The big one

For all the fuss about government-provided health care, bailouts to AIG, &c, a phenomenon approaches which I think probably demands more attention due to the sheer awfulness of the idea. We approach a tipping point at which more than half the voting public pays zero income taxes to the federal government.

When that point is reached, there is no recovering from what will prove an endless exercise in trying to squeeze more money from fewer people, in order to provide more services at greater cost to more people. Once a voting bloc gains the power to tax a minority without restraint, the largesse-addicted majority loses the incentive to work since raising someone else's taxes is simply so much easier; and, incidentally, the working and taxpaying minority loses the incentive to work as well since the return on incremental hours worked or capital risked will diminish rapidly.

An example of this principle in action can be observed at the level of state governments wrestling with the implications of falling tax receipts. During the halcyon days of the late 1990s, virtually every level of government everywhere ran a budget surplus, and most of them rather lazily allowed spending to increase far in excess of either inflation or population growth. When the economy tanked after the dot-com bust, state and local governments had managed to get their constituents used to certain levels of services and government spending, which they could no longer conveniently afford to provide. This phenomenon is one of the problems Michigan and Ohio have had, and they're still picking up the pieces. When I was in school up at Eastern Michigan, we spent a fair amount of time in my government accounting class discussing this process, and it was an instructive exercise.

One constant which you will notice as you listen to the budget debates in Michigan is that it is considered politically expedient to raise the cigarette tax repeatedly. In 2001, from a budget amounting to $35B, cigarette taxes amounted to $596M (1.7% of total state revenues from all sources). By 2007, the budget had increased to $39B despite the flagging Michigan economy, and cigarette taxes had roughly doubled to $1.1B (2.8% of total revenues). Since only 21.1% of Michiganders smoke, it's a politically low-cost proposition to raise cigarette taxes every time a budget crunch presents itself--certainly easier than proposing meaningful spending cuts no matter how badly the economy is doing.

Now it may be supposed that raising cigarette taxes is good in that it encourages people to quit since it's more expensive (though I haven't noticed a tremendous amount of success behind this concept in the usage of illegal narcotics, which suggests that some people will find the black market to be more appealing than forgoing cigarette consumption). To the extent this is true, it is certainly for the good, but there's more to it at work than just that. The 79% of Michiganders who don't smoke have increasingly turned to simply raising taxes on a minority to fund their perpetually expanding expectations of spending by the government. It's easy, it's cost-free, and it happens with little or no political opposition most every year in Michigan.

Soon, we who pay income tax to the federal government will become our own minority. When that happens, we will discover abruptly that we have no political power to oppose the ravenous calls of the largesse-receiving majority for us to furnish them with ever more shiny pretty government-funded baubles, and the noble wealthy liberals among us will be surprised to discover that by then it cannot be stopped.

Mark Steyn has an excellent essay out today on this subject, which as always is worth a read.