Monday, September 24, 2007
[C]ompulsory service is a tax on those serving that has many of the characteristics of a very bad tax. It is a tax in kind, on the time of young persons, rather than a tax on income, wealth, or spending. A tax in kind limits the ability of those taxed to respond by substituting toward a more efficient allocation of their resources. In-kind taxes also limit how governments can spend their tax receipts since these tax receipts are not general purchasing power. Universal service is also a narrow-based rather than a broad-based tax. Broad based taxes, such as a general value added tax on all transactions, are better because marginal tax rates, and hence the inefficiency caused by the tax, can be lower for a given level of receipts since the base being taxed is more extensive. By contrast, narrow taxes have high marginal rates for any given revenue, and hence generally distort behavior much more. In the case of service, young individuals who have much better opportunities in school or at jobs that do not qualify will be taxed heavily, as would young persons who greatly dislike spending all their time either in military service or at one of the recognized alternatives.
Narrow-based taxes often are enacted because of the weak political power of those being taxed compared to groups who benefit either directly or indirectly from such taxes. For there is no argument based on efficiency why young persons should be the primary suppliers of the resources needed to fund peacetime armed forces. The effects on efficiency would be better during a major war since then the social cost of the taxes needed to get enough young volunteers for the armed forces may exceed the social cost of a draft.