It Is Dangerous to Be Right When the Government Is Wrong (38 page)

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So why do we acquiesce to the government taking our property? The answer to that question is wherein the true evil of taxation lies. It slowly convinces the people over time that its subversion of their natural rights is good for them. When our car is stolen by one person, we feel a sense of moral outrage because we know that what happened to us was wrong. However, when we are taught that it is acceptable if the theft of our car is committed by a democratic majority, it institutionalizes a mode of thought that the individual is a servant of the state, clamoring for some small share of its limited resources. In short, as the government sees us, we exist to support it, not ourselves. How better to define slavery?

The Democratic Majority and the Oxymoron of a Progressive Tax

The fact that the public need for taxation was decided upon by a democratic majority, instead of a dictator, should make no difference. After all, recall our “how many men” hypothetical. How many men are needed until it is no longer theft? Similarly, how
much
of a majority should be required, until the will of the individual can be trumped and the trump considered moral? Fifty-one percent? Seventy-five percent? Everyone but you? The fact of the matter is that, as far as a transgression of natural rights is concerned, the difference between a dictator and a democratic majority is not only meaningless, but hopelessly subjective. The only cogent distinction is that in a democracy, more of your neighbors desire to take your property than in a dictatorship.

Consider also that when taxation is called for by a majority, it becomes precisely the instrument of tyranny over a minority. That is the identical tyranny that the Founders had witnessed firsthand and sought to prevent by creating a federal system of government. Consider the following. All of us would certainly favor a system whereby we could “purchase” services—say education, for example—for less than they are actually worth; this is simply the human as a rational actor. The problem is that one group will necessarily be paying for this “windfall” that the other group enjoys; all costs must be eventually borne by someone. In a normal market, this unfair result is prevented by a number of laws which prohibit the taking of value by any means other than voluntary transfer. Stated in other words, these laws ensure that the value we get from consuming a good is commensurate to the cost we actually bore in acquiring it.

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In a democracy, however, the majority can hijack the coercive power of the state in the form of taxation effectively to sell itself services at a discount, with the discount being footed by the minority. To illustrate this point further, consider a democracy solely made up of a majority of baseball fans and a minority of curling fans. If the baseball fans grew tired of paying for tickets to go see their favorite team, they could demand that the government provide this service, and pay for it by imposing a tax on everyone. Because the total cost of maintaining a baseball team is spread across both groups, baseball fans are now enjoying a windfall; they pay less in taxes than the value they get from going to see a game. This difference is, of course, being made up for by curling fans. In other words, by imposing a tax, baseball fans have effectively sold themselves a service at a discount and stolen from curling fans. As Frédéric Bastiat once said, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”

It should be clear that the principal problem is not that the government is attempting to provide services, but how it chooses to finance the provision of those services. With coercive taxation necessarily comes this theft. By contrast, if the government possessed no coercive power and services were instead financed by user fees, the government would simply be the same as any other private enterprise in the economy, and no theft would occur.

This reveals taxation for what it really is; simply another form of majority rule cleverly disguised as government initiative, by which one group can live off of another. That this system of taxation simply functions as another instrument of factionalism and wealth transfer, should be clear.

A similar tendency can be seen in long-term changes in American tax rates. Income tax burdens on both median-income families and the highest earning 1 percent (who possess the greatest amount of political power relative to their numbers) have declined since 1960, whereas tax rates on relatively high-earning individuals have risen. How could this be anything less than one tax bracket (i.e., socioeconomic class) waging war on the other vis-à-vis the political system? Whatever happened to the principle that government is not supposed to recognize castes? Is it any more sensible to have a rule that you can recognize castes, so long as the better-off castes are treated more harshly? The Declaration of Independence (codified as federal law, no less) says that “all Men are created equal,”
not
“all Men are created equal in civil, but not economic, matters.” This was no mistake. It is no more fair or equitable that a majority could live off of a wealthy minority, than a minority of feudal lords could live off of the labors of a majority of vassals. And today, 47 percent of American households do not pay any income tax.

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Breach of the Social Contract

The justification for taxation is typically that, as part of the social contract, we agree to pay money in exchange for governmental services. If, however, some sort of contract exists between the government and the individual to pay taxes, then it is fitting to analyze it in light of other contract principles, particularly the common law requirement that contracts entail a bargained-for exchange, be made by willing parties, and must have good faith at their essence. Certainly, the government shouldn't be exempt from these rules, which centuries of legal history have taught us are necessary for an agreement to be fair and just. If the government were exempt, then that would itself be an open admission that the social contract is neither fair nor just, certainly a conclusion which critics of libertarianism would be loath to admit. Any contract, as to which a contracting party lacks good faith and voluntary choices, is no contract at all.

In essence, the social contract argument says that we agree to pay taxes in exchange for government services, such as defense, roads, and insurance against times of hardship (in the form of welfare); a sort of
quid pro quo
between the government and the individual. In support of the fairness of this exchange, critics say that if one were to reject it by refusing to consume any government services, life would be unpalatable indeed. One could not use roads, enjoy the protection of the police; not even use money to pay for goods and services. And surely we also benefit indirectly from other forms of spending, such as grants to universities to research and develop socially beneficial technologies. Let us pick apart this argument piece by piece.

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One of the central features of contract law is that there needs to be a bargained-for exchange, or in other words, that we are getting something in return for what we give. What is the purpose behind this requirement? It is simply not fair to compel someone to give something up when he is getting nothing in return. It is a hopeless myth that we receive governmental services proportionate to what we pay in taxes. Consider parents who choose to send their child to private school, or the majority of Americans who are not parents of school-age children. They still must pay taxes to support the public school system, even though they receive nothing in return. There is clearly no exchange there.

But, a critic would retort, they are receiving the benefit of living in a more educated society. If this is how we define the benefit, then the parents who do choose to send their children to public school are getting a windfall, paid for in part by the parents who send their child to private schools and by taxpayers who do not have school-age children. Moreover, the law does not recognize such tenuously defined exchanges. If you decided to give your friend a watch as a gift and changed your mind and kept it at the last moment, it is unfair to force you to give up the watch on the grounds that “you are getting the benefit of living in a society that can tell time better.” It is clear that that argument is simply trying to circumvent the requirement of a bargained-for exchange and convince someone that the transfer is something it is not.

More fundamentally, the taxation-as-a-social-contract argument fails on the grounds that it is not voluntary. You must pay taxes whether you like it or not, or suffer the consequences of the criminal law. Critics, however, say that it is unethical to receive benefits and then not pay for them, which is certainly true. Thus when you use roads, you voluntarily agree to pay taxes. However, this justification for taxation must fail. First of all, there is no way to avoid all of the benefits which the government provides, such as the safety ensured by the existence of a military. Thus, you cannot be said to accept those benefits willfully. Second, the government has a legal monopoly over the provision of many of its services, and thus it is unfair to require people to go without those services if they disapprove of the “exchange.” This would be similar to someone draining all the water on your land, and then trying to sell you water at an inflated price. This exchange could not be said to be voluntary; the alternative is to die of thirst.

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Finally, contract law imposes a requirement that parties execute their contractual obligations with good faith. Thus if I enter into a contract with you to purchase cars, and there is a clause which allows me to void the contract if the cars are not fit for use, I cannot get out of my duty to purchase from you if I find one small mark on the inside of one car's bumper. If there is any agreement between the individual and the government to pay taxes in exchange for governmental services, then the Constitution imposes a requirement that the government only make those expenditures which are “necessary and proper” to achieve its enumerated powers. When the government flouts this requirement, as it does when it spends $4.8 million in tax dollars to study bears' DNA, it has breached the social contract. Additionally, many of the “public necessities” at which spending is directed were caused by the government itself, such as war and recessions. This also violates the doctrine of good faith, and amounts to a breach of the social contract.

A Budget Not Even a Mother Could Love

But social justice legitimizes our system of taxation, right? Before you settle on the image of government as a self-described nurturing caretaker, consider the following statistics. America on average gives Egypt, a country which the Human Rights Watch sought fit to characterize as having a “poor human rights record,” $1.3 billion a year in military assistance. Or, what a colleague of mine likes to call “Military Expenditures on Shifty, Suspicious Dictatorships and Unsavory Polities” (MESSD-UP). Interestingly, MESSD-UP's military aid to Egypt works out to around $867 for every homeless child in America, certainly enough to provide each with warm clothes for the winter, that is, if the government were in the business of providing clothes.

“Okay,” a critic will concede, “perhaps taxation isn't legitimized by social justice, but what about stimulating the economy and job creation? Are we supposed to just sit in unemployment lines and wait for things to get better?” In the recent American Recovery and Reinvestment Act, for which the federal government borrowed and spent $1 trillion, $389,357 was spent on researching “the concurrent versus separate use of Malt Liquor and marijuana.” And rather than pay a cover to get into a comedy club, your college student and his buddies can stay in the dorm and enjoy the fruits of $712,883 spent developing “machine-generated” comedy (i.e., robots that tell jokes). Although no doubt fascinating research topics which will benefit society, precisely how these projects relate to “Recovery and Reinvestment” can only be understood while relishing the concurrent effects of malt liquor and marijuana and joke telling. At least we'll have something to laugh about when the Act starts cutting into our paychecks.

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Nonetheless, the government insists that our current system of taxation is justified by social justice, or public necessity more generally. However, this is and always will be a deeply flawed claim. As for social justice, consider the sales tax, which applies both to luxury items and to those goods which are essential to the maintenance of life, such as food and shelter. Everyone pays the same tax on a gallon of milk, irrespective of one's total assets. Thus, the burden of that tax will be much heavier on the poor than the wealthy, because it takes up a higher proportion of their disposable income.

Moreover, taxes on the businesses which produced those goods also raise prices, as do taxes on the materials that went into making them. Thus, the effective tax paid on a good is much higher than the sales tax we see printed on a receipt, especially when considering the numerous hands through which a good will pass before it reaches the end consumer (think of a snowball increasing in size as it rolls down a hill). Ironically, how much of that tax is passed on to consumers is a function of how “essential” the good is. If consumers cannot do without it, such as is the case with food and medicine, then producers can raise prices to reflect the increased cost of doing business without fear of lost sales. This serves to compound the inequitable effect of taxes on the poor.

More fundamentally, the sales tax is a direct affront on the natural right to trade. How can we be free if the government can impair that right? How can we survive in anything more than a hunter-gatherer society without a right to trade? Without this right, the rocket scientist could not trade his services for food, the actor could not trade his services for health care, and the banker could not trade his services for clothes. Infringements upon the right to trade, such as the sales tax, are a substantial impediment to economic development; they reduce the incentive to work hard and trade the product of that labor for other goods and services. In sum, when the middle and lower classes claim that they are being squeezed to death by the skyrocketing cost of living, they should look first to taxation. And lest you think American taxpayers are getting those revenues right back in the form of welfare programs, recall our friend MESSD-UP and its reallocation of wealth abroad.