There are other government programs, which bring a net benefit to the economy when fully paid for by taxes. There are certain goods that society finds desirable but individuals or corporations cannot supply. Consider the problem of roads and highways. Having an extensive system of roads on which people and goods can freely travel greatly adds to the prosperity of a nation. If a private citizen wanted to build a road for profit, they would run into two major difficulties:
- The cost of collection. If the road was a useful one, people would gladly pay for its benefits. In order to collect fees for the use of the road, a toll would have to be set up at every exit and entry to the road; many interstate highways work this way. However, for most local roads the amount of money obtained through these tolls would be dwarfed by the extreme costs of setting up these tolls. Because of the collection problem, a lot of useful infrastructure would not be built, although there is a net benefit to its existence.
- Monitoring who uses the road Suppose you were able to set up a system of tolls at all the entrances and exits. It may still be possible for people to enter or leave the road at points other than the official exit and entrance. If people can evade paying the toll, many will.
"The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain."
Higher taxes which lead to improvements in infrastructure can lead to higher economic growth. Once again, it depends on the usefulness on the infrastructure being created. A six-lane highway between two small towns in upstate New York is not likely to be worth the tax dollars spent on it. An improvement to the safety in the water supply in an impoverished area might be worth its weight in gold if it leads to reduced illness and suffering for the users of the system.
Next we'll consider the situation where higher taxes are used to finance social programs.
Be sure to continue to page 4