With a few caveats, standard economic models assume that, from society’s perspective, the payment of a tax constitutes a costless transfer from the taxpayer to the government. The financial loss to the taxpayer is exactly offset by the financial gain to the government, which can use the resulting tax revenue for the benefit of its citizens. In other words, paying taxes forces taxpayers to forgo private consumption, but the resulting loss in utility can be counterbalanced by an increase in utility from government spending. In fact, if the government spends wisely on beneficial public goods that are undersupplied by private markets, then the tax-and-transfer system can produce a net gain in utility that increases social welfare.
Gary M. Lucas Jr.,
The Pain of Paying Taxes,
U. Rich. L. Rev.
Available at: https://scholarship.richmond.edu/lawreview/vol56/iss2/6
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