Friday, March 4, 2011

Lesser of Two Evils?: Taxes versus Deficits

Lesser of Two Evils?: Taxes versus Deficits
by Alex Merced

Hello everyone, in this months article what I wanted to talk about was the effects of higher taxes versus deficit spending. While from a political view, deficit spending does less political damage; the more important paradigm is economics and liberty as these are the factors that determine the quality of life of you and those to come. First off let's understand how both function.

Increased Taxation

If government is to increase taxation, this means more of a persons earnings must be taken whether through a direct tax like an income tax which is virtually unavoidable, or an indirect tax such a sales tax which to some extent you can control your payment of. Although one must understand what happens when someone is taxes, they are not only being stolen of their money, but since their time was spent to labor for that money or was earned from money you invested that originally came from you or someone elses labor. If more of your wages are taken, it means more of your labor is needed to maintain the same amount of purchasing power. If they decide not to labor more than then you won't have the same purchasing power meaning you have a choice, save less for rainy day, or cut back on your consumption.

The Bottom Line, taxes take away the fruits of your labor and time which you can't get back. Although, the effect taxation is to reduce CURRENT savings/consumption in the time period the tax takes place. (of course there are larger changes in institutional structures, but that's beyond the scope of this article)

Deficit Spending

If government does not want to raise taxes then it has to borrow the money to make up the deficit in it's budget. This money that is borrowed is received generally from bank lenders who are lending out the savings from a previous period, that would otherwise be lent out to other parties usually to invest in growing or starting new enterprises. If the money is not borrowed out the local or global stock of savings, then a financial intermediary like a central bank can be used to increase the money supply and offer to buy this debt from the banks to encourage the banks to make the loan. This increase in the money supply has the same effect of robbing the savings stock by devaluing the currency the stock of savings is denominated in, and also has the effect of encouraging speculation with that savings stock because of the drops in interest rates that is caused by this increase. Even worse, these loans must still be paid off from future tax increases generally on people who had nothing to do with the need to borrow initially.

Bottom Line, Deficit spending pillages savings from the past to be repaid from robbing/taxing the wages of the future.


Whether you find one of these tactics to fund intrusive monopolies of force (government) preferable really depends on WHEN you want to steal from: The Past, The Present, or the Future. No matter what the result is the change in peoples available resources from this financing does change the outcome of economic and social calculation of individuals in any of these periods of time causing material changes to how institutions in society are created, developed, or even destroyed.


Founder of this blog is Alex Merced - Contact him at

Endorsed Candidates: Rand Paul (KY - Senate), Clint Didier (WA - Senate), John Dennis (CA - Congress)

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