Is taxation theft?

Do we have the right to exert our economic power unchecked?

Posted on 06 May 2017 by Andrew Berkeley

Alex Douglas recently posted an article entitled Taxation is Theft?. As usual, I find what Alex says very compelling but it reminded me of a line of thinking that usually occurs to me when I think about the question of taxation and particularly the moral basis for taxation.

The idea that taxation is theft seems to arise from the idea that the economy is a fair competition and therefore whatever one is able to obtain by selling their labour or employing their captial in this marketplace is justly deserved. The earnings are the rightful property of the individual. The implication is that if the state opts to commandeer some of this property (via taxation), then that is equivalent to theft.

The are many lines of argument one can take on this position, but the question that occurs to me is whether it is true that what we obtain on the market is justifiably earned/deserved. And I am not convinced that it is, or at least I do not think that it follows obviously.

It seems an obvious fact that individuals find themselves in differing positions with respect to their abilities to derive incomes and accrue wealth. There are probably an endless amount of reasons for this, and all I can do is list some of the more obvious ones that occur to me. Some folk may be simply extremely intelligent or talented - that is they have a genetic disposition to being highly useful and effective individuals. Other folk may have been nutured well in terms of parenting or schooling. In some cases this may include parents that could simply afford extra or better tuition or could provide useful networking oppotunities. Some folk may be simply prepared to work harder than others, either in applying themselves to their work and/or in their learning and development. Some folk may have inherited wealth which enables them to command income passively. Others may have been simply blessed with great luck or misfortune in being in the right or wrong place at the right or wrong time.

Whatever the reason(s), we can think of the ability to command a particlar level of income as their “economic power”. Those with greater economic power are the ones that can enter the marketplace and, by virtue of their talent, intelligence, work ethic, inherited wealth (for example) or whatever other reason, can end up with a greater portion of the economic pie than others. We can debate whether any of the possible reasons for economic power should be considered to be justifications for the associated income levels. Is it right, for example, that someone find themselves earning many multiplies of what most folk earn simply because they had the luck to be born with certain genetics or to rich parents? Should remuneration be proportional to hours worked? However, that is not where I want to go. What I want to ask is, if we accept that folk have varying levels of economic power (which seems obvious to me), does it necessarily follow that folk should be allowed to exercise this economic power in an unchecked manner?

To consider this, I like to think of an analogous type of power: physical power. It is surely equally a fact that individuals have varying amounts of physical power. This might reflect size, strength, speed, stamina or other physical attributes such are eyesight or balance. Or it might reflect an ability to influence others to use their physical power on your behalf. Now, it is obviously possible for individuals to exploit this type of power in the commandeering of resources. I could steal from you, murder you, take your home and your wife, and slaughter your children, all if I have greater physical power than you. Indeed, this is a way of life for many species on Earth and has probably been a factor in most human societies to a greater or lesser extent through history.

However, at some stage, humans (or maybe proto-humans) arrived at what looks like a fairly unanimous view (I might be being overly optimistic there) that physical power is not a sufficient basis for social relations and allocating resources. We (mostly, I think) do not accept the right of a stronger individual to kill, rape or steal from another, weaker individual. We do not believe that because someone is capable of obtaining property via their superior physical power then it necessarily follows that they ought to obtain it. We simply reject that there is a logical link between the two.

And it is on this theme that I think of the economy and economic power. It is a fact that some folk are capable of obtaining a greater income than others. And, given that the economy is all about allocating real resources, this translates into differences in the size of claims over the aggregate economic output between individuals. Does this fact alone - that there is a capability of obtaining more than others in the marketplace of the economy - necessarily imply that those folk ought to commandeer a greater portion of real resources? Does it necessarily follow that those folk that can, derserve that greater portion of the pie?

Well, my tentative answer is that we unamimously reject that logic when it comes to physical power, so why should we accept it prima facie in the case of economic power? If we refuse to accept the unchecked use of physical power, then why should we allow the unchecked use of economic power? This point doesn’t demonstrate that folk don’t deserve what they earn, but simply that it doesn’t follow logically and trivially that they do. If you want to argue that, then you need something extra than simply an assumption that the ought follows logically from the is.

This was a long-winded way of saying that I don’t accept that it is immediately obvious that what one earns they deserve to keep. And at the fear of setting up a strawman, this seems to be the argument that is offered by those who complain that tax is theft: that it is trivially obvious that what they have earned is what they are justifiably, morally entitled to and no further line of argument is required. Well, I don’t deny the possibility of an additional argument convincing me, but I do think an additional line of argument is required.

There are a number of reasons one can appeal to to justify taxation, such as driving a demand for currency, making real resources available for the government to purchase, redistributing wealth, and incentivising particular economic behaviours. But, to the extent that taxation is progressive, it can certainly be seen as a check on economic power. If we do not accept the right to unchecked economic power, then we might accept that taxation is simply a way to limit the exercise of this power.