The nineteenth-century English libertarian Auberon Herbert wrote that “the first and greatest question [about taxation] is whether to help oneself to one’s neighbor’s property by force is or is not morally right.”5
So much for the U.S. government’s favorite claim that the income tax is voluntary. A tax is about as voluntary as conscription. As Rep. Charles Rangel of New York, a Democratic member of the House Ways and Means Committee, said, apparently without irony, “What makes a voluntary system work is the fear of sanctions and penalties.”6 Judge Learned Hand put it well: “Taxes are enforced exactions, not voluntary contributions.”7
The coercive and unjust nature of taxation has profound implications for any discussion of the morality of government funding. As the late economist Murray Rothbard asked, how can there be canons of just taxation if it is by nature unjust? Beginning with Adam Smith, many economists have offered such canons. But Rothbard pointed out, “If taxation itself is unjust, then it is clear that no allocation of its burdens, however ingenious, can be declared just.”8 For example, it has been said that taxes should treat people in the same situation equally. The “equality” principle sounds like the epitome of fairness. But Rothbard objects: if taxation is unjust per se, the equality principle fails. There is no justice in equal injustice. He applied his objection to the common view that loopholes such as tax exemptions are unjust. Those terms indicate that something is not taxed. Our objection, he said, should not be that some things are not taxed; rather, it should be that everything else is! Uniformity is not just impractical; it is impossible for a variety of reasons. For example, since any tax system must rearrange income through the transfer of money, some people, such as bureaucrats and beneficiaries of government programs, will benefit more than others. That makes the tax system nonuniform.9 Rothbard similarly undermines each of the venerable canons of tax justice by the reminder that taxation is intrinsically evil.
In moral terms, it does not matter that the government claims to render services vaguely in return for tax payments. If a mugger shines his victim’s shoes before absconding with his booty, we don’t change our moral judgment of him. He is still a thief. Why? Because, unlike a trader in the market, he gives his victim no choice; it’s “your money or your life.”
The government does the same thing. The skeptical reader might object that citizens in a democratic society do have a say. They have the right to vote for the officeholders who will decide tax policy; sometimes the people even vote on taxes directly in referendums. Aren’t they in fact taxing themselves? There are many problems with this answer.
To begin with, many people don’t vote. They may have the legal right to do so, but they opt out of the process. Why are they taxed anyway? And what of those who voted for the losing candidates? Maybe those citizens voted as they did because they disliked the tax policies of the winning candidates. Why are they taxed anyway?
The standard reply here is that once an election is held, no one has a right to complain about the outcome: Those who supported the winners got their way; those who voted for the losers knew going in that success was not guaranteed; and those who did not vote chose to leave the matter to others. As the nineteenth-century English philosopher Herbert Spencer pointed out, that argument neatly rigs the game. No one may protest the outcome of an election and the ensuing policies, however burdensome. The democratic system is conveniently immunized against complaint.
If people are taxed regardless of whether and how they vote, it can’t be the case that they tax themselves. In fact, taxation undermines the very idea of a free election because the votes are cast under duress. The most we can establish is that people have some say in who will mug them. But it’s a small say: the chances of being killed in an auto accident en route to the polls are greater than the chances of one vote’s determining the outcome of most elections.
There are other problems with the “we tax ourselves” position. An impressive literature from the “pubic choice” school of political economy demonstrates that the people do not make tax policy, even in the sense that their representatives ascertain and carry out the people’s will with respect to taxes. On the contrary, in practice the legislature acts as a clearinghouse for the bidding and lobbying of organized interest groups, which, unlike the unorganized body of citizens, have the incentive and resources to directly influence government policy for their own benefit. In other words, textbook democratic theory aside, legislators are not even trying to make tax policy in the interest of “the people.” That policy, like most else that government does, is intended to transfer resources from the many to the few.10
One political economist who saw these issues clearly was J.-B. Say in France. Writing in the early nineteenth century, Say understood that taxation was not consented to and that it was not for the purpose of increasing the people’s welfare. What does consent mean, asked Say, when the government gives the people no choice but to consent?11 As to the view that taxing and spending benefit the people, Say pointed out that taxation is a burden imposed by the “ruling power” for its own purposes.12
We thus can dispose of the view that taxation is equivalent to a person’s moving his money from one pocket to another. It is much more like being mugged by a mugger who occasionally shines his victim’s shoes, although most of the time, what’s left on the shoes is not Shinola.
It is also incorrect to suppose that taxes are like dues paid for membership in a club. When a person joins a club, he typically acquires rights to use facilities that belong to others. Dues are the price of access to those facilities. If a person refuses to pay, he is denied membership, not arrested. Taxation obviously works differently. Someone remaining on his own property and not actively using the government’s services still must pay taxes. The club analogy breaks down.
The Income Tax
Those considerations apply to any form of taxation. But this is a book about the income tax. There are moral criticisms that have special application, at least in practice, to that tax alone. Frank Chodorov pointed out that the premise of the income tax is that the government really owns everything. He wrote that it “unashamedly proclaims the doctrine of collectivized wealth.… That which it does not take is a concession.”13
That is the single most important fact about the income tax. It is a blank check for the government. One year it can demand 50 percent of people’s income at the top end. Then it can lower the rate to 28 percent. Then it can raise it to 31 percent. Or it can declare an emergency and demand 92 percent. It can also raise the effective rate in less noticeable ways, by adjusting deductions and exemptions. (Over the years, inflation has grossly eroded the personal exemption.) There is no certain bulwark against such confiscation. In principle, if not in practice, the income tax authorizes total government. The citizen is nothing more than a revenue producer. If he is permitted to keep anything, it is just so he can continue producing for the government. “Whichever way you turn this [the Sixteenth] amendment,” Chodorov wrote, “you come up with the fact that it gives the government a prior lien on all the property produced by its subjects.”14 This is what he meant when he said that the Sixteenth Amendment and the income tax fundamentally changed the relationship between citizen and state in America.
Individual Rights
Chodorov’s words aptly lead us into a discussion of individual rights. The argument to this point has assumed that people have rights; in other words, people are individually sovereign in such a way as to make some conduct toward them, even by the state, off-limits. The United States was founded on that notion. Key documents — the Declaration of Independence and the Constitution — refer to rights. Implicit in the idea of rights is that if someone acquires possessions or earns an income, he has a moral claim in that property. That may seem obvious. But it is not self-evident. This is not the place to launch into a full theory of rights, but the outline of such a theory can be offered.15
First off, rights are necessary to avert violent conflict, the potential for
which, in a world of scarcity, is ever present. Violence is inimical to the human enterprise. To live, human beings must produce, which means, among other things, acquire property. The right to pursue one’s life without the right to try to acquire and control property is an absurdity. As long as people are corporeal, property will be at the center of individual rights. All rights can be reduced to property rights, beginning with the property right in one’s own body and person.
People cannot think, plan long-term, use resources (property), and produce the things life depends on if they are constantly in fear of predators. Life therefore depends on peaceful coexistence among people. The idea of rights makes the fullest coexistence possible by drawing practical boundaries around each person and his interests. By putting everyone on notice about what constitutes a trespass against others, conflict is averted, or at least strongly discouraged. That in turn lets each person go about the business of living productively. (Of course, to live productively in a modern economy means benefiting others through voluntary exchange and the division of labor.)
Rights therefore are conflict-avoidance principles. Since they are based on the nature of human beings and the nature of the world of scarcity, it is entirely proper to use the term “natural rights.” That term also serves to emphasize that rights are not arbitrary conventions or privileges granted by government.
Once we validate the idea of rights, it takes little effort to see that they include the right to whatever one acquires through nonviolent, nonfraudulent methods, such as voluntary exchange. In a modern economy, income is acquired through exchange. (The standard distinction between earned income, such as wages, and “unearned” income, such as interest and dividends, is rejected here. All income peacefully acquired is earned income because it is the result of exchange with willing traders.) People, whether we call them workers or business owners, exchange goods or services or both for money. Investors give up the use of their money now in anticipation of more later. The upshot is that they all begin with something that is theirs by right — their property or their labor — and exchange it with a willing partner for something else. What is received in exchange by the parties is thus theirs by right.
If people thus have a right to the income that they obtain on the market, then the income tax must violate that right. By passing an income tax, politicians claim the right to seize a portion of what people earn. But since the earners themselves have a natural right to that property, the government’s claim is illegitimate. The income tax is an intrusion by government into voluntary exchange between peaceful parties. (That characteristic is shared by other forms of taxation.)
The income tax is but one step removed from government’s claiming a right to the people’s labor itself. It’s uncomfortably close to slavery. If you own the fruit, you almost own the tree. The average American head of family, writes James Bovard, works twenty years for the government to pay his taxes.16 In practical terms, it may be preferable for the government to seize income rather than to commandeer labor directly. But morally, the difference is not great.
Financial Privacy
The income tax is not simply a matter of the government’s seizing income, however. Financial privacy must be compromised as well. If the government claims part of people’s earnings, it will obviously claim the right to know how much money each citizen makes. The tax enforcers cannot carry out their mandate from Congress if deprived of that information. So the income tax provides a reason for the government to acquire a huge amount of data about what were once private matters: the sources and amount of people’s earnings. Information that one might not want to share with friends or even family members must be shared with the government. And people must not only surrender information about themselves; they must also inform on others. When banks pay interest on savings accounts, they must report to the IRS. Casinos likewise have to report winners.
The moral issue here is the impropriety of government’s threatening its citizens with penalties for not surrendering certain personal information. That is a long way from the earlier American notion that government should leave people alone unless they violate the rights of someone else.
An income tax is likely to include withholding; employers are compelled to send part of their workers’ pay to the government before the workers even see it. There is something particularly unseemly about tax authorities’ getting their hands on people’s money that way. Note that tax withholding makes unpaid conscript tax collectors out of employers.
Withholding has an insidious effect on taxpayers. Since they do not get possession of the money before it is taken, the sense of deprivation is vastly diminished or eliminated entirely. And because so many taxpayers have money over withheld and therefore receive refunds, they often look on the IRS as a benefactor. (To permit over-withholding, of course, is to lend the government money at zero interest.) A former IRS lawyer, Andrew Levine, says he has no doubt “there would be a national revolt against current federal taxes if the public paid them on April 15. Withholding provides the key illusion which allows the tax system to function.”17 Another writer has observed that “withholding is important in cutting the pain of paying.”18
In other words, withholding enables the government to raise more revenue from the income tax than it otherwise could. Recall Colbert’s concern, quoted in chapter 1, about minimizing the hissing of the plucked goose. What does this mean for the morality of the income tax? It indicates that the government has felt compelled to hide the true nature of the tax for fear that citizens would not tolerate it. Withholding also pushes citizens further into the status of slaves, since it embodies the principle that the government has first crack at the fruits of their labor. They are then left with whatever the government thinks they should have. (Withholding will be discussed further in chapter 5.)
Another aspect of the immorality of income taxation is the intimidation the government wields against its citizens. This will be discussed in more detail in chapter 3. Suffice it here to say that income taxation, which requires the government to demand of the taxpayers volumes of personal information, will be based on fear as much as force. In this connection, we should note that the IRS pays people to inform on their fellow citizens about possible tax violations. Author and former IRS official Paul Strassels points out that to fear the taxman is not paranoia. “Nothing is more central to the IRS strategy of tax collection than scaring you, the taxpayer, and keeping you that way,” Strassels writes.19 There is something especially odious about a tax that depends on the government’s frightening its citizens.
Why Tax Income?
Fear, withholding, and loss of financial privacy are bound to be part of any income tax. But they are only the beginning of its moral problems. Why tax income? If taxes are seen as the price of vital services, the tax is hard to explain because income is an odd basis for payment. That is particularly true with a graduated, or progressive, income tax. But it is also true of a flat, or proportional, tax.20 That may come as a surprise, since many people who dislike the graduated income tax prefer the flat tax. With a graduated tax, of course, the tax rate rises as income rises. In contrast, under a flat tax the rate is constant. Someone making $100,000 pays more tax than someone making $30,000, but the proportion of income is the same (ignoring exemptions). It is said to be fairer and more consistent with the rule of law than a progressive tax. Adam Smith was one of its proponents.
But is it fair? We don’t pay for other services and products proportionally. A wealthy person pays the same price for Cheerios as a poor person. But that means he pays a smaller percentage of income than the poor person. In the language of taxation, that would be regarded as “regressive,” but few people object to that. Only when it comes to government services and taxation do people think the amount paid, if not the proportion, should rise with income.21
The flat-rate income tax is perhaps theoretically less bad than the progressive income tax, but it is still bad. First, it is, after all, a tax. Second, as a tax on incomes,
the more someone earns, the more it takes. Third, to enforce it, the government will need the appropriate powers.
But we can acknowledge that the progressive tax compounds the evil of the proportional tax by taking an ever larger share as a person’s income rises. Thus, we come to what is known as the “ability to pay” principle, though that principle underlies any income tax. Early in the century, the leading promoter of progressive income taxation was the Columbia University professor of political economy Edwin R. A. Seligman. In several books, Seligman strove to link the ability-to-pay principle to the advance of civilization, arguing that other methods were old-fashioned, unfair, and even reactionary. He claimed to be able to “discern the slow laborious growth of standards of justice in taxation, and the attempt on the part of the community to realize this justice.” What he saw was “the evolution of the principle of faculty or ability in taxation — the principle that each individual should be held to help the state in proportion to his ability to help himself.”22
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