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Sunday, August 03, 2008

One source of increased taxes?

It seems almost impossible for government (at all levels) to relinquish control over a dollar that they have historically been able to raise from taxation. Moreover, the good folks running the government are the very ones who are setting taxes, that is, the price for their services.

In the private sector, wages and prices are determined through competition, whether through location, quality, or perhaps price. In the public sector, wages and prices are determined through the political process and the various levels of government are just various levels of monopoly. While a local or county government might face more competition than a state government, because individuals can choose to relocate when the tax burden exceeds the perceived benefits of that burden, at the state and national level there is decreasing competition, i.e., increasing monopoly status.

In the aggregate, the various levels of government could be viewed as a non-cooperative oligopoly or vertically integrated cartel in which each level of government seeks to maximize their take of a set "taxable pie" while recognizing that their actions might influence the actions of other levels of government. The game theoretic approach to the taxation of various levels of government would prove interesting, if it hasn't been done by someone already.

All of that said, what happens when the public sector consistently awards real wage increases (declines) that are greater (less) than the private sector? It would seem that unless government spending declines elsewhere, which is unlikely, that there is an ever increasing pressure on tax revenues. I both pay and am paid by taxes and therefore I am a bit concerned that there is a limit to what the government can take from people before they quit - literally.

From the Bureau of Labor Statistics:

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