Frederic Bastiat was a classical liberal theorist and political economist who lived in the 1800’s. He was from France, but don’t hold that against him; he was a total badass. His writings helped develop the Libertarian and Austrian schools of thought. He has written about many different subjects, but in this post I want to talk about what he had to say about taxes. Let me walk you through one of his essays on taxation. It appeared in his book “That Which is Seen, and that Which is Not Seen”.

In his time the prevailing wisdom about taxes was that they are one of the best investments a society can make, they support numerous families, the poor, and even positively affects various industries. Basically, that taxes are the lifeblood of a society (things appear to have not changed since then).

Bastiat is known for his examination of politics and economics by looking at the obvious results and the hidden results of a policy. In other words, “that which is seen, and that which is not seen”.

All the government jobs that taxes pay for are easy to see. The industries that benefit from the money spent by government employees and departments is also easy to see. What is not seen is the money that is taken away from citizens that have to pay those taxes. Even further, the negative affect on the industries that would have been stimulated by that money. The government spending money is much easier to see and measure than the diverting of money from the taxpayer. This is why many people associate taxes more with an addition to economic activity than with the suppression or transfer of it.

Incomplete economic thinking drives the idea that government employment is the life-giving rain in an economy. No one cares to think about where the rain comes from. No one considers if it is the taxes that dry up the soil in the first place. Bastiat says that if we must have taxes, then to be economically justifiable the government must render a service equivalent to the tax collected from the individual. This leaves both parties economically square.

Just a side note: In theory, this last point has some validity. In reality, the task of the government to provide services equal to the level of taxation is pretty much impossible. I would even say that it runs counter to the very nature of government; which is to centralize power by redistributing resources to gain the widest amount of political power. Taxation also doesn’t have any legs to stand on when it comes to morality, but that’s a topic for another day. Ok, back to Bastiat’s essay.
If Johnny Taxpayer gives up $200 to the government in return for a service, it at least mimics a mutually beneficial exchange; like if he gave $200 to Footlocker for some sweet Air Jordans (or whatever people are trampling each other to buy nowadays). The problem comes when Johnny doesn’t get an equal service or is even harmed by the inconvenience of dealing with the tax bureaucracy. Then it becomes theft because the exchange is no longer in balance. The government then becomes a parasite living off of the wealth created by others.
Getting back to the supposed “benefit” of government salaries and jobs; Bastiat often heard this: It is good for politicians, bureaucrats, and their staffs to have a lot of disposable income because it stimulates the arts, businesses, and employment. High government officials and government departments cannot hold banquets and parties (or any other spending) without stimulating economic activity. Any reduction of this type of spending will have a negative economic impact.

Seriously! Its a shame that a bunch of grown adults can’t do math. Addition does not give you a different sum depending on if you add to the top or to the bottom.

Lets say that farmer Johnny wants a ditch to be dug on his property. He hires a company to dig that ditch for $1,000. Then lets say that before the ditch can be dug a tax collector comes around and takes that $1,000 and prevents that ditch from being dug. Imagine that money ends up in Nancy Pelosi’s salary. She then uses that $1,000 to buy a baby seal to eat for dinner… or to keep her BMW’s gas tank full, whatever. Who in their right mind would say that the movement of that $1,000 from Johnny to Pelosi added anymore to the economy than if Johnny had spent it? If anything, this arrangement is less efficient.

It is a simple transfer of economic activity, not an addition to. Pelosi has her baby seal… or gas money, but Johnny is down one drainage ditch. And those ditch diggers are deprived of a $1,000 project. Pelosi’s baby seal and/or full gas tank is what is seen; the missing ditch and lost job for the ditch diggers is that which is not seen.

Sweet baby Jesus! Why does it take so much trouble to prove that 2 and 2 make 4? The mind-bottling part is that after making this point clear all you will get from politicians is a “meh” and they will vote as if they never heard the proof and to continue the war on baby seals.

There you have it! That is Bastiat’s break down of taxation. Overall, its economic effect is at best neutral and at worst negative. I plan on writing more about Bastiat’s work in the future so add The Lone Republic to your social networks and be on the lookout for more posts about the work of Frederic Bastiat!