- Tax increases force taxpayers to forego household financial priorities of increasing importance to them
- Meanwhile, the additional revenue funds political priorities of decreasing importance
- Why should taxpayers forego more important financial priorities to fund government pork?
Tax increases deprive citizens of the chance to meet increasingly important financial priorities in order to fund less important government programs.
In other words, the higher your tax bill rises, the more likely it is the additional tax burden is funding pork or outright waste.
Think about how humans allocate their supply of a good according to their priorities. People will use the first unit in the supply of a good to satisfy the most urgent use which that good can satisfy; then the second unit of the good will satisfy the second most urgent priority, and so on.
Economists refer to this as the law of diminishing marginal utility.
We can illustrate this important law of diminishing marginal utility with an example. Using water as the good, we know that there are many different priorities that water can satisfy. Let’s say John ranks these priorities as such:
- Watering Plants
- Water coloring
For simplicity, we’ll assume John has determined that one gallon of water is sufficient to accomplish each of these goals, meaning the unit of measurement is one gallon. So if John has only one gallon of water, which goal will he satisfy? The most urgent one, of course. He will use that gallon of water for drinking. Now suppose he acquires a second gallon. What will he use that for? Cooking, his second highest valued use for water.
And if John has three gallons of water? Naturally, he would use the first gallon for drinking, the second gallon for cooking and the third gallon for bathing. This pattern continues thru John’s entire value scale for water.
How does this relate to government expenditures? Using the state budget as an example, and for simplicity sake use $100 million increments, we can see that the first $100 million in revenue would go toward the most urgent priority, as determined by budget writers – public education perhaps. The next $100 million will be spent on the second most urgent priority, and so on until the last $100 million they collect will be spent on the lowest priority included in the $24 billion General Fund budget – maybe some pork for local walking trails or baseball diamonds.
Similarly, the same principles that establish the law of diminishing marginal utility also inform us that people will forego a more important priority with each additional unit of a good they must do without.
Suppose that John has five gallons of water, but he accidentally kicks over one of the buckets of water and its contents spill to the ground. Will John go without drinking water and choose to satisfy his other four goals with the remaining four gallons of water? Of course not. He will forego the least valued goal of water coloring. Likewise, if he kicks over a second gallon of water, what will he forego due to losing two gallons of water? He will forego water coloring and watering plants, and use the remaining three gallons to satisfy his three most highly ranked goals with the water.
As this example illustrates, humans will choose to forego their least valued priority when having to do without a unit of a good, and work their way up their value scale with each marginal unit of the good they must do without.
We can apply this economic law to the household budgets of taxpayers. Say a household has a pre-tax income of $50,000. What will they do without when taxes take, for instance, $500 out of their paycheck? Not something vital like housing or food, but something less essential like a new wall painting or decorative vase.
But then the next $500 of taxes will require the household to forego something more valuable, and with each increase in their tax bill they will have to forego priorities of increasing importance to them.
So in the debate over taxes, it is vital to remember that those that want to increase taxes want taxpayers to forego priorities that are increasingly important to their family, while the additional revenue collected will fund government priorities of diminishing importance.
Is it fair to ask taxpayers to forego or cut back on important priorities like housing and food for their family so that politicians can dole out money to irrelevant pet projects and pork?