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Sunday, January 9, 2011

Taxation: Call It What It Is

It is often said there are two things in life that are unavoidable: death and taxes. Both are things most of us would gladly pass up if we had the chance but taxes are often seen, by many people, as necessary.

The government needs money to operate after all. It has three options for financing, it can tax us, borrow, or print more money. But the latter two are just different forms of taxation. Borrowing is a future tax and inflation is a hidden tax because it lowers the value of each dollar we hold. So, taxation is how the government gets what it needs to pay for police, courts, national defense, welfare programs, the post office, infrastructure, schooling, college, creating jobs (like paying people to chase tumbleweeds on windy days during the great depression), inspect our food, employ individuals to collect the taxes, take censuses, etc. Money, after all, does not grow on trees (though our current fiat standard is made from trees).

Beyond taxes being our share of the governments activities, what exactly are they? According to Frank Chodorov, Taxation is Robbery! But is he right? Well if we look at it from a value free perspective, meaning we don’t look at it as good or bad but simply what it is, then it certainly does have a lot in common with theft. Both are transfers from A to B without the consent of A. Both also use coercion. A mugger who threatens to shoot or stab you for your money is coercing you into making the transfer. Similarly, just imagine what the government will do if you don’t pay your taxes.

Now a tax is simply a transfer but it also comes with additional costs. They give individuals the incentive to do less of what they normally do, creating a dead weight loss. Think of it this way, if a bully steals your milk money everyday, are you going to bring more, less, or the same for milk everyday? The dead weight loss is the milk given up due to the constant thieving by the bully. Similarly we do less of things when we are taxed. They also cause us to engage in new activities in order to avoid being taxed more. Just as we expend resources to avoid theft, like buying new lock for our door, we similarly expend resources to minimize how much the government takes, such as hiring a lawyer. This costs us billions of dollars a year. And these are resources that could have been put to other, more productive, uses!

Still, there is one remaining catch in order for taxation to really be theft: namely we must actually own the money. It’s not theft if it wasn’t yours in the first place. Some people in social democracies tend to believe the state is the ultimate owner of all property rights. This concept, of overlordship, hardly seems consistent with a free society, as Daniel Klein recently pointed out. Instead, if we believe that we own ourselves and the fruits of our labor then, necessary or not, taxation is robbery!

Download Frank Chodorov’s Taxation is Robbery here.

  • Nicholas Snow is a Visiting Assistant Professor at Kenyon College in the Department of Economics, and previously a Senior Lecturer at The Ohio State University Economics Department. His research focuses on the political economy of prohibition.