Do We Actually Need Taxes?

in this world nothing is certain except death and taxes neither one is a particularly pleasant topic but taxes are arguably the lesser evil so let's focus on them taxes are an unfortunate reality for most people living and working in the modern world we pay them every year we complain about them and then we try to forget about them until next year your taxes are also one of the most important elements of any economy around the world societies can grow from effective taxation and crumble without it taxes are what fund our roads and schools and parks our military emergency services Social Welfare and everything else in between these services are structural elements of modern society we wouldn't have these without taxes and without them we would have chaos so do we need taxes well not necessarily they serve an important purpose sure but there are other systems that could theoretically achieve the same thing any alternatives that exist - one of the most important factors in our economies are worth exploring even if some of them are a bit out there you are watching an economics explained video made possible by our patrons on patreon if you enjoy these videos please consider liking and subscribing before we start trying to prove Ben Franklin wrong it is important to truly understand what it is that taxes achieve and why we pay them taxes are what a government uses to raise revenue to fund its expenditures if a government does not raise enough taxes to fund these expenditures it does what anybody else would do take on debt temporarily to live above its means this is the massively oversimplified cycle of government fiscal policy in our modern economies and it should make sense to everyone if we stop paying taxes the government either has to stop paying for services that keep society going or it takes on more and more debt until it ends up going bankrupt so this is why taxes are levied simple enough but there is more nuance to this argument certain economics schools of thought not to mention political ideologies advocate for raising fewer tax dollars and spending less money their opposition will argue that raising more tax dollars and spending more money is the way to go both of these sides will argue that their way is the right way to deliver the most overall prosperity to an economy they can't both be right right well in a sense they can so remember this for later in either case taxes will still exist so now it's important to ask why do people pay their taxes some people have made the argument that taxes are like paying a subscription to modern society but let's be honest it's not out of some of civic duty to keep your nation going or even because you think you will benefit from government programs I mean come on let's be honest the real reason is that if you don't pay your taxes you go to prison as far as motivation goes this is about as much as most people need so let's look at the alternatives the United Arab Emirates Qatar Monaco Brunei these are all examples of national economies that operate without the need for income taxes in fact prior to 1913 the USA did not have federal income taxes so this gives us an easy answer to the question of do we need taxes to which these countries would answer a resounding no but this all comes with one big asterisks or rather two big asterixis the first is that these countries do have taxes they just don't have income taxes when we explore the economy of Monaco which is a nation famous for being a tax haven we found that a majority of the government's revenue still came from taxation in the case of Monaco this was a value-added tax or a sales tax this is ideal for these tourist nations because it generates government revenue from people just visiting the country rather than income taxes which require people to work in the country alternative taxes are a common feature for a lot of countries and they have a lot of advantages take Singapore for example it still has income taxes but they are incredibly low what it does instead is levy taxes on things that require government expenditure cars are the best example here roads and highways and traffic lights and bridges and tunnels are all funded by taxes apart from the few toll roads these are expensive and not everyone gets the same use out of them someone who works from home and walks everywhere in a normal country is still going out to pay the roads through their income taxes even if they never use them in Singapore though they wouldn't really need to income taxes are low but instead the government raises the money it needs by taxing the bejesus out of people that actually own cars depending on the type of car buying and registering a vehicle in Singapore can easily cost five times as much as it does in the United States this gives the Singaporean government the revenue it needs to pay for these public goods if you don't need or want to drive a car no worries you don't need to pay in many ways this is a really really fair system you get what you pay for beyond this it helps ease congestion in this tiny nation because not many people are going to drive given how expensive it is however this system is not without its problems when a car costs as much as a house many people are not going to be able to afford it for some people driving is just a necessity they might be in an industry that requires driving and they might have disabilities that require easy transport or they might live in a remote area with no easy access to public transportation remember this for later because that is very very important the arguments back and forth for this type of taxation are fascinating you could make a video about it no look we did but Singapore still has taxes so it might be fascinating but it's irrelevant instead let's look at that second big asterisk the other countries that get away without charging taxes have some alternative form of revenue more often than not its natural resources by substituting tax revenue with oil revenue these countries can still provide all of the amenities one would expect in a regular old tax paying country even places like Alaska do not need to charge state taxes in fact they go beyond this and disperse a share of this oil revenue amongst its residents of the state so you could call this negative taxes or social welfare it depends on your flavour of politics I suppose the problem here of course is that a country needs natural resources to substitute tax revenue with natural resource revenue another big problem is that this kind of is taxation in theory the natural resources of most countries belong to the people of that country taking away natural resources to sell is no different from taking away cash in both instances a government is taking an asset away from the people to pay for public expenditures of course people will feel direct taxation a lot more than natural resource sell-offs but it is still important to consider for the of our question here so maybe the problem here is the assumption that governments need revenue at all you have probably asked this question as a kid why does the government not just print money to pay for everything it needs now we tend to scoff at this question just say cuz inflation which is not incorrect but it's not the whole story in reality there is not much stopping a government like the u.s. conjuring cash into existence to pay for everything it needs logistically this is what it already does if Uncle Sam needs to write a check he does so by snapping his fingers and hey presto there's some money if you did this indefinitely you would eventually introduce more and more and more money into the economy cash is an asset like any other it's value is determined by supply and demand the only reason this gets confusing is that we normally Express the value of an item as a nominal cash value outside of this if you have more money being pumped into the economy it will cause inflation because the supply Rises although it will do it slowly what a country like this would need is a way to drive up demand for the currency to ensure that it stays in line with this increased supply the easiest way for a government to ensure that there is a consistent demand for its currency is to force the citizens of the nation to deliver a portion of this currency back to them at the end of every year as taxes this whole system of taxation and money creation is called modern monetary theory subscribers to this theory will argue that in theory a government especially a government like the United States can just keep on printing money so long as they can find a way to ensure that people still demand the currency they can create this money to pay for your roads schools and whatever else you want actually maintaining that demand without taxation is the hard part and of course if not done properly you're going to get hyperinflation hyperinflation is straight-up not a good time so eventually this type of system is Bauer to become unstable hopefully that isn't a huge surprise to too many people okay so this is all not looking so great for our do we need taxes question but so far we have held on to the assumption that we actually need government expenditure or for that matter government's at all what would happen if we let go of all of these assumptions anarcho-capitalism is an economic theory that advocates for the complete elimination of government influence in an economy in such a system everything is privately owned there are no public roads schools parks or hospitals there aren't even things like Social Welfare or emergency services the idea of such a system is that private enterprise would replace these publicly provided goods and the profit motive would encourage these services to become more competitive and therefore deliver a greater net value to society sounds kind of good right well the first thing it does is eliminate taxes if there are no governments there are no governments to raise taxes so mission accomplished I guess beyond this it must be recognized that there are some legitimate advantages to such a system an individual would only ever have to pay for something that they actually wanted or needed and they could be relatively confident that they could be getting a good price for their purchase so long as there is still competition in this market there are actually examples of society like this scattered throughout history the most prominent of which were medieval European Free Cities these were places operated by merchants and were ultimately run purely for the profits of the individuals making them up the whole idea of purely unrestrained capitalism has some really interesting thought experiments the first is that of disabilities in a purely capitalistic society someone who is born with or develops a disability is going to be less productive and therefore less economically valuable as an individual it sounds horrible but it's true in extreme cases they may not be able to make enough money to feed or clothe themselves so they would just died a huge assumptive leap here is that even the most hardcore free-market economists would see this as a negative outcome so what are the alternatives well insurance Social Security is kind of like the price we pay to ensure that if we lose our job or get sick or injured that we won't starve an insurance company could provide this same service you could insure yourself against getting injured or developing an illness or even having a child that requires constant care what's more is that you could tailor this cover if you are an incredibly wealthy person and you lose your job today you are just not going to be able to support your lifestyle on Social Security checks so even though you contributed more in taxes throughout your good years you are going to be the same as everyone else in your bad years in our hypothetical anarcho-capitalist society this kind of person would likely pay a higher insurance premium but in return if they lost their job they could have elected for policy that provides them with a higher payout figure beyond that if you are happy to take the risk you could just not pay the premiums and save the extra money or really hope that you don't find yourself out of work the same kind of private sector switcheroo can be done with almost anything that a modern government provides this is similar in many ways to the specific expense allocation we saw in Singapore earlier just dialed all the way up to the extreme private everything toll roads private schools private hospital everything is for sale this all starts to run into some problems though with indiscriminate Goods this is a street lamp they cost about two thousand dollars on average to erect and they consume about $100 per year in electricity to keep going beyond that there are maintenance costs and a few other incidental expenses all in they are not a cheap item chances are most of us take street lamps completely for granted but they do serve a really important purpose they illuminate otherwise dark streets providing safety to cars and pedestrians navigating the area at night but it would be really hard to provide a street lamp in purely profit-driven society you can't really stop someone from basking in the light of a street lamp and because of that it's hard to charge someone money to provide this service why would I pay for something if you can't stop me taking it for free because there is no profit motive there is no product which means that this society may have to go without the service that provides a direct tangible benefit the same thing is true on a larger scale with things like emergency services and military protection a private military may be employed to protect the assets of an individual in an area but in doing so they are indirectly protecting the assets of everybody else in that area therefore by the same logic nobody would want to foot the bill to pay for it and it would not be provided this gets even worse when you consider the other type of indiscriminate good the bad type just the same as there is no way to prevent an individual basking in the light of a street lamp there is no way for an individual to prevent themselves been impacted by negative externalities in this type of society people are driven by profits exclusively many profit generating industries produce a lot of pollution in a world like ours with regulatory bodies there is some level of control around this we limit where factories and power stations can be set up and also control what kind of pollution they can leak out into the environment if these regulatory bodies didn't exist well then it would potentially be down to private militaries to regulate and enforce these types of externalities very quickly you arrive at an outcome where rich people just declare war on things to get their way which is a real dicey reality to be living in a solution to all of this is to set up communities that address the problems of these indiscriminate goods it's hypothetically possible that a company could establish an area where people could live separately from negative externalities and P provided with things like street lamps residents of this city would have to pay a subscription but they get the benefit of having a lot of this stuff sorted out by default this is also a way to ensure that everyone is chipping in for a military which would keep this area safe and so you are and in the event that someone didn't pay their subscription they would also be responsible for forcibly removing them from the area but if you haven't realized by now this company is basically just a government with taxes with more steps anarcho-capitalism is an amazing theory to explore but most of the time you manage to work your way back to the status quo the truth is that most products and services are best delivered by corporations with a profit motive the same way that there are products and services best delivered by governments simply looking to retain power the exact place to draw the line between businesses and government services is the real debate but it almost certainly does not lie at either extreme of scale this is one of those things that I'm expecting some pushback on there are passionate advocates for a totally free market so I put it on you how would you structure the economy of a perfect society the best answer will get featured in the next video on this subject and if the answer is really fantastic we will explore this hypothetical country just like one of our normal country videos over on our second channel so leave your comments in the comments section below guys nobody enjoys paying taxes and that's not because it's money out of your wallet a lot of people really enjoy spending money people don't enjoy paying taxes because it's money out of their pockets going towards something they wouldn't have otherwise spent their money on tax dollars often aren't going to directly improve the quality of life of the people paying them but they do materially improve Society so long as it is agreed that there are items that would not be provided by private businesses in a competitive market and that those items do have value we will need a collective organization to supply those goods the most prominent collective organizations we have in the world are governments and the best tool these governments have available to them to raise revenue is taxes there are alternatives but they have their limitations do we need tax as much as we do well no maybe not are there better taxes to levy in smarter ways almost definitely but do we need taxes well they are the worst possible solution apart from all of the alternatives hi guys thanks for watching if you enjoyed this video please consider liking and subscribing this video and every other video on the channel are made possible by our amazing patrons over on patreon so a huge thank you to the team over there make sure to tune in to our do we need taxes Q&A session over on the second channel for what I'm sure will be a very heated debate on a very interesting subject

Channel: Economics Explained

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Keywords: do we actually need taxes, is taxation theft, the economics of taxes, why do we need taxes, what are taxes for, what are taxes used for, why do we have taxes, the economics of income tax, how tax affects the economy, how taxes work, why taxes are necessary, why taxes exist, the economics of tax, income tax, wealth tax, sales tax, tax bracket, taxes, taxes explained, tax economics explained, whats the point of taxation, the economics of taxation, economics explained

Id: xfmUrw0gDiU

Length: 19min 12sec (1152 seconds)

Published: Thu Jun 04 2020