The Vexation of Taxation

Taxation, the government-waged expropriation of the people's property, is the only means available to the government of financing itself. Since the government is a fundamentally coercive rather than voluntary organization, it cannot rely on contributions, and thus must resort to confiscation. Taxation, in the words of Ludwig von Mises, is required "to keep the social apparatus of coercion and compulsion running."

Despite having been the cause of countless wars, revolutions, and depressions - as well as the subject of savage criticism from classical liberals, Austrians, freshwaters, supply-siders, and even Keynesians - the strange system of taxation has endured, so entrenched in society that it is now enshrined along with death itself as one of life's great certainties. Given the cockroach-like survival of taxation amid its own devastating fallout, it is high time for a popular revival of the classical-liberal/Austrian case against taxation. To adapt Henry Ford's equally truthful insight on the Federal Reserve System, if the American people truly understood the nature of taxation, there would be a revolution before tomorrow morning. The fight for freedom must begin in the minds of the people, and there is no greater fight than liberation from taxation.

Economics of Taxation

Economically, taxation is unjustifiable. An income tax - the prevailing tax regime of the federal overlords ruling the United States - expropriates an individual's remuneration for his labor in part or in total, depending on the extent to which the government has enslaved the population. Because a percentage of the individual's income has been confiscated, the most obvious effect of taxation will be proportional fall in the individual's consumption. "By coercively transferring...assets from their producers...to people who have not produced them," writes Hans-Hermann Hoppe in The Economics and Sociology of Taxation, "taxation reduces producer's present income and their presently possible level of consumption." A fall in an individual's consumption entails a reduction in his standard of living, as he now possesses less money ("the value [of which] consists in representing other future available assets") which he can employ in the attainment of his ends.

"Taxation," notes Hoppe, "is not just a punishment of consumption without any effect on the productive efforts; it is also an assault on production as the only means of providing for and possibly increasing future income and consumption expenditure." Since taxation confiscates a percentage of an individual's income, the returns from working in the first place ("marginal utility") are reduced, thereby reducing incentives to work as well. Lowering the marginal utility of work simultaneously raises its opportunity cost as well, meaning that the time/energy the individual is currently employing in work could be better-employed elsewhere, such as leisure. As Hoppe states, "The marginal utility of...producing...is decreased, and the marginal utility of consumption and leisure increased." In simple terms, work pays less, and so less work is supplied. As Murray Rothbard wrote in Man, Economy, and State, "The greater the amount of taxes imposed on the producers - the taxpayers - the lower the marginal utility of work will be, for the returns from work are forcibly diminished, and the greater the marginal utility of leisure foregone." According to Rothbard, as a result of taxation's disincentive effects, "production will diminish even further, as people retreat to leisure or scramble harder to join the ranks of the privileged tax-consumers."

Since people naturally prefer leisure to labor, but are willing to work insofar as they value the money they earn over the foregone leisure, the expropriation of their earnings - taxation - artificially makes leisure more preferable to labor. The result is a distortion called a "substitution effect," in which people opt for government-induced leisure over free-market labor, causing a reduction in the production of goods/services. To the extent that there is an "income effect" (people supplying a greater quantity of labor to offset the effect of taxation), people are still working more for less, and thus their overall standard of living is still reduced, even if they are technically supplying more labor because of taxation. "In rare empirical cases, the [income effect] will predominate," writes Rothbard, but cautions that the individual "will lose the valuable consumption good of 'leisure;' he will have less leisure now than he would if his choices were still free." Rothbard concludes that, "Working harder under penalty is only a cause for rejoicing from the point of view of those living off the producers, who will thereby benefit from the tax." Overall, "The standard of living of the workers, which must include leisure, has fallen."

Finally, taxation reduces an individual's time preference, thus decreasing saving/investment and artificially shortening the structure of production. Time preference is the extent to which an individual prefers present consumption ("instant gratification") over future consumption ("delayed gratification"). As a rule, individuals prefer consumption sooner rather than later, but defer ("save") some of their consumption for a later date. Time preference, however, in addition to an individual's personal characteristics or circumstances, is contingent upon the level of his money assets. Holding all else constant, a higher income yields entails higher time preference, and thus higher saving/investment as well. Since taxation forcibly deprives an individual of his income, however, his time preference is forced to readjust to below what it would have been otherwise. Hoppe elaborates further, describing the effect of expected future taxation of earnings as "lowering the present value associated with future-directed, value-productive efforts," which "reduces the present incentive for future production," and "raises the effective rate of time preference." Because of this reduction in the individual's time preference, a greater proportion of his income will be devoted to consumption rather than saving/investment. Therefore, insofar as taxation artificially lowers individual time preferences, it indirectly penalizes saving/investment, decreases future production, and reduces the standard of living - or as Hoppe puts it "taxation...exerts an inexorable influence of pushing mankind into the direction of an existence of living from hand to mouth."

In addition, however, taxation also directly penalizes saving/investment. According to Rothbard, the taxation of income from investment returns "lowers the return from investing below what free-market time preference would dictate," meaning that after-tax investment returns may be beneath the level necessary to compensate an individual for his deferral of consumption. If the value of a dollar today is greater than the value of a dollar tomorrow, then an individual will only part with the present use of his money in exchange for a future return at the level of "originary interest," or rate of time preference. If taxation reduces that return beneath the individual's expectations, however - such as the rate of originary interest - then he will favor consumption over saving/investment. Rothbard reasons that, "The lower net interest return leads people to bring their savings/investments into line with the new realities; in short, marginal savings and investments at the higher return will now be valued below consumption," and will therefore be aborted. The fall in saving/investment from taxation's interference with the returns from saving/investing shortens the overall production structure, leading to a lower overall production of goods/services, and ultimately a lower standard of living. In the colorful words of Hoppe, "Just increase taxation enough, and you will have mankind reduced to the level of barbaric beasts."

"Benefits" of Taxation

One alleged "benefit" of taxation is that it allows the government to "invest" in goods/services that "society" deems worthy, but the market fails to provide in sufficient quality or quantity. That is, taxation forcibly redistributes private consumption and savings/investment in the productive private sector (i.e. ends which serve consumers) to consumption in the parasitic public sector (i.e. ends which serve political agendas). The entire structure of production, in addition to being shortened from the tax-induced depression of time preference, is now also fundamentally distorted, as resources are diverted to malinvestments doomed to fail given that they express the whims of politicians and special interests, rather than the desires of consumers. Rothbard explains that "capital goods are built, not for their own sake...but in order to use them to produce...consumers' goods," and that "a characteristic of an investment expenditure is that the good in question is not being used to fulfill the needs of an investor, but of...the consumer." However, "when the government confiscates resources from the private market economy, it is precisely defying the wishes of the consumers; when government invests in any good, it does so to serve the whims of government officials, not the desires of consumers." So government "investment" (a popular term to disguise federal profligacy) does not even exist, since the government only uses confiscated resources to satisfy its own ends (consumption), and does not produce goods/services to satisfy the ends of others (investment). The corruption of the structure of production leads to output that is qualitatively (since it is directed to produce malinvestments contrary to consumer demand) and quantitatively (since taxation has shortened the structure of production) inferior to a free-market production structure.

No "stimulus" can be argued to result from subtracting money from the private sector and adding money to the public sector, either. The alleged gross benefits of government spending are irrelevant, because there can be no net benefits. Regardless of the positive benefits to those to whom confiscated property has been appropriated - for example, "the unemployed," or "the disabled," or "the elderly," etc. - those whose property was expropriated still suffer. One class (usually consumers, since government favors consumption) is privileged at the expense of another (usually savers, since government considers saving an act of avarice), canceling out any overall economic gain. Mises, in his magnum opus Human Action, observed that, "At the bottom of the interventionist argument there is always the idea that the government...is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes." Mises rightly ridiculed this "Santa-Claus fable raised by Lord Keynes to the dignity of an economic doctrine" countering that "government can spend or invest only what it takes away from its citizens," and that "additional spending and investment" by the government "curtails the citizens' spending and investment to the full extent of its quantity." Furthermore, as previously established, whatever the government spends in the parasitic public sector is not a reflection of people's actual preferences, as would have been reflected in the productive private sector.

Immorality of Taxation

Morally, taxation is an abominable offense against natural law. Every individual possesses an axiomatic right of self-ownership. Indeed, the right of self-ownership cannot be denied, for every individual is sovereign; there are no collective humans, only individuals. In the words of Frederick Douglas, self-emancipated slave and ardent abolitionist, "It is a fundamental truth that every man is the rightful owner of his own body," and that no "constitution," "deed," or "law" can legalize the divestiture of this fundamental right. Logically, if an individual owns himself, then he also owns his body, his labor, the fruit of his labor, the wealth for which he exchanges the fruit of his labor, and the property for which he exchanges his wealth. Therefore, the entire body of natural rights - famously elucidated by John Locke as "life, liberty, and property" - is derived from the principle of individual self-ownership. Any violation of an individual's natural rights, such as taxation, is ultimately a violation of his self-ownership, and thus a form of enslavement contrary to natural law.

Therefore, at root, taxation is legalized plunder. If it is a violation of natural law to aggress against anyone's person or property unless in self-defense (the libertarian "non-aggression principle"), taxation cannot be understood as anything other than the systematization and legitimization of looting and pillaging, reaving and raping, and other deeds befitting the warlords of old. Taxation is not consensual; it amounts to one party that has decreed itself "the government" expropriating the property of another party, and threatening to employ force against any who defend themselves against this aggression. As John C. Calhoun, eminent antebellum statesman from South Carolina, noted in his Disquisition on Government, taxation inevitably degenerates into "tax-consumers" (in his case, Northern industry) voting themselves the property of "tax-payers" (Southern agriculture). No one has the right (beyond the authoritarian principle of "might makes right") to determine what percentage of people's property to which they are entitled, or what constitutes their "fair share" of taxes; everyone is entitled to 100% of their property, and is obligated to yield none of their property to the government goons which a tyranny of the majority elects to commit crimes on their behalf. Calhoun counseled his native South Carolina and her sister Southern states to resist the depredations of the Northern tax-consumers, whether by nullification or secession.

Statists often screech that "the rich" do not pay their "fair share," regardless of the fact that according to the federal government's own IRS data, the top 1% of tax-slaves pay (if the surrender of one's property under duress can truly be called a "payment") approximately 40% of federal taxes, and the top 10% of tax-slaves pay approximately 90% of the total. Barack Obama, one of the most infuriatingly smug and self-satisfied presidents in U.S. history, has recently trotted out this bit of propaganda in his campaign for greater confiscation and redistribution. The federal colossus' hunger for resources is insatiable. Like any parasite, it will relentlessly engorge itself on its host until the host can no longer survive. Until then, also like a parasite, it will deceive the host into believing that it is "one" with the parasite.

A historical example of the coercion and deception underlying taxation would be the effect of federal protectionism, particularly tariffs, on the antebellum South. For generations, the federal government levied protectionist tariffs which not only punished Southern exports, but also forced Southerners to purchase overpriced or overtaxed manufactures - the former enriching government-protected Northern monopolies, the latter the federal government. When the oppressed Southern states, in 1861, finally declared independence from exploitation, expropriation, and enslavement - i.e. "taxation without representation" - the federal government, erupting in a fit of nationalist fury over "preserving the Union," waged a brutal war of conquest upon the free and independent Confederacy until it was forced to surrender and submit to loathsome taxation once more. Today, the nationalist propaganda of Lincoln and the Republicans - despite its utter lack of historical veracity - has overwhelmingly prevailed, and the people of the states generally consider themselves part of "one nation, indivisible," rather than the Founding Fathers' republic of sovereign states confederated in peace and trade. In the case of the antebellum South, the federal government successfully employed coercion (conquest) and deception ("preserve-the-Union" propaganda) to subjugate the taxpayers, and is still reaping the benefits.

Conclusion

Virtually everything that can be said against taxation was said in the 18th century by the French classical liberal Jean-Baptiste Say. "It is a glaring absurdity to pretend," wrote Say, "that taxation contributes to national wealth, by engrossing part of the national produce, and enriches the nation by consuming part of its wealth." Say elaborated, asserting that "whatever be the denomination it bears...it is virtually a burden imposed upon individuals...by the ruling power for the time being."

Taxation, according to Rothbard, "is eventually a self-defeating process; there is a limit beyond which the top-heavy burden can no longer be carried by the diminishing stock of producers." Given that the present value of the federal government's liabilities exceeds $200 trillion (meaning not that the federal government needs to invest $200 trillion today at a reasonable rate of return for a mere chance of honoring its obligations over the next 75 years), some form of federal default is inevitable. Even if it were physically possible for the federal government to confiscate that much in revenue, it would amount to the total enslavement of the entire world population - "world domination." Even if this totalitarian nightmare came true, Mises proved a century ago that laissez-faire (in particular, the signals of pure prices, profits, and losses) was vital to the sustainability of an economy, without which the optimal allocation of resources is impossible. As the internal dissolution of the Soviet Union showed, totalitarianism's inner contradictions - not foreign intervention - spell its doom. Fortunately, the more likely scenario is the eventual crash of the over-leveraged federal government, resulting in a severe reduction of federal power, including the level of expenditures and taxation. The federal government will not go down without a fight, however; things will get worse before they get better, meaning far higher levels of taxation. As raising taxes begins to lose its potency, the federal government will depend on the Federal Reserve to monetize even more of its ever-widening deficits, which will mean inflating the money supply and debasing the purchasing power of the U.S. fiat currency. To counter the floundering economy, the Federal Reserve will also artificially expand credit, exacerbating the boom-bust cycles which already waste vast amounts of scarce resources in government-created malinvestments.

In the end, however, the federal colossus will collapse beneath its own crushing weight. Taxation, the seeming source of all its power, will be its final undoing. For every tax levied, our federal overlords have sown the seeds of their own destruction. From the ashes, however, a phoenix may arise - a free society founded upon peace and commerce.