If Joe Biden was in public finance 101, he would get an F for his statement made this morning about taxation. Let's first look at what he said courtesy of ABC News:
Biden was asked by ABC News' Kate Snow in an interview aired Thursday morning on "Good Morning America" if people earning more than $250,000 a year would have to pay more taxes under an Obama-Biden administration.
"You got it," Biden replied. "It's time to be patriotic, Kate. Time to jump in, time to be part of the deal, time to help America out of the rut, and the way to do that is they're still gonna pay less taxes than they did under Reagan."
With the John McCain campaign hitting out at the remark, Biden felt compelled to defend his comment in front of the labor audience in Ohio.
"Catholic social doctrine as I was taught it is, you take care of people who need the help the most," Biden said in Akron. "Now it'd be different if you could make the case to me that by giving this taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. cut to the very wealthy, everybody else was going to be better off. We saw what happened the last eight years when we gave that tax cut. Tell me how everybody is better off. And the point I want to make to you is, and I mean this sincerely – wealthy people are just as patriotic, patriotic as poor people. We just have not asked anything of them.”
The fundamental purpose of taxation and why it is necessary is that people do not contribute to government out of the goodness of their hearts, patriotism, charity, etc. But any person is free to pay more in taxes than he legally owes. In fact, the Biden campaign is essentially saying that Sen. Biden does that because when asked about his very small charitable deductio, they have said he doesn't report all his contributions.
Biden is arguing that wealthy people (notably also wealthy Catholics) would be benefiting from the mere act of contributing more to government. But if that's true, no coercive taxation would be necessary. The IRS wouldn't have to auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. . On the contrary, the money would and should just be rolling in right now.
The first thing any student learns in public finance is that taxation is necessary because of something called the free-rider problem. That is, there are many public goods that would be underproduced from society's perspective if left exclusively to the private market because each person would have little incentive to contribute on his/her own. That's why an entity like government must step-in to via force (i.e. jail, fine, or even death if no payment) to make people contribute to finance that public good that in the end, makes everyone better off.
What Biden doesn't understand is that the entire justification for coercive taxation as a rule of law hinges on this assumption that people are self-interested. This is the same assumption made in support of why government taxation is necessary to administer anti-poverty programs instead of relying on private charities: people benefit from the anti-poverty programs, but if they were left to a private charity (or people contributing out of patriotic duty), there would be too little contributed.
Overall, I'd say this is just another example of politicians in this campaign making statements that sound good, but if you think about it for more than 10 seconds, doesn't make much sense.
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