Income Taxes as a Fine for Being Useful

A former graduate student of mine; a very generous and friendly former student whom I greatly admire and with whom I've remained in contact for about a decade now since he graduated, recently posted a meme photo image of an Uncle Sam with the words: "Income Taxes are the Fine One Pays For the Crime of Being Useful and Productive".   I admit it's a cute meme, and there is some truth to it, in a broadly understood context. Yes, it’s logically true that producers contribute to the public good, and those who don't produce can't contribute as much or in the same way because they haven't produced anything to contribute, and for humorous effect, we can call "contributions to the public good" a “fine” (a punishment) we must suffer for doing the right thing.  Phrasing it this way is funny.  I get it.

But, some people might take the humorous idea of the meme seriously and allow it to reinforce some general misconceptions about how people contribute to the public good.  I therefore responded with this:

Income taxes are what one pays to sustain public goods, like education, roads, airports, national defense, space exploration, housing for the homeless and poor, food assistance to the poor and hungry, medical research (NIH and CDC), public lands management, enforcement of clean air and clean water.

The responses and my final response were interesting:

One person wrote (quite aptly, I think) in response to my observation:
Tell that to Springfield, think they forgot.

My old student wrote a thoughtful question:
So we had no roads or education, national defense or assistance for the poor, prior to 1913? Wonder how people ever got by.

Another person posted something that got me thinking about how people perceive taxes and government spending:
Income Taxes may well have started out as a means to fund some of those things but today it is simply wealth redistribution.

And then my former student re-introduced some humor to the proceedings:
And extortion

Well, even though I think they are sort of joking, we now have a claim that income taxes are “simply wealth redistribution” and also “extortion” and I felt the need to respond, so here was my reply:

Are you open to learning something about taxes and federal spending? The biggest things that the government spends money on are: Social Security; Medicaid; Medicare; and National Defense. Social Security is paid for with the payroll taxes, which cover all but $200 billion, and that gap is covered by taking money out of the Trust Fund (for Social Security). Medicare is the next biggest spending item, and it's covered by premiums and the Medicare payroll taxes, and some money taken from the Medicare Trust Fund. So, Medicare and Social Security (which account for 39¢ of every $1 spent by the government) don't rely on income taxes. Income taxes go to the other 61¢ of every $1 spent. This is split into: 
1) Medicaid and health services (about 12¢); 
2) National Defense (about 16¢); 
3) interest on the national debt (11¢) and 
4) everything else (22¢). 

Medicaid is redistributive: it pays for medical care for poor persons who would otherwise simply remain sick or die or else get charity care (if available). People who can afford to pay are going to get hit with some of these costs anyway: if we didn't have Medicaid, many doctors and hospitals would feel ethically obliged to care for the sick who couldn't pay (the alternative of allowing them to suffer or die is generally contradicted by the teachings of Christianity, for example), and medical care charities would be more aggressive in fund-raising. The costs would be shifted (by health care providers and medical charities) to paying customers and those who were more benevolent and willing to be philanthropic. Medicaid simply distributes the burden to all of us taxpayers, so that the more benevolent don't end up carrying the cost while the stingy get away as free riders, and medical costs for the rest of us remain more affordable (because we are paying income taxes which support Medicaid so that our health care providers don't have to increase the costs they charge us in order to cover their costs of providing care which wouldn't be paid for without Medicaid). 

Defense is also redistributive (all government spending is). Our money goes to pay warriors, people who build things for our military, and so forth. It's essentially a way to provide jobs for engineers and soldiers and everyone who takes care of military equipment, builds military equipment, provides services to the military, and so forth. I would rather that we redistributed more money to people who are doing medical research, who are more likely to improve my quality of life and delay my death, and less money to the military, but that's evidently a fringe opinion. 

Interest on the national debt is redistributing money to people who hold U.S. Debt. That includes most people who have mutual fund investments, where a certain percentage of assets are usually in the safe U.S. Treasury investments. 
As for "everything else", (the 22¢ of every $1 spent by the government that isn't Social Security, Medicare, Medicaid, interest on the debt, or Defense), it's a mixed bag of policies that redistribute money to the poor and policies that distribute money to prison guards, and research scientists, and people who build and maintain roads and ports and airports, and safety inspectors, and Census Bureau demographers, and FBI agents, and so forth. All of this is stuff that taxpayers evidently want done, since their elected representatives have voted for such things. 

As for the redistribution toward the poor, who are usually poor because they are disabled or chronically sick or mentally or cognitively impaired, or are children of adults who are unable to find and keep high-paying jobs, 11.3¢ of every $1 spent by the federal government go to things like school lunches, supplemental nutritional assistance, housing vouchers, public housing, unemployment compensation (which is paid for by payroll taxes paid by employers for the most part rather than income taxes), international development and humanitarian assistance, social services in education, community and regional development grants, etc.). About 3¢ of the remaining 10.7¢ goes to Veteran benefits and services, leaving about 7.7¢ for all the other discretionary outlays, like the budgets of the Department of Education, Department of Transportation, Department of Justice, the Census, NASA, the NIH and CDC, Disaster relief, Homeland Security, the State Department, and so forth. 

The opinion that "it's mostly redistributive" is correct in the sense that all government spending is redistributive. The money paid in taxes goes out as benefits, wages, subsidies, or prices paid to workers, military personnel, retired persons, health care providers, children, and poor persons. But, the idea that most of the income taxes are redistributed to poor persons isn't really based on actual spending. Medicaid and all the other spending that goes to poor persons (actually it goes to the people who provide housing, food, and health services to poor persons for the most part, as the poor quickly spend the money they receive on keeping themselves from starving, becoming homeless, or dying or remaining sick) accounts for about 23.3¢ of every federal dollar spent, whereas all other spending that isn't covered by payroll taxes and trust funds amounts to about 37.7¢ (for defense, interest on the national debt, and other things that don't especially target the poor). 

As for it being extortion. This is stretching the meaning of "extortion". Yes, if you are a citizen and you live in a society and you refuse to contribute to the society in an amount determined by an assembly of representatives who were elected by you and your peers, you can be fined, or even jailed, so there is certainly coercive power involved. But, if you can afford a passport and a ticket to a low-tax or no income-tax society, you can always relocate yourself to the Cayman Islands or Somalia or Saudi Arabia or whatever alternative society without income taxes appeals to you more than this one. Income taxes (and government spending) are much lower in Singapore, South Korea, Hong Kong, and Taiwan, and the standard of living in those societies is pretty good, and in Taiwan and South Korea you would be about as free as you are in the USA. It's possible to build a fairly decent society with lower taxes. But even those societies use coercive power to take money from residents and citizens as contributions toward maintaining the common good (like defending from invasions threatened by North Korea and China, providing universal health care insurance, providing very modest retirement pensions, and so forth).

We had large taxes on certain goods before the income tax. Alcohol, for example, was heavily taxed. Before 1913 our ancestors' consumption of beer and whisky covered many government expenditures. Also, without the stabilizing influence of a public welfare and pension system, we had dramatic economic swings, with crashes and panics afflicting our economy every 3-5 years, during which the economy contracted by levels unimaginable by today's standards. The early 1890s and the 1930s were far, far worse than the Great Recession of 2008.