Business, Free Enterprise and Constitutional Issues; Pro-Life and Pro Second Amendment. Susan Lynn is a member of the Tennessee General Assembly. She serves as Chairman of the Consumer and Human Resources subcommittee, a member of the Finance Ways and Means Committee and the Ethics Committee. She holds a BS in economics and a minor in history.
Last week in the House there was a huge tiff over TIF financing (TIF stands for Tax Increment Financing).
This tiff made me dig into my archive of government principles that I have collected over the years from great thinkers such as Cicero, Adam Smith and others.
Here is what I found in my notes on the principles of taxation –
namely what are legitimate reasons for the state to tax citizens with a few
added comments of my own.
The duties of a government, as enumerated by Adam
Smith in the Wealth of Nations:
1.“To guard against foreign aggression.”
Smith explains in part I that “the sovereign/commonwealth needs revenue to
finance a standing army.” This is a role of the federal not state government but who does not totally agree with Smith that this is the first role of government?
2.“To secure against fraud or violence.”
We do this with laws, the police agencies, several state agencies and also with our a
system of justice (the courts).
3.“To maintain public projects which
private individuals cannot support with profit.” Thus revenue for paying
for infrastructure (“public works and institutions/projects to facilitate
commerce”) such as roads and bridges and other projects.
a.Years after Smith wrote about public
projects Scottish classical economist JR McCulloch wrote;
have, therefore, precisely the same interest as their subjects in facilitating
production, inasmuch as its increased facility affords the means of adding to
the quantity of produce at their disposal,without
really adding to the
weight of taxation; whereas, on the contrary, a diminished
facility of production must either diminish in an equal degree
appropriated by government, or compel it to lay heavier burdens on its
1.Today, ECD infrastructure grants would
seem to support this concept – e.g. ECD grants might re-enforce bridges so that
truck traffic can safely cross over, or install water lines where none exist,
or pay for high tension electric lines, communications and internet.
2.TIF funding might also counted in this
category. Note that “without really adding to the weight
of taxation” is a
principle for such use of tax money. Thus, in the TIF concept, an
authority is formed by government which constructs a facility that businesses
will use and which otherwise would not have existed. The sales taxes derived
from the businesses in the facility are solely used to pay back the
authority for the construction of the facility until the cost is fully
recouped. After recoupment of the cost of the building, the sales taxes no longer go to the authority but stay in
the General Fund. In the end, without the TIF, neither the building nor
the businesses would exist in their location, neither would the taxes be
generated. With the TIF, once the taxes pay-off the project, the tax
revenue adds to the General Fund. An additional benefit of a TIF is the
wider economic impact of the project such as support businesses to the
businesses who use the TIF project, the potential for added tourism and the
improved status of the surrounding community. Of course, every TIF
project must be evaluated on its own merit for payback, potential revenue
generation and economic impact.
4.“To maintain public institutions which
private individuals cannot support with profit; institutions for the education
of the youth and for the instruction of peoples of all ages.”
a.E.g. K-12 schools, colleges,
libraries, museums and archives would fall into this category.
5.“Expenses of supporting the dignity of
the sovereign.” This too is Smith’s language – we do not have a sovereign
but we do pay our elected officials, state employees and maintain decent
offices in which they can work and we create decent working conditions.
Note that Smith doesn’t include
caring for the poor. The church and charities supported by the wealthy
and the good did such works. He also doesn’t include paying the ordinary
expenses of life, nor the repricing of goods and services considered by some to
be incorrectly priced by the market, nor does he include the redistribution of
income and wealth. Those are contemporary, liberal, socialist economic