What the heck is “TANSTAAFL?” TANSTAAFL is an acronym that stands for There Ain’t No Such Thing As A Free Lunch. In other words, there is nothing in life that is free. Conversely, everything in life comes at some cost; if not to you, then to someone else.
The United States of America is at a fiscal crossroads. Ever since FDR’s New Deal, LBJ’s Great Society, and all the way through the huge entitlement expansions by George W. Bush and Barack Obama, we have somehow bought into the notion that there is such a thing as a free lunch. We have raised several generations of Americans into thinking that the government will take care of them from cradle to grave, if need be. From welfare to unemployment to Medicare, Medicaid and Social Security, we’ve increased the size of the welfare state in America to unprecedented proportions. The latest gargantuan leap forward for the welfare state was Obamacare passed in March 2010. Obamacare is the next step toward a single-payer government run healthcare system.
We can get bogged down in all the details of why this is such a bad piece of legislation (and actually may be struck down, in part if not in whole, by the Supreme Court). My point in this article is to bring the point home — There Ain’t No Such Thing As A Free Lunch! All of these ‘wonderful’ government programs that see to the needs of many millions of Americans come at a great cost, and that cost is putting undue stress on the American economy to the point where we’re in danger of watching the whole economy implode.
The concept of the welfare state is based on the principle of egalitarianism. Egalitarianism promotes the idea of equal outcomes. The vast distribution of income levels in the U.S. gives the impression that some are benefiting at the expense of others, and that income inequality is usually based on something nefarious in the system. The welfare state seeks to address these inequalities by redistributing wealth from the “haves” to the “have-nots.” This is usually accomplished through a progressive tax code where the rich pay a far greater share of the taxes that the middle and lower classes.
Sounds nice and beneficent, right? Who doesn’t want to help those who are the victims of unfortunate circumstances? You would have to be cruel and heartless not to help those less fortunate than yourself. Or so the rhetoric goes. However, there are huge moral and practical problems with the welfare state. Let’s begin with the practical.
Currently in the United States, we have 47% of eligible taxpayers who are paying no income tax. In other words, 53% of the country is paying for the benefits of the other 47%. In addition, the move of this and past administrations has been to extend the safety net to more and more people. Practically speaking, there is no way we can continue to allow half the population to live off the other half, and if this proportion grows more skewed, you will not have enough people to tax to pay for the benefits of the rest of society.
According to most recent statistics (2008), the top 1% of wage earners (those making > $380K) paid 38% of all taxes in the U.S. If you expand that to the top 5% of wage earners (> $160K), the percentage of taxes paid increases to 59%. How about the top 10% of wage earners (> $114K)? They paid 70% of all taxes in the U.S. Now if you stop and think about it, $114K isn’t a heck of a lot of money. That’s basically your average middle class suburban family where both spouses work. In these cases, this family more than likely has a mortgage, a car payment or two, plus various other sundry expenses; so it’s not like they’re living high on the hog. Let’s keep going…the top 25% of wage earners (> $67K) pays 86% of the tax burden. Now that’s either a single young professional in a high income field, or a family of two lower-middle class workers struggling to make ends meet. Finally, when you expand it out to the top 50% of wage earners (> $33K), they pay 97% of all taxes in this country. So if you think the “rich” aren’t paying their fair share, it all depends on how you define “rich.” Are the rich the top 25%? Top 10%? Top 5%? Top 1%? Practically speaking, you cannot sustain a system where half of the people pay for the benefits of the other half.
More important than the practical reasons, which are important, are the moral reasons. As mentioned earlier, the welfare state is paid for by tax revenues. The primary vehicle for tax revenue is the income tax. The income tax allows the federal government to tax money from some individuals and parcel it out to other individuals according to their own discretion. If you make more, the government takes more. This is a bad precedent. It’s so bad that the rhetoric in Washington D.C. is how much they allow us to keep as opposed to how much we allow them to take. Whenever a cut is proposed to the income tax code, the liberals and progressives in Congress howl, “How will we pay for this tax cut?” What?!?!? You don’t pay for a tax cut. It’s our money to begin with!
Taxation is essentially a form of legalized theft. The government takes from you by force and gives it to another who didn’t earn it. If you don’t believe taxation is by force, try and not pay your taxes and see what happens (unless you’re Timothy Geithner). Now think this through with me for a moment. Suppose you were out of work and needed to put food on the table. Would you walk up to your neighbor and hold a gun to his head and ask for a handout so you could eat? Absolutely not! When people do this, it’s called theft and we put people in jail for this. OK, if it’s wrong for people to do this to one another, what makes it right for the government to do this to us? Have you ever stopped to think how many of the things the government is ‘allowed’ to do would be considered crimes if we did them?
One might say, “Well, the income tax was passed as a constitutional amendment back in 1913 with the 16th amendment.” OK, since when does something being legal make it moral? The 16th amendment tax makes it legal for the federal government to forcibly take from us the fruits of our labors and give to others who don’t deserve it and haven’t earned it. However you want to spin it, it’s not moral to take from some and give it to others; forced charity is not charity.
We can get into all of the perverse incentives the welfare state creates, such as reductions in private charitable giving, generational dependence, and the movement of capital from here to overseas. The more you raise taxes the less revenue you end up collecting because you drive people to move their capital overseas or seek out other tax shelters. It is immoral to take from some to give to others. It is immoral to force charity. It is immoral to create a whole generation of people dependent on government handouts. It is immoral to create incentives for people to act illegally to protect their income from the government thieves at the IRS.
I trust I’ve made myself clear — There ain’t no such thing as a free lunch. Then what’s the solution to the welfare state? The ultimate solution is to abolish the welfare state. What?!?!? Yes. Abolish the welfare state. It’s immoral and impractical, why would we want to continue it? Of course, practically speaking, we can’t abolish it immediately. Despite it’s immorality and impracticality, promises have been made by our government to recipients of social security, etc. However, we can, and should, begin a serious phase out of the current programs by allowing younger people under a certain age to opt out of the program. The loss of revenue from their payroll taxes can be made up by cutting other government programs such as the overseas wars that are helping to bankrupt us. We would also have to phase in an increase of the retirement age as well as adding means testing to the program (those who earn more would receive less).
The bottom line is we need to get back to a philosophy of self-reliance and charity rather than a philosophy of dependence on the state. If people were allowed to keep 100% of what they earned, not only would they be better able to take care of themselves, but they would be more motivated to give to charity or help their neighbor. I know there are some who think that if the government doesn’t do these things, they won’t get done. I emphatically disagree! Not only will these things get done, but they’ll get done more efficiently and more compassionately. The more government involvement we have in our lives, the less free we are to live our lives. If you want cradle to grave welfare, then be forewarned. Not only may this system not be around for you to enjoy it, but when it comes time to distribute the scarce resources the government has confiscated from us, don’t be surprised if the government begins dictating stipulations on how to live your life.