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07/14/2005: "Self-taxation"

I read, a while back, a quote that describes the tax system as this: Take a group of people that each has a handful of peanuts. Take one peanut from each of them (taxation), throw half of them away (economic friction), and give the rest to one person (beneficiary). Unfortunately, I have since lost the source of that quote, so I can't tell you who to attribute it to.

It occurred to me yesterday to compare this behavior to lotteries. Everybody participating in a lottery gives a small portion of their wealth to buy a ticket. The lottery organizers use or give away part of the source money (some to run the lottery, maybe some for profit, it is also common here to use lotteries to fund community non-profit groups). Finally, one person receives the windfall from what remains in the source money. In effect, the participants tax themselves.

There are more parallels, too. In a lottery, if you buy more tickets, you have a better chance of winning the lottery. In taxation, if you are taxed more (typically a penalty of the misdeed of earning more), the government is more likely to pay attention to your needs, although this effect usually only works if you voluntarily give additional taxes through lobbying.

While being a close analogue to a tax system, there are some differences that make the comparison a little less amusing. Taxation by lottery is purely voluntary, while government taxation is enforced by government's authority to use violence. Also, the outcome (beneficiary) of taxation is usually specified before the taxation happens, while the outcome of lotteries is unknown until after everybody has paid in (assuming, of course, the lottery organizers aren't corrupt, as has happened).