Saturday, September 30, 2017

Taxes and Government (I)

It is well known that within free market economy ,government has a complementary role to what market can not solve.Therefore , Government is in charge of public policies concerning health,education,social infrastructure(schools,hospitals,rural roads and the like),asides from those policy issues related to economic rules,institutional framework, and those linked to national and external security as well.So, it is hard to complain about these tasks, unless private sector can do it on its own.The problem is that the role of private sector is different from that of the Government , mainly it is to create wealth. Government instead deals with the issue of wealth distribution, which imply that first and above all ,there has to be a level of wealth available to distribute, otherwise it distributes poverty.It follows that government need those which provide it the means to do its distributive task. The second side of the story, is that Government does not use its own money for doing its distributive task.It is other`s people money.That it is when the trouble begins.- The ethics value of supporting the weaker and more vulnerable within society, is in a conflict with the ethic of using external sources of money (taxes) for doing so, which may has at the same time, other uses.Whether Government had its own money, it would not has this constraints, or if it is efficient and effective to allocate that money, government can somehow solve the ethics conflict.But unfortunately it is not that easy. Government has no control procedures capable enough, to make sure that from the social cost perspective , there is not any difference whether either one dollar or euro, is spent by either the government or the private sector, such that social cost would be compensated by the social benefit.-Reality shows that corruption,waste of resources,oversized of government offices, make impossible for that compensation to take place. There are studies already done about government management, which suggest that it goes far beyond its duty when it comes to spend .- The other side of the constraint for taxes , is on the economics field.Taxes are an outflows from the economic activity which means that it reduce the ability of the private sector to create wealth .Higher taxes impose a burden to the private initiative, such that it creates the incentive to evade it reducing tax collection and affecting government ability to do its task : it has fewer resources than those which needs.On the other side lower taxes avoids this problems because given government careless approach to money spending, it fit what seems a fair share to help those in need.Besides , in the global economy, the competition for financial resources facilitates a convergence toward lower taxes, otherwise arise a loss of competitiveness.- So, the discussion about reducing taxes ;it is more about the ethics approach of helping others, looking for the best approach possible.In fact ,aside of Government there are other alternatives such as private donations,NGO`s,which can become a strong support if they have the proper incentives.