On the legitimacy and morality of taxation

These are two questions that I have been wrestling with. First whether the concept of taxation of individuals by a state is legitimate and moral, and second, what basis of taxation is the least unjust. Here I just consider the legitimacy and morality of the concept of taxation.

Anarchists and libertarians see taxation as theft. They see it as the oppression of the individual (private or corporate) by the greater society – ostensibly for the “common good”. Communists and socialists see it otherwise. For them there is no individual ownership of property and all wealth is owned by the masses. It is a manifestation of the conflict interface between an individual and the larger society. Some – libertarians for example – suggest that the “greater society” cannot abrogate to itself an authority which is not delegated to it by its individual members. And the power to confiscate the property or wealth of some of its members is not an authority that originates with the individual “victim”. Liberal democrats would argue that taxation is merely the membership fee for individuals to be part of the “club” represented by the “greater society”.

There have been many headlines in the last week about HSBC and the manner in which it has assisted its clients to avoid and evade taxation (where avoidance is legal whereas evasion is illegal). The indignation of politicians rings rather hollow. That the poor resent the rich is not surprising. It is inevitable that in a “democracy” the majority poor will seek to oppress the rich minority. But the bottom line is that all taxation is a confiscation of an individual’s property or wealth by a society (state). It is confiscation by force or under the threat of force. But much of the recent turbulence is based on envy and resentment and of various socialist politicians attempting to create a populist wave out of such resentment and envy. (Of course they conveniently forget that the poor are not poor because the rich are rich. Most are poor because they do not, or do not have the opportunity to, create wealth).

I am persuaded that the concept of taxation as practised today is immoral. It is fundamentally a coercion of an individual by a larger (stronger) society. It is an enforced confiscation (by threat of legal action) of an individual’s property or wealth. It cannot be seen as a membership fee for being a member of the society because leaving (or being expelled from) the society is not an option. It is closer to the extortion of “protection money” than to the membership dues for a golf club. The use to which the funds are put is irrelevant. The key point is whether the payment is voluntary or coerced. When early Christians paid a “tithe” to the Church voluntarily it was not immoral. But when the payment was coerced and no longer voluntary, the system became immoral. Similarly Islam requires the payment of zakat on individual wealth over the minimum nisab and this also shifted from a quite unexceptionable and moral voluntary payment to become an obligatory and immoral coercive confiscation.

I don’t quarrel with the need for any society to generate “common funds” to improve the well being of that society. But the legitimacy of appropriating the funds lies only in that the society (state) is stronger than the individual. Might becomes right. I come to the conclusion that a tax code by which the amount a “good citizen” should contribute to society is calculated is quite moral as long as the payment is then voluntary. There would be no moral issue if all taxation was voluntary. The immorality lies in the use of threat or force to confiscate the payment. It is the oppression of the minority by the majority which is immoral. (I observe that all democracies use the very fact of being a “democracy” as being a justification for the oppression of minorities when that is the will of the majority. As if being in the majority – by and of itself – ensures proper behaviour). But, the good socialist will argue, compulsory payment of tax is necessary to ensure the funds for the common good. Without coercion society as a whole would suffer. The common good – as seen by the majority – is worth the oppression of the minority who do not pay their dues.

And so we come full circle. The end justifies the means. Oppression of the minority by a majority is acceptable for the good of the majority. A society must be able to use force and coercion against its own minorities for the greater good. Taxation is made legitimate only because the state is stronger than the individual.

But that does not alter the fact that involuntary taxation is fundamentally immoral.

Whether a tax code should be based on wealth creation or wealth consumption is a question for another day.


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3 Responses to “On the legitimacy and morality of taxation”

  1. Peter Shaw Says:

    We were a social animal long before formal morality. I suggest the economy embodies grassroots social traditions as success factors.
    Orthodox economics has many ambiguous terms, notably “tax” and “inequality”, so to progress we must clarify these.
    General tax, personal tax, and tax on capital have very different functions, so confusing them leads to muddle, misunderstanding, and improper exercise of proper power – which (I think) is your “immoral”.
    In personal taxation, I suggest that organised religions (and others) err when they “take a living out of the business”. If the “tithe” was spent to the penny in benefiting the needy (individually or group), we might restore the original function.
    This presents the affluent taxpayer as acting responsibly, from enlightened self-interest, or your “morally” (take your pick).
    Conversely, the needy will have reasonable expectation of essential benefit – easily mistaken for thriftless greed.
    I think little coercion would be needed for such a tax, if the taxpayer knew on what and for whose benefit their tax was spent.

    Curiously, I estimate that one-tenth may still be about right.

    • ktwop Says:

      I agree that “immoral” is subjective and rather loose in my usage.
      If the sum of enlightened self-interest coincided with the “needs” of common funding then there would of course be no need for any coercion. But that is Utopian.
      I have a problem when a majority – by mere virtue of being a majority – is always “right”, always “moral” and always on the side of the angels.

  2. karlspain Says:

    I enjoyed your piece immensely. Thank you for the quality time you spent thinking about this issue. I respectfully contest your basic premise for two reasons. You mistakenly attribute the person’s private wealth to their activities, withholding the financial credit that must be subtracted for their education, safety from cars (traffic signals) and foreign enemies (aircraft carriers), and many other threats that they were either too young (children are protected before becoming wealthy) to protect themselves from; or are unable as an individual to construct regardless of wealth level (bridges, tunnels, atom bombs, hydro dams) and hospitals, all of which the wealthy need beyond their level to fund with voluntary taxes.
    I challenge the morality of your premise as well, I think a person, say Bill Gates, who has made billions because he lives in a world created by the governmental, regulated, interconnected, Internet wired world, could never have had that success without that infrastructure and education down payment by taxation funded entities, of course, he should share that wealth with them through taxation and philanthropy and he has done both generously. I salute Bill Gates.
    The corporation he derived that wealth from unfortunately, like all big corporations in America today, did not and does not pay it’s fair share of taxes. How bad is it? Thirty years ago 3 in 10 dollars collected by the Treasury was from Federal corporate income taxes on corporate profit. Today that number is 1 in 10 dollars collected from corporate income tax on profits. Our economy is strangling because the huge corporations are skimming off a cool $500 billion a year and distributing it to the employees and shareholders, the wealthiest 2 % of the country.
    You are right that tax policy can be unjust, at the moment in America, it’s very unjust, but not because corporate income taxes on profit aren’t high enough, it’s because they’re a third of what they should be. Since the effective rate is 35%, you may wonder how that could be. Look up what they pay, not the rate. 19 of the top 100 NYSE companies paid nothing, not a single cent, some of them with over $100 Billion in sales and $25 billion in cash flow, but mysteriously under our tax code, no net income. Fly by night companies like GE, Exxon and banks like Citicorp that exist here, get the protections of our economy and military, but don’t pay corporate income taxes, some of them like GE, for 20 years in a row. We need to fix that, not abandon taxation.

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