I am watching an interview. Some leader insists that the huge financial debt is a problem. That picks up my interest. Because I indeed think it is. I think there is a dose of conservatism needed in financial policies.
But then the leader turns around and argues for reduction of taxes.
Something about that line or argument always makes me uncomfortable. Let me see if I can put it into words.
You can’t always get out of the things you don’t like by doing the things you like.
It’s like telling an alcoholic that there exists a way to get out of addiction where they get to drink more, just that you have to drink at the different bar. No such bar exists. And if you want to kick addiction, it’s going to cause you some pain. It’s worth in the long run, but going to suck in short run.
I understand tax is not a simple thing. I understand there is a good argument to be made about what type of taxes to charge in order to incentivize the right behaviors and discourage the wrong ones. However at this point in time in American financial history, any argument for reduction in taxes is hard to swollow. If anyone wants to make a serious dent in ballooning national debt, the spending needs to be managed well, and the taxes must at least need to remain at current level if not increase.
To be perfectly honest, I think there is serious lack of financial education among common Americans. I don’t mean to single out Americans as financially illiterate. Common people from other countries are equally financially illiterate, but when you are not a citizen of a superpower, your country is not the most influential economy, your army not the world’s most powerful army, you maintain a healthy fear that makes you hedge your bets. That risk perception imparts certain default wisdom to you. Americans don’t have that gift of insecurity or fear. Also Americans have lot more borrowing ability than rest of the world that imparts additional dose of false all-is-well feeling.
And I understand I am grossly generalizing when I am talking about Americans. Obviously there is a large number of financially wise Americans that are exception to this. They were raised by parents who imparted good financial discipline in them. Or they have struggled, failed and developed a healthy risk perception. They save and live within their means. But the number of people who don’t have financial maturity is disturbingly large, large enough to influence the policies.
At the same time American government is one of the least corrupt government I have seen, and it employs many qualified and competent individuals. If I were to decide in whose hands tax money should be left, I would vote for government.
There is an excellent book called “Prophecy” by Robert Kiyosaki, the same author who penned “Rich Dad, Poor Dad”, which raises similar concern. The financially wise person in that books made an observation in late 70s when a large switch from pension funds to 401 k plans occurred. That person warned that such a switch is going to put control of retirement savings in peoples’ hands without providing them adequate education about handling them. We will know if his prophecy about retirement funds comes true in coming decade.
I am often surprised to find this argument for tax reduction or outright elimination coming from people who make very little money and pay very little taxes in the first place. Don’t they realize how much they are getting in return? Roads, School, Police, Strong Army? They are getting the best return for their tax dollars.
For some reason unknown to me, it is this segment in society that gets seduced by the idea of less taxes. “No taxation without representation” was a rallying cry for American revolution. Running a democratic government without any taxation, or in short “representation without taxation” seems to be the idea for this new political battleground.