Taxation Versus Efficiency; R. Jones

In our day a skilled plumber can assemble pipes more efficiently than a carpenter. Not only does he have more experience at his job, he has specialized tools. By the same token a carpenter can frame a house more efficiently than a surgeon. And that surgeon can perform a heart bypass operation better than a mechanic. And the mechanic can . . . well, you get the idea. Specialization increases efficiency. Effi ciency increases productivity. Productivity in creases abundance. All this should be obvious to anyone. Well, almost anyone. It doesn't seem so ob vious to those who tax us. Consider an example. Bob the Baker wants to build a new house. His plans call for a rela tively modest structure costing $60,000. Going by a rule of thumb, Bob knows that half of the $60,000 will go for materials, the other half for labor. The $30,000 for labor represents twelve months' work, say that of three framers for two Richard Jones is a winemakerlwriter who built his own house in Sapello, New Mexico.

months each, a cabinet maker for two months, a plumber for a month, an electrician for a month, a painter for a month, and a roofer/floor mechanic for a month. Twelve months of labor for $30,000. As a hardworking baker, Bob earns $30,000 a year. Over the past five years he has saved the $30,000 to pay for the materials. Now you would suppose that since he earns $30,000 a year, he can work a year, give the builders that $30,000 and have his new house paid for. Right? Wrong. Of his $30,000, Bob must tum over approx imately half to Federal, state, and local govern ments in direct and hidden taxes. He' faces sales taxes, property taxes, excise taxes, Social Se curity taxes, amusement taxes, state and Fed eral (and perhaps even city) income taxes indeed taxes on virtually anything you can think of. By the time Bob finishes paying his direct and indirect taxes he has about $15,000 of his $30,000 left. Consequently, after taxes it will take him two years, not one, working as a baker to pay the workmen to build his house.

But suppose Bob is pretty handy with tools. He has learned a little bit about carpentry, plumbing, and wiring. The roofing and flooring he can figure out when he gets there. By his estimate Bob can build the house by himself in 18 months. That's six months more than the combined labor of his specialists. Bob figures 81 that he can quit his job as a baker, spend 18 months building his house, then go back to work baking the last six months of the second year and come out $7,500 ahead (after paying $7,500 in taxes on his $15,000 income). Bob stashes his bread pans and shuts down his ovens. He saws and nails and plumbs and wires for 18 months. His house·is finished. Compared to hiring specialists to do the work, Bob not only has his new house, but an extra $7,500, too. Everything's okay, right? Well, it may be as far as Bob is concerned, but what about the economy as a whole? Eighteen months of work went into building a house which should have consumed only twelve months of labor. Six months of lost production means that fewer goods are produced. The economy suffers a net loss.

Whether taxation discourages the employ ment of carpenters or mechanics, of electricians or plumbers, the results will be the same. The more taxation discourages the advantages of specialization, the fewer goods will be pro duced. High taxes might appeal to some people, but they would seem plain foolish to the keen mind of Adam Smith. 0 82 Myths of the Rich Man by Joseph S. Fulda W hen privatization is contemplated for such necessaries as potable water or the streets, the discussion is often clouded by fear of what "the rich man" who provides the resources might or might not do. The rich man might acquire all the drinking water and let no one else drink, or all the streets and let no one emerge from his house. Or the rich man might charge a small fortune for a glass of water or an afternoon walk on the streets, with none to stop him, since he is the owner. The rich man, it is further feared, might provide no water and build no streets. If the state does not provide for us by marketing these resources, perhaps no one will, and society will perish.