tax. We forget the broader context of the old free trade debate these days; the debate was about HOW best to finance the government.

Now, I know that Beck and Speculator believe in free trade and incredibly low taxes. And that's just fantastic. But in case you haven't noticed, no one in power, oh, anywhere, has every advocated such a combination, much less actually achieved it. It has never happened, certainly not in a country of this size with a government of this size. Reduce the size of government, you say? Again, fantastic. Again, has never come close to happening. Anywhere. Ever.

Given this reality, an interesting economic question arises -- which would have hurt economic growth more, the old tariff at whatever rate we could reasonably expect it to have been set at over the years, or the income tax at the rate it has averaged over the years? I don't know the answer to this question, but I suspect neither does Beck or Speculator. I recognize it is a complicated one in light of indirect effects of both policies, etc. But if it has no clear answer, or if we don't know the answer, then we can't even say that free trade, AS IT EXISTS IN THE REAL WORLD, provides for greater economic growth, can we?

Again, political context and reality can really fuck up the musings of Adam Smith.


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John Beck

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