Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

Choice, Taxes and Welfare

Written by johnleemk on 3:49:21 am May 12, 2007.

Recently, I was in an internet debate about welfare, and one participant brought up an interesting argument against welfare. The basic gist was, "I don't mind donating to the poor, but I do mind being told to do it by the government! Who I give my money to is my choice."

Of course, this argument seems reasonable at first glance. Why shouldn't people have a choice about charity?

The problem with this line of thinking is that it runs completely counter to the purpose of taxation in the first place. Direct taxes arise because of a tragedy of the commons.

To take one instance, society is unquestionably better off with a comprehensive national defence programme, or a police force, just to take two examples. But imagine if paying for the upkeep of the army were optional — up to you. Inevitably, people will slowly stop paying altogether, because there are no consequences if you stop paying — especially since others are still paying. Of course, we all know what will then happen in the long run.

One might question whether helping the poor should be viewed on the same status as paying for the upkeep of "public goods" like traffic lights. But if we treat poverty as a negative externality, conventional economics supports the view that the government has a role to play in charity.

Moreover, the economic evidence is there that welfare does benefit society as a whole. Poverty is a cause of crime — reducing it indirectly reduces crime. A more even income distribution means more consumption, which benefits the economy. And of course, equality of opportunity ensures that everyone can realise his or her full potential.

It is inevitable that people will be unhappy about paying taxes for welfare, but it is just as inevitable that people will be unhappy about paying taxes for anything. That's to be expected, because the point of taxes in the first place is to fund things that not everyone would want to fund, but benefit everyone in the long run.

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