The Relationship Between Taxpayers and Tax Spenders

As public concern over rising U.S. budget deficits and debt mounts, policymakers propose numerous explanations and policy changes. One explanation dates back to political theorists John C. Calhoun and James Madison, who wondered about the consequences for the republic if the citizenry became divided into classes of taxpayers and tax beneficiaries or spenders. In particular, they feared that the property rights of the taxpayers would not be protected. This paper argues that the Sixteenth Amendment establishing the income tax nullified the prior constitutional restraint on the size of government and enabled one group of citizens to vote themselves benefits at the expense of another. In terms of economic theory, the budget has become a “commons” and is subject to the tragedies of overuse and abuse. Over the past three decades, the distribution of U.S. tax liability has become more skewed. A rising percentage of citizens pay few or no federal taxes, so that a smaller share of the citizenry increasingly bears the tax burden. Analytical work shows that the skewed distribution of the U.S. tax liability is correlated with higher debt and greater entitlement spending. Since currently there are no constitutional constraints on deficit spending, the research calls for policy makers to broaden the tax base so that more citizens will feel the cost of deficit spending and to take action to reduce the associated tax burdens. This paper demonstrates that when the tax-price of government services is zero, more will always be demanded.