The tax levels of many industrial countries are at a all-time high. Yet, despite of the noble intentions of income redistribution, the results have been consistently poor. Therefore, the contradicting progressive argument of not taxing sufficiently is finally after centuries losing its intellectual and practical appeal. Several studies on the optimal level of taxation have been conducted in a variety of countries without arriving at a satisfactory consensus. There is, however, one method that has not been considered for obvious political reasons; voluntary payments towards social programs that individuals feel morally and ethically connected to.
Alongside of being born and dying, paying taxes is something that an individual at a certain point of life is forced to do. One can refuse to pay taxes, but with harsh ramifications. Historically, the evolution of taxation at first may seem to have evolved from quite barbaric methods to a more civilized collection of individuals' incomes. However, the basic premise has not changed. When stripped to its basic core, taxation inherently means that somebody other than you has a higher claim on your private property. Furthermore, it is an involuntary action based on a coercion and threat of violence. Refusing to comply with the unsigned social contract will inevitably lead to a confiscation of individual's private property and in many cases to the ultimate limitation of freedom; incarceration. Consequently, to argue that taxation is the ultimate proof of a civilized society, is unintelligent nonsense.
What is remarkable to hear are the noble arguments made by the progressives, who despite of the dark and ugly history of taxation, still believe in the benign power of involuntary income redistribution. During the Middle-Ages, brutal and violent taxation was meant to strengthen the dictatorial rulers' unearned privileges. In the 15th century, taxes were masqueraded as the admissions fees to Heaven, while the true purpose was to maintain the corrupt power of the Church. After the Industrial Revolution, taxes became the necessary means to finance war-time deficit spending.
Clearly taxes are always associated with misery, brutal destruction of freedom and conflict. In the light of such historical evidence, it is difficult to understand the ideology of the Left, which is supposedly pursuing higher social goals using such a violent income redistribution scheme as the most important tool.Today two major arguments for tax-collection exist. First, the relic argument of taxes being the price for the environment where individuals, businesses and institutions can properly and effectively function ignores the role of competition in the provision of public goods and services. From a purely public policy and finance perspective, public goods and services should be provided in areas where competition between private-sector agents can't be created. Such an argument may have had credibility in times when the technological developments did not occur at today's pace. In other words, public goods and services can be delivered by the private-sector when the government moves away from distorting the competitive markets. Unfortunately, public programs are not subjected to the laws of physics: when something fails, it eventually disappears. But a failing government program, such as taxation, always expands.
The second argument is that through taxation, the economies of scale will decrease the cost per person in the financing of the public sector. In theory, such an assumption is in fact true. However, the theory ignores the role of public deficit spending and the sunk costs of income transfers. It is argued by the adherents of social efficiency that taxes can effectively finance public expenditures when the net-accumulated tax revenues exceed government spending. Such an outcome would require that the benefits of one tax-dollar would be higher than the costs of collecting the dollar. This is not the case. Currently, the costs of collecting and allocating one tax-dollar are higher than the net-benefit from the redistribution. The costs of running the IRS with the administrative, maintenance, bureaucratic and operational expenses are in fact higher than the return from the multiplier effect. Not to mention the IRS salaries, which are generously above the private-sector wages.
Furthermore, excessive public deficits, which arise partly due to the wasteful government programs, need to be somehow financed. Often the government borrows the money to close the gap by selling a variety of debt obligations. However, it is logical to note that only wealthy entities can lend money to the government. Poor people do not have large consumable income, nor savings to be lent out. However, the interest rate that the government must pay in order to borrow money to finance the public deficits is generated out of taxes. But taxes, in turn, are levied on everybody, meaning that the burden of large government expenditures benefits the wealthy, who are lending money to the government with interest. In other words, taxes take the money from the poor and give it to the wealthy to invest in to government debt. Great intentions, but horrible results.
Taxes always create significant opportunity costs when the income of somebody is spent on somebody else by someone else. This begs an important question: How can somebody other than you know what is the best use of your money, hence labor? This fundamental question reveals the inherent and arrogant contradiction within the socialist axiom. If a person's livelihood is dependent on the other peoples' will and motivation to work, such a person is going to reject policies that might diminish the standard of living of the less productive members of the society. Since the existing generous government welfare programs provide acceptable living standards to many, the incentive to free-ride the efforts of others is stronger than the incentive to contribute to the maximization of productive efforts. In a market based capitalist society, such unproductive behaviour is not possible.
The supporters of mandatory income redistribution (a political jargon for theft) can be identified as people, who are first in the line demanding economic equality, but last in the line to contribute. What these Leftists in reality want, is the unrestricted access to the wealthier people's income in order to pursue and finance their own desires, which are always conveniently masqueraded as "public and common goods". When the sad results of their irrational policies become evident, these people always argue that "we didn't tax enough" or "the wealthy should pay more". Never do they admit their logical fallacies and intellectual short-comings.
The underlining goal of taxation is to unethically prove that humans can not voluntarily cooperate. Therefore, exploiting the ethical and moral dogmas as the justification to steal private property exhibits tyrannical and subjective valuations of individuals' moral code. In fact, we as individuals should be left to decide what type of societal imbalances we personally care about. Consequently, the fruits of our labor can be voluntarily donated to the causes that each individual values. By no means do we need a single mind or a moral evaluation of societal priorities to decide to who and whom we should draw our economic calculation problem. But in a system, which prioritizes taxation over individual choice, the noble intentions of the "do-gooders" become hidden means to pursue an unknown end. Using pity, moral righteousness, compulsion and coercion as the main points to justify inefficient taxation proves that the government is always and necessarily the source of the problem.
Originally posted to Captain Capitalism on January, 2014