A friend asked the
following question:
"If
you don't pay tax you end up in prison. Therefore is tax theft, or is it the
price we pay for a civilised society? If it's the price we pay for a civilised
society, then it's not one we ever had a say in. Therefore it's a kind of
theft, but one we appear to allow to happen to us?"
The best way to answer
questions like this, I find, is to reverse the method of questioning somewhat.
In asking whether tax is theft, or synonymous with theft, we are actually looking
at the properties of something definitely bad and asking whether the other
thing shares some or all those properties.
On top of that, when we
consider what is wrong with something, and enquire as to whether the other
thing is comparable in terms of wrongness, it is often useful to compare its
fundamental principles to other things in society. I will do both those things
in this blog post.
The second one first. If at school you deliberately
break little Johnny's mum's window, your parents should compensate them. If you
break someone's window as an adult, you should compensate them. This has an
analogue with some of the negative externality taxes like pollution.
On the other hand, if the
local gangster goes round small businesses and obtains money through a
protection racket, or if poor Tom takes some of rich Jack's lunch money in the
school playground, this doesn't seem so good, even though it is tenuously
analogous to how the state treats its citizens.
Apart from in spirit, the local gangster forcing restaurant owners to fund his own lifestyle is not hugely different
to how the state forces me through taxation to invest in services I seldom or
never use and policies to which I am wholly opposed.
To that end, I'm afraid the
properties of taxation do all too often share some of the fundamental
properties of theft. If Jack steals Jill's laptop, then Jill is the victim to
about the same extent that Jack is a beneficiary. But the wrongness of theft is
the moral wrongness that harms society, plus all the other negative spillover effects
that I'll come to in a moment.
The wrongness of taxation
is that it forces consumers to spend our money on things like establishment
pay, layers of bureaucracy, small business subsidies, bailouts and
transportation projects that we otherwise would not. To that end, a lot of
taxation is a little like theft in terms of the consequences to the consumer,
but it more closely resembles a protection
racket (but not wholly, as we'll see in a minute).
The other thing that tax
and theft have in common is that they both impose value-robbing opportunity
costs on society. When Jack designs a mousetrap, or provides a taxi service, or
cooks pizzas, he adds value to society. When he steals Jill's laptop, he inflicts
all the costs on society that crime imposes, but he also forgoes the opportunity
to do something productive.
Taxation has similar opportunity
costs. While taxation transfers funds from one place to another, and in a
costly way, it doesn't produce very much. There is a small sense in which
taxation sustains parts of society (defence, rule of law, and other public
goods) that enables others to produce, but there are enormous opportunity costs
to taxation that misallocate resources by being out of kilter with supply and
demand, and as a consequence rob society of a lot of value.
Taxation and theft also rob society of value by diminishing the number of mutually beneficial transactions that occur, because they both increase the cost of trade, and therefore increase the prices that businesses have to charge. The opportunity costs of taxation and theft are the aggregation of all the forgone opportunities for trade - the mousetraps that don't get made, the taxi rides that never happen, and the pizzas that never get cooked.
Some people struggle with
this notion, but it's easy to see its truth by imagining a more extreme
example: a country ruled by a greedy dictator who taxes the life out his citizens
and allows lawlessness to occur. The costs to the citizens are not just the taxes
and the crime - the more acute costs are all the lost productivity and prospective
innovations that never materialise because of the taxes and lawlessness.
In summary, then, taxation
and theft share many of the same properties - but theft is a bit worse because
theft always engenders net costs on society, whereas tax mostly does, but not
in every instance.
Every instance where tax
goes towards providing something that could, and should, be provided privately,
taxation has similar properties to theft. Every instance where tax goes towards
providing something, like a public good (defence, rule of law) that is more
valuable to society than the cost of the tax gathered, taxation is a lot less
like theft - it is more like a compulsory insurance policy that provides
societal benefits that would otherwise be more difficult to obtain because of
the free
rider problem.
