Physics isn’t my strong point, but I’ll try to explain the concept of friction without sounding too much like Cher from Clueless.
Friction, like, concerns moving objects and, like, the effects, like,
of the resistance they, like, face. It means that the objects lose
momentum. When they face significant resistance, the objects lose mass.
And so it is with tax money that leaves our pockets, goes to the
government and gets given back to us.

Politicians are arguing
about tax, work and welfare because of the amount of money that is
dissipated as it moves about. This financial friction is looked at in a
new paper out from the Centre for Independent Studies today, ‘The $85
Billion Tax/Welfare Churn’.

The paper analyses how the welfare
state might be transformed to give ordinary people more control over
key areas of their lives which are currently managed for them by the
government. Radically, it argues that to a large extent, we no longer
need the welfare state. “Most people could afford to buy most of the
services they need if they weren’t taxed so highly to pay for the
services the government wants them to have,” it says.

Government now spends $80 billion every year on
welfare payments, and another $94 billion on services such as health
and education. This spending absorbs two-thirds of all the federal and
state taxes raised each year.

Many people who use welfare state
benefits and services finance most or all of what they receive through
the taxes they pay (‘simultaneous churning’). These people could
by-pass the welfare state altogether if they were allowed to retain
their money and buy the services they want out of their own pockets.

Nice
and simple. It’s nicer and more efficient to spend your own money
rather than giving it to government and then letting them hand it back
to you – after taking a chunk out to pay for the process. Cher in Clueless
lived in Beverley Hills. There, people pay for dog walkers. That’s fine
if you’ve got the money residents of the 90210 zip code have – but it’s
better for your own health to walk your dog yourself.

And it’s
better for your financial health to spend your own money rather than
paying some cardie-clad bureaucrat to trot round with it for a while.
“Increasing self-reliance should be our long-term reform objective. But
it will not happen until politicians allow us to keep more of our own
money and trust us to make our own decisions about how we want to spend
it,” the CIS says.

The full paper is available here.

Peter Fray

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