Debates Over Vouchers and Taxes

The Colorado Freedom Report:  A libertarian journal of politics and culture.

The Colorado Freedom Report--www.FreeColorado.com

Debates Over Vouchers and Taxes

by Philip Sagstetter and Ari Armstrong

Philip Sagstetter, April 23, 2004

I have to disagree with your characterization that "An institution that takes money from the state and meets the mandates of the state is not 'private'," when speaking about school vouchers.

This means that any company that enters into a contract with a government agency is no longer private. It may not be sovereign, but it certainly is private. After all, they had a choice whether to take the contract.

The vouchers are spent in a competitive marketplace, school staff employment depends on effective performance, and profits ultimately go to private citizens. That sounds private enough for me.

I can understand that a religious school may not want to risk the economic blackmail that a government may threaten to cancel a large contract because of a small issue. But that is no reason for religious schools to deny voucher business opportunities for private schools. If religious schools don't want to take vouchers, they are free to decline.

Ari Armstrong, April 28

Granted, there is a substantial difference between organizations that are directly part of the government, and organizations that contract with the government to perform specific tasks. However, there is also a substantial difference between organizations that contract with the government, and organizations that earn their money from voluntary payers by competing on the free market.

Thus, we must be careful to distinguish between truly "private" businesses, and ones that contract with the state. I propose three terms: private firms, government agencies, and state-contracted firms. Those who apply the term "private" to firms that collect their money by contracting with the state (terminology even many free-market advocates use) must be careful to qualify what they're talking about. The terminology I propose is more precise, less confusing, and more respectful of the (actual) free market.

Sagstetter points out state-contracted firms "had a choice whether to take the contract." However, this is not a distinction that's relevant to the firm's status relative to the government. After all, agents of the state are free to choose whether to work for the state, too.

Sagstetter also notes "vouchers are spent in a competitive marketplace" and "profits ultimately go to private citizens." Again, though, these conditions are not sufficient for a firm to attain the status of "private." The key distinction is this: a truly private, free-market firm gets all of its earnings from people who voluntarily pay for the firm's goods or services. There is no coercion, no forced redistribution of wealth. Obviously, that's not the case with state-contracted firms. The money is taken from force, by the state, from those who are unwilling to pay. Those who refuse to pay will have their property forcibly taken, and, if they resist, they will be imprisoned and/or killed. That's the funding source for state-contracted firms.

Here's an analogy. Let's say Al steals cars, and Al pays Bob to refurbish the cars. Bob himself does not actually steal any cars, but he collects his money, indirectly, from the theft of cars, and Bob is fully aware of this fact. So what is the status of Bob? Is he fundamentally part of the free market, or is he fundamentally part of the criminal economy? I think it's obvious that Bob deserves criminal sanctions. Those who agree with my conclusion about Bob must also agree that a state-contracted firm is fundamentally part of the government, not the free market. Of course, some libertarians think my analogy is perfect, in the sense that they think taxation is theft, and therefore a state-contracted firm is morally comparable to Bob. Other free-market advocates (probably the marjority) see the actions of a limited government as legitimate, and therefore limited taxation for specific purposes is okay. But this argument is irrelevant to my point here: a state-contracted firm is not the same thing as a private firm.

The tendency of some free-market advocates to conflate actual privatization with more state-contracting is a very dangerous one. After all, we could have a 100% tax rate, yet contract out all of the government's activities. If we apply the terminology Sagstetter suggests, the economy will be completely "private." Obviously, such is not the end goal of libertarians, it is instead pure socialism.

A closing example should drive the point home. Do we wish the see the activities of, say, the IRS or the ATF contracted out to "private" firms? Different companies could compete for the contracts, sell stock, and so forth. Is this what libertarians have in mind? Obviously not. State-contracted firms are unequivocally NOT a part of the free market, and we blur the distinction at our own peril.

Philip Sagstetter, April 25

I just got around to reading your article about tax cuts for the poor. A lot of interesting ideas, but I have one concern.

If we exempt people from all taxes below $20,000 or so, we will create a class of cheerleaders for more taxes. They will have unlimited demands, because "rich people" over $20,000 will have to pay. I prefer a small tax rate that is proportional to the tax rates for rich people. Poor people should have some incentive to keep taxes down.

I have to say that I am pleased that filing tax returns is much easier now for poor people. I filed the tax returns for my daughter and her boyfriend. I used Telefile and Netfile to file electronically with Colorado, and the refunds are already back. I used H&R Block's link from the IRS website to file for the boyfriend. I was able to do his tax return online and file electronically for free. No charge under $28,000 income.

Ari Armstrong, April 28

My plan calls for a reduction of taxes with a commensurate reduction in state spending. It has a couple of important benefits: it would reduce the number of people damaged by the Social Security scam, and it would allow a significant group of people to stop filing taxes.

Yes, it is always dangerous for some people to benefit from the taxes that other people pay, because, as Sagstetter notes, this creates an interest group that wants to increase taxes (for other people).

However, I think my plan would tend to foster more financial independence and less dependence on government among lower wage earners. This would also help remove one of the left's pretexts for expanding the state. It would be possible to add another tenet to the plan: apply it only to those who do not get direct subsidies from the state.

Of course, I don't expect the plan to actually be implemented politically. The major political parties have no interest in reducing the tax burden, cutting state spending, or removing the political barriers that keep more people poor. Nevertheless, I think it would be a good idea, and I think it might prompt some on the left to think about the harmful effects of taxation.

The Colorado Freedom Report--www.FreeColorado.com