Friday, February 11, 2011

Commentary on the Moral Implications of Taxation

Mercier, a French physiocrat, stated (to Catherine the Great) that: [t]he science of government… is to study and recognize the ‘laws which God has so evidently engraven in the very organization of man, when He gave him existence,’” and “‘[t]o seek to go beyond this would be a great misfortune and a destructive undertaking.’”[1] Of course, the physiocrats’ arguments didn’t require God’s existence for the existence of natural law. But speaking with monarchs of the time, not invoking God would have been nonsense.

To summarize the physiocratic position (which arose from the work of Locke and others): natural law, like (say) the law of gravity, is already really existing in the world. Our job, as theorists, is to discover those laws. Discovery occurs by experimentation. If a ruler makes a law that is in concert with natural law, harmony will obtain. If a ruler makes a law that is in discordance with natural law, disharmony or chaos will obtain.

According to the natural law position, humans exist for themselves, not for others. That one exists means that one owns one’s self. In other words, property rights begin with one’s own body. This extends to the principle of non-aggression: that no person may rightfully use force against another person “except where the individual coerced has aggressed upon the sovereignty of another unaggressive individual.”[2]

Self-ownership is the basis of property ownership that extends beyond the self. A person owns land, for example, by being the first person to mix her labor with the land – tilling the soil, cutting down trees, building a house, etc. Once first ownership has been established, it can be abandoned or passed down or sold, but any attempt to remove the land from the owner without the owner’s consent is an act of violence. This ownership extends to all the fruits of one’s labor. For example, if I hire you to harvest my apples and agree to pay you in room and board for the duration of the harvest, no one may rightfully force you out of the room, or prevent you from eating (assuming you do harvest the apples and don’t steal any.)

How does this all relate to taxation? Well, a tax is a charge against a person’s property or activity for the support of government. It is enforced through the coercive power of the government. If you think this latter statement is incorrect, try not paying your taxes for a while. Actually, if you work for a business, you can’t really avoid paying taxes unless the business owner goes along with it; although you can try to avoid annual reconciliation. Fines will be assessed first, and if you ignore that, criminal prosecution is possible.

Therefore, a tax is the forcible removal of the fruits of one’s labor, and it is backed by the coercive force of the government. By the natural law position stated above, this is morally wrong. Furthermore, taxation is a (but not the only) cause of discord in a society.

As I see only one argument in response that would not require a refutation of the natural law position, for all other arguments in favor of taxation must refute the natural law position, I will take up that argument now. The argument is that taxation is voluntary. In other words, continued residence in a territory that levies taxes is implicit consent to be taxes. I have two responses to this argument (which is of the “if you don’t like it, leave” variety).

First, if one looks at inter-state migration patterns in the U.S., there is evidence that people move from high-tax states to low-tax states.[3] So, in fact, people do vote “with their feet.” But note there are high switching costs. If you are an advertising copywriter living and working in New York City, the ability to switch to a similar job in one of the no-tax states, like Florida or Texas, is likely to be limited by job opportunities and personal tastes. Other jobs are similar in the sense that they are only available in certain areas. Working in one’s field often is a benefit high enough to overcome differences in state taxes. Nevertheless, paying a state tax comes closer to a voluntary tax than a national tax because of the open migration.

This leads to my second response, that of exiting the national tax scene. There are significant barriers to this. First, one must locate a new country in which to live. That country may have barriers to entry. Second, the costs, especially emotional, of leaving family and friends can be very high. Third, in the case of the U.S., expatriates are taxes by the U.S. government on their world income. So, you can live and work in Hong Kong, but if you are a U.S. citizen, you pay federal income tax to the U.S.

I have made the case, based on natural law, that taxation is a violation of property rights. I have attempted to refute the “voluntary tax” argument by illustrating the very real barriers to avoiding taxes and by pointing out that people do avoid taxation when possible. I have not attempted to refute any “moral obligation to others” argument in favor of taxation since I see that as an argument in favor of charity, which I support, and not taxation.

I will close by offering a solution. Rather than having a overarching federal government that taxes, government should be small and local, like counties. County governments could levy taxes and as long as people were free to migrate among the counties those taxes would not be coercive since paying the taxes would be voluntary.

[1] Henry Higgs, The Physiocrats (1897), New York: The Langland Press, 1952, pg.45.
[2] A. Herbert and J.H. Levy, Taxation and Anarchism, London: The Personal Rights Assn., 1912, pg. 24.


  1. Interesting post


    "According to the natural law position, humans exist for themselves, not for others"

    Is questionable. Questionable not in the sense that that isnt the natural law position as stated by the author, he can clearly "see" it how he wants.
    I'm simply questioning the claim that it is "natural" to exist for yourself and not for others. This a purely human idea not one that has any purchase if you actually understand behavioral biology.

    What does it mean to "exist for your self"? I've never said or thought any such thing.

    How do I go about existing for my self? This sounds like a a social darwinist view of human behavior which has been disabused by years and years of behavioral research.

    When we talk about biologic selfishness of genes and such it has been discovered time and again that all survival strategies which can be called selfish (lead to getting "your" genes to the next generation) involve selfless behaviors. It is all through the "natural" world. Yes there are a spectrum of behaviors/survival strategies that are employed by various agents, but the only ones which have been shown to be self sustaining and not ultimately self defeating are those that are cooperative or selfless strategies.

    In nature, looking out only for yourself is the worst strategy for long term survival.

  2. It's actually a lot simpler than you lay out. It means you aren't born with an inherent responsibility to others. In other words, you don't owe someone anything, just because you were born. It has to do with the natural law position on duty, rather than behavior. I understand other philosophical positions have a different view.

    Now, people often behave as if they have a duty to others. If you have time, I suggest "Bourgeois Virtues" by McCloskey for an excellent treatise on how a combination of Christian and pagan virtues very accurately describe human behavior over the centuries.

    Because people feel they have a duty, regardless of whether or not they actually do, I think most people would choose to live in counties that have some tax to provide some services.

    Finally, let me paraphrase and reiterate the Smithian point about self interest. It's not because the brewer cares about you that he makes beer - it's because he cares about himself and his family.

    Cooperation arises very naturally from a self-interested world view. Self-interest is different from selfishness or autarky. As you correctly point out, it's long-term survival we're worried about. The individual who tries to be self-sustaining, and not trading or engaging socially with others will be very badly off. But the individual who, in complete self-interest, trades and engages socially with others, with be better off.

    I think you are wrong about selfless strategies, but completely right about cooperative strategies. In fact, trade is just cooperation when you get right down to it.

  3. Cooperation is a selfless strategy. Cooperation requires acknowledging the presence of an other who has very similar wants and needs to you. In addition cooperation requires wanting to help that person meet those needs. Now in any society of cooperators there will be free riders who try and take advantage of the selflessness of others. And they will be successful so long as they dont reach too high a concentration. Once there are too many free riders it breaks down. Only purely cooperative (selfless) strategies can survive as the predominant strategy.

    I think the brewer makes beer because everyone else likes it. A brewer may not even drink beer but it is meeting the desires of others that makes him successful (although the FIRST brewer made beer because he liked it and found out others did too)

  4. Selfless, to me, indicates that someone does a thing with no interest in gain. If that is how you mean it, then I disagree entirely that cooperation is selfless.

    In fact, cooperation is very self-interested.

  5. I think we are agreeing here on the basics this issue. My understanding from a biological perspective, which is my personal area of study and yours from an area of economics/finance are simply resulting in using terms differently I think. All creatures are self interested, to be sure. Self interest is as natural as breathing. What I think I am saying is that "self" is much larger than the individual and this is borne out from virtually all studies of animal behavior. We ARE social creatures, first and foremost. Humans are the only animals which can become pathologically self interested, to the point of having NO concern for other, even out and out hatred of others.

    To me, what many libertarians are preaching is a view of man as a NON social creature first. That we are first and foremost striving, in a social Darwinian way, for individual dominance. Survival of fittest. This was a very common understanding of Darwinian forces, even by Darwin himself somewhat. But this has been shown to be incorrect. Life is not a struggle for dominance, its an exercise in mutual cooperation to sustain all life. Nature "understands" that the cheetah needs the gazelle and the whale needs the plankton so it is not a competition to dominate but a mutual agreement to live and let live.

    I object to putting self first, in the sense that too many libertarians mean it. I dont think it leads to a very healthy community/society.

    Regarding your specific suggestion regarding taxation. I think taxes should be fixed and not subject to competition between states. Iowa shouldnt be trying to get people from Minnesota by promising them lower taxes. Compete on other terms. The current environment is a race to the bottom that encourages states to cut more and more in an effort to be the "cheapest" state. I like Moslers ideas in this area. Of course as long as we mistakenly believe that all govt spending needs to be offset by taxation (lest we run a deficit!!!) we will forever be in these stupid, self defeating battles.

  6. Greg,

    I agree with a lot of what you are writing, but I still think you are missing what libertarians are trying to say about the individual.

    Yes, we are social creatures. I don't think anyone denies that. In fact, because we are social creatures and most of us are naturally inclined to care about others (except psycho or sociopaths, I can never keep those two straight), libertarians think that individuals can be relied upon to order themselves into a harmonious society.

    Putting self first is about knowledge. You can't run somebody else's life effectively because you don't know their needs and desires, and you don't know their limitations. You can run your own life because you know all those things.

    Libertarians object to the state controlling relationships. We do not object to governance per se. We do think that governance should be ground up, with a great respect for subsidiarity. You may be interested in Peter Leeson's work on "spontaneous order" which is about how groups govern themselves in the absence of a exogenous state.

    Now, in your last paragraph, you suggest we get a race to the bottom in terms of state services. Maybe so, but that might be a good thing - maybe states provide too many services that would be provided by private markets if the states hadn't crowded out the private market in the first place.