When goods and services are free, people tend to consume more of them. Does this maxim apply to government spending and taxation? In other words, when people can receive federal benefits without paying taxes, do they demand more of them even if they’re funded by deficits? That possibility troubled John C. Calhoun. In 1810, the American politician and political theorist wrote that an “unequal fiscal action of the government” divides a community into two classes: taxpayers and tax spenders. James Madison also worried that the wrong type of fiscal system could create a profound conflict in the political culture and create irresistible pressures for the government to spend more and grow more.
Economists call this phenomenon the problem of the fiscal commons, and its consequences can be seen in trends in the distribution of federal tax liabilities…
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