The last of his myths is that “tax is a burden”.
Many of us certainly feel that paying tax is a burden, especially around the end of the financial year. Where are we going wrong in our thinking? Dr Chang explains thus:
“But would you call the money that you pay for your takeaway curry or Netflix subscription a burden? You wouldn’t, because you recognise that you are getting your curry and TV shows in return. Likewise, you shouldn’t call your taxes a burden because in return you get an array of public services, from education, health and old-age care, through to flood defence and roads to the police and military.”
Dr Chang is not the first person to have expressed this view of taxation but I hope he is the first academic economist to do so. It involves two serious errors.
First, spending money on a takeaway curry or Netflix actually is a burden. Suppose I buy a takeaway curry for $10. One good thing has happened. I have got myself a curry. But something bad has also happened. I have lost $10 that I could have spent on something else.
Of course, since I chose to buy the curry, I must figure that I had no better use for that $10. I must have thought the curry was worth $10. But this does not stop spending $10 from being a burden. If the curry had cost only $1, I would have been $9 better off. The burden would have been $9 lighter.
By Dr Chang’s logic, walking a mile to a water hole is not a burden for the rural Kenyan women who do it because it provides them with the water they want. Nor is having your foot cut off a burden when it saves you from gangrene. Dr Chang must behold people who shop around for low prices with utter dismay. If only they realised that paying for things is not a burden!
His second mistake lies in failing to see the fundamental difference between buying a curry and receiving services, such as healthcare and education, that are funded from your taxes.
To see what the difference is, imagine a man with a gun knocked at your door and presented you with a new laptop computer and demanded $1,000 in payment. If you don’t pay, he tells you, he will lock you in a metal box for a year.
Would this be a burden to you? If you were planning to buy precisely this kind of laptop computer, and planning to buy it right now, and could not have found it a better price than $1,000, then you might not be too upset.
But this is unlikely. There is a good chance you didn’t want a new laptop now. You might have planned to use the $1,000 to buy a new suit or to go on vacation. Or, if you did want a laptop, you probably wanted a different model. And you could probably have got a better deal. After all, why should someone willing to threaten you with a gun shop around for a good deal?
Though taxes are now rarely collected by armed men arriving at your door, they are still extracted by the threat of imprisonment and, if you resist, violence. The services we get from the taxes extracted from us are thus compulsory purchases.
Buying a takeaway curry is voluntary. You get a curry only when you think it is worth the burden of paying for it. You pay for tax funded services whether or not you think they are worth the cost. That makes paying for tax-funded services doubly burdensome.
That paying for something is burdensome, and that being forced to pay for something is even more burdensome, are facts you might expect a renowned Cambridge University economist to know. Which just goes to show how risky the myth busting game can be.