Thursday, February 13, 2014

Where Government Money Comes From

Jacky Hood writes,

> All government grant money comes from taxpayers.

Unless this means, trivially, “all money comes from someone”, then the statement is false.

A certain amount of money comes from resource royalties. If the resources are destined for exports (as most are) then taxpayers do not contribute to this revenue at all.

Similarly, a lot of government revenue comes from profits on operations. Here, for example,  the government runs the liquor store, and makes a profit. This money is returned to revenues. Crown corporations (ie., government-owned companies) in Canada run energy utilities and used to run telecommunications companies. These can make money, and when privatized contribute a sizable amount to revenues.

Governments also make investments. The most famous were the investments the US government made into banks and the auto industry after the 2008 crash, which eventually returned them a profit. But governments make loans (not all of them forgivable) all the time.

Governments also obtain financial leverage though ownership of assets. When France sold Louisiana, or Russia sold Alaska, they were converting these assets. Even though it’s hard to imagine similar sales today, governments sell or lease large numbers of their assets. Even our province makes money by leasing campsites on crown land.

Why is this important? Because the language of “all government grant money comes from taxpayers” is calculated to create a negative impression of government investments and government spending. This negative impression should be countered as it reflects more propaganda than truth.

Indeed, even money paid by taxpayers that becomes grants might not actually represent a cost to taxpayers. A grant to an OER agency, for example, that results in significant savings for students and higher education institutions, may result in *less* money being paid by taxpayers. In such a case, the statement that the money “comes from taxpayers” completely misrepresents the impact and flow of the money. This isn’t a case of spending their pizza money, this is a case of *giving* them pizza money.

We may as well say “all private enterprise earnings come from taxpayers”. The level of support for private enterprise is so significant, the scale of the public subsidy so massive (through everything from free infrastructure to fire and police and military security, though to trade laws, patent protection, and other rules and sanctions, government investments, loans and incentives, and more) that if it were not for taxpayer intervention, private enterprise would not be able to exist at all.

The argument that government grants represent a taking of funds from individuals and enterprises is misleading and unsound, and should not be propagated implicitly or overtly.

-- Stephen


  1. You are being disingenuous: 95% of a government's income is from taxes. There might be exceptions, like Norway, Saudi Arabia and Alberta... but let us be realistic here. Government money comes from taxes.

    If you wanted to make your case that government spending does not have to come from taxes, then it would be easy. Governments have monopolies on the creation of currency so that Canadian government could literally abolish taxes and print out its money. Stop for a minute and think: why doesn't it do that? It is an interesting question that tells you much about the importance of taxes for governments.

    While it is true that many government expenses have a high private return on investment... many don't:

    *) Military spending makes us poorer. And Canada spends billions and billions on tanks, planes, soldiers...

    *) Hunting down pot smokers makes us poorer. Do I need to explain why?

    *) In Quebec, we routinely expose politicians as gangsters. If you are unaware of this, please Google it. These gangsters divert our wealth to their private interests. That makes us poorer.

    *) Generally, governments do not spend their money to maximize the private return. Public choice theory ( gives us a more realistic view. Government agents spend the money to further the goals of the... government agents.

    When a politician allocates X$ to Z, he does so because it furthers his own advancement. This is also true of civil servants. Like it or not, governments are made of people who seek to become, individually, better off.

    To put it differently, show me someone who has been a major politicians for 10 years, and I'll show you he is a millionaire, even if he started out poor.

    So do government spend a lot of OER? You might think that they do because it greatly benefits the people. But I suspect that they don't because it does not benefits typically lobby groups and it harms publishers.

    So you are being disingenuous by implying that governments try to provide a good private return on their spending. When it does happen, it is just accidental.

  2. > You are being disingenuous: 95% of a government's income is from taxes.

    You have a source for that?

    Note as well that I said a lot of money is created as a result of government spending. Government investments in things like highways make commerce possible. So when you're saying 'government revenue comes from taxes' you need to subtract from that number the amount paid in taxes that wouldn't exist without the government spending.

  3. Of course, government spending does create economic activity which generates more taxes. So when the NSA invests billions in monitoring us, it has to spend a lot of money buying computers, training people in how to monitor our emails and so on. The contractors and employees of the NSA pay taxes.

    Of course, the "95%" is a made up number. The actual percentage will vary from government to government, but it is easy to verify that most of a government's income is from taxes (e.g., see

  4. So even your example shows non-tax revenue to be much less than 95%. And a significant portion of our taxes - money that is used to pay for health care and education, for example - would not count as taxes in other nations, where you pay the providers directly.

    I'm not denying that a good amount of taxation is spend poorly - the spying agencies are a good example. But this observation does not make me wrong.


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