The Dangers of Agency

“No free people can long remain free if their government hides, obfuscates or masks its actions and activities.” –  Jay Madison Hamilton

There is an old fable that if you drop a frog into a pot of boiling water he will jump out immediately but if you put a frog into a cool pot of water and slowly raise the temperature the frog will remain in the water until he is throughly cooked.  This fable has been disproved many times.  Frogs do have enough sense to recognize what is going on in their environment and to take action to prevent their own self destruction.  Unfortunately Americans do not seem to have as much sense as a frog when it comes to recognizing that they are about to get cooked!

One of the government’s favorite ways of cooking the citizenry is through the use of agency.  Here I am not talking about your typical government agency like the Agency for Health Care Research and Quality or the Central Intelligence Agency.  (However, you might find it interesting to go to http://www.usa.gov/Agencies/Federal/All_Agencies/index.shtml and check out the number of government agencies and their roles.  That is a topic for another day.)  Here I am talking about the government’s use of other organizations and individuals to perform an action or activity on the part of and for the benefit of government.  Essentially the government asks (or more correctly coerces) these organizations and individuals into acting as an agent performing certain tasks on behalf of the government.

Let me give you an example that we are all too familiar with.  If you work for someone else, your employer becomes an agent of the government (state, federal and local) when he withholds money from your check.  Your employer must take the money he withholds from you,  often  provide additional or matching monies and forward this money on to the various local, state and federal taxing authority.

Now those who prefer this kind of government supported agency argue for it on a number of grounds.  The first is this more efficient for the government because the government must only manage employers rather than individuals to ensure that taxes are collected.  The government can only achieve this so-called efficiency by forcing another entity – the employer – do the government’s work of collecting taxes.  They also argue that this is a more convenient way to collect taxes  from the individual because the individual worker need not worry about making a tax payment every time he receives a paycheck or saving his money to pay the government at the end of the year.  What the government is really saying is that its citizens are not honest enough, frugal enough and trustworthy enough to pay their own taxes.  The government is forcing the employer (the agent) to ensure the honesty, frugality and trustworthiness of its citizens by becoming its tax collector.

These reasons (or more accurately excuses) for the use of government agency hide the real reason for its widespread use.  The real reason for the use of agency is obfuscation – an attempt to hide the actions of the government.  Paying taxes is never a pleasant thing to do.  If the citizenry is unaware and unthinking then justifying and collecting taxes and the concomitant spending becomes much easier for the government.  When the employer withholds taxes, it removes the necessity for the employee to think about taxes and the amount of taxes he is paying.

No free people can long remain free if their government hides, obfuscates or masks its actions and activities.  In a free society government activity must be above board, clearly visible, honestly described and freely discussed.  If our government obfuscates the truth of a situation then it is no better than a totalitarian regime that hides its true activities from its people.  Hiding taxes and calling them “withholding” with the expectation that workers will seldom question them or their validity is fundamentally dishonest and reprehensible behavior on the part of the government.

When the reality of a situation is hidden then people cannot make good decisions concerning that situation.  Let us consider the case of health insurance as an example of the problems incurred in the use of agency.   Approximately 85% of Americans have health insurance with about 60% obtaining it through an employer, while another 9% purchase it directly.  When an employer purchases health insurance or provides other benefits he his acting as an agent for that employee.  Employees see these fringe benefits as a positive thing.  Employers in the past have seen them as a necessary part of the cost of doing business.  However, using the employer as agent reduces the amount of information that the employee has access to and more importantly, reduces the requirement for the employee to make informed and intelligent decisions about the purchase of his insurance.  The end result is the health insurance fiasco that we are now encountering.

One of the reasons for our insurance crisis was caused because employees were unaware of the complex issues involved in selecting health insurance as well as other important issues such as a healthy lifestyle.  These poorly informed employees essentially abdicated their responsibility for making good decisions about healthcare.  In many cases they overused health care and drove up the cost of care.  Health care, for these workers, simply was not an issue that required their serious consideration.  The use of agency restricted employee access to information and impaired their ability to make good insurance and health care decisions.  Employees had no incentive for understanding such issues as unnecessary medical test, indirect costs of hospitals from treating illegal aliens and the indigent, medical and pharmaceutical research and development necessity and cost, etc.  As a result, the employee/citizen could not and did not make good decisions about a range of issues ranging from their insurance policy selection, to  personal lifestyle habits to immigration policy.  In other words, obfuscation brought on by the use of agency resulted in poor decisions.

In the same way, obfuscation that hides the true cost and value of taxes make it difficult for citizens to make good  choices about national economic, fiscal and tax policy.  Those who favor this kind of tax collection argue that the pay stub or earning statement is sufficient because it details the amount of taxes withheld.  Unfortunately, employees usually only look at the bottom line and have little understanding of either the amount or purpose of monies withheld from their pay.  When an employer takes on the role of tax collector that employer removes the necessity for the employee to think about taxes, tax rates, where tax money is spent, the different entities and programs (Social Security, Medicare, federal income tax, state income tax, local income tax, etc.) claiming his wealth and many other important issues.

In my experience as an employer, I found that a full 90% of my employees had almost no idea about what was withheld from their checks or why it was withheld.  They vaguely were aware of income tax withholding, and had some idea that they contributed to Social Security.  Most had no idea how much they were contributing or what their money was used for.

I am not arguing that the use of agency is always a bad idea.  It only becomes a bad idea when one’s personal responsibilities are abdicated and the agent makes decisions for you and without your approval.  Let’s consider an example of agency that most people understand.  Assume that you are a professional athlete, writer or actor.  This being the case, you will likely need an agent to represent you and work for you and on your behalf.  A good agent will perform various tasks and activities for you.  Your agent will contact others to sell you product  or service (book, performance, etc.) and will keep you informed of his activities and provide feedback that is useful to you (your book is too long, the movie requires an older or younger actor for the part, etc.)  The agent has a vested interest in you and ensuring your success because his pay depends upon his success representing you.  The one thing the agent should not do is hide from you the information he collects.  Hiding information from you will only hurt your athletic, writing or acting career and ultimately hurt the agent.

Now consider the performance of the employer who is acting as an agent for you collecting taxes.  Does the employer’s action (collecting tax revenue)  mean he has an interest in your success?  Of course not.  Is the employer’s financial success enhanced by collecting money from you for the government?  Of course not, it is an added cost to the employer.  Does the employer have any motivation or legal or moral reason for informing you about your taxes and tax payments?  No.  The employer is collecting taxes for the government because of government coercion.  The employer is clearly a poor agent in terms of representing you. Further, there is no penalty to the employer for hiding (intentionally or otherwise) information about your taxes and how they are used.  Your employer is indeed a poor agent providing inadequate information and ultimately allowing you to make suboptimal decisions about taxes and government policy.

One other common use of agency is for collecting sales taxes for state and local governments.  The government tasks businesses with calculating, collecting and forwarding local and state taxes.  If and when a federal “Fair Tax” is implemented it will likely be collected in the same way.  The retail business becomes tax collector for various government agencies.  Again, this is a further example of government coercion – forcing others to do the work of government.

Those favoring the employer or the grocer collecting taxes argue that this is an efficient way to collect the tax.  I grant it is.  They argue that the tax payer is adequately informed because the amount of the tax  is documented in the  cash register receipt.  However, few taxpayers are entirely aware of the amount of money taken from them using this relatively benign method.  While this method of tax collection may be efficient, relatively easy to implement, unobtrusive, and effective,  it is  precisely because it is so easy to implement and is so effective, that it is particularly dangerous – especially if used in the collection of a national VAT, or Fair Tax.  The power to tax is the power to control and to destroy.  Any method of taxation used by the federal government must be examined with the deepest suspicion and scrutiny.  While this may be a viable method for use by state and local governments, it’s use by the federal government should be suspect and monitored and controlled closely.  ( Our basic – rather radical – premise is that federal taxes on individuals should be collected by the individual states and forwarded to the central government rather than giving power to the federal government to tax directly.  However, this is a subject for a separate posting.)

Citizens only become truly aware of their taxes when they write a check to pay for them.  Dr. Johnson famously said “ .. when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”  I would paraphrase Johnson by saying that only the act of writing a check to the government will truly concentrate a man’s mind on the truth about the state’s claim to his wealth. Think about it.

2 thoughts on “The Dangers of Agency

  1. Never thought about this before, I am guilty of just accepting these tax deductions made from my paycheck and figuring I couldn’t do anything about it. Good Job.

  2. RE Egypt, and what seems to be an eternally political question: what is best, an executive with strong powers, or a matched legislature?