Mitch, like many conservatives, feels concern that America has become a land of consumption without production. He watches as we consume efficiently-manufactured goods from China and other Asian countries, while we sell nothing in return except for our increasingly suspect paper IOUs. He wants America to stand up on its own two feet and start making things again, rather than just plunging further and further into debt.
However, Mitch must keep in mind that government solutions can only strike at the symptoms. Real solutions must come from the free market.
I'm sure that when Mitch proposed a VAT and oil tariffs, he had in mind a revenue-neutral rearrangement of the tax system. He would know better than to think that slapping such measures on top of all the other taxes and tariffs we already have wouldn't further cripple our lumbering economy. But he must realize that when the government imposes itself upon the market in order to solve one problem, it inevitably creates other problems elsewhere. In fact, oftentimes the government solution has the exact opposite effect of that which was intended, and actually makes everything worse all around.
Mitch feels that by taxing consumption rather than production, Americans will stop buying things they don't need and will start building up the lifeblood of savings that our capital starved productive sector desperately requires. However, we must remind ourselves that when the government taxes our money, the money doesn't go into a spending-proof savings box. The money goes into the government's coffers. Now, the savings rate of the American public is indeed an anemic 5% (the Chinese save around 50%), but the savings rate of the American government is, well, non-existant. Negative, in fact. Extremely negative.
So a tax on the American people's consumption, in this political environment, basically amounts to a transfer of money from a group of individuals who save very little to a group of individuals who save nothing and spend every penny they get on consumption. It may seem counterintuitive that a tax on consumption could actually increase consumption, but we take this risk when we entrust an institution as profligate and undisciplined as the State to try to tell us how we ought to manage our pocketbooks.
We must also keep in mind that, even if government could save our money better than we could ourselves, saving still only represents one side of the coin. The necessary flip-side of "saving" is "investing". We save so that we can invest. How would government, an entity far removed from the intricate market processes that created all that wealth to be saved in the first place, know where to invest that money better than the wealth-creators themselves?
As for oil tariffs, while they may cause us to produce more of our own energy, there lie many potential perils here as well. Not only would it risk sparking a trade war, but it would certainly cause prices at the pump to skyrocket for American consumers (and this would not help the shortage of savings). Furthermore, the law of comparative advantage tells us that some products should just be left to other countries to produce, and that we should not feel compelled to produce every single thing for ourselves.
We ought not to blame Mitch for agreeing with Bill Simons that a nation should "have a tax-system that looks like it was designed on purpose," but Mitch ought to also bear in mind the words of one of his professed intellectual heroes, F.A. Hayek, who said:
"The argument for liberty is not an argument against organization, which is one of the most powerful tools human reason can employ, but an argument against all exclusive, privileged, monopolistic organization, against the use of coercion to prevent others from doing better."
In other words, freedom can often be much more purposeful than any designs of government.
---Published at RightOSphere.com.
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