To make its way into the good will of its victims, taxation has surrounded itself with doctrines of justification. No law which lacks public approval or acquiescence is enforceable, and to gain such support it must address itself to our sense of correctness. This is particularly necessary for statutes au­thorizing the taking of private property.

Until recent times taxation rested its case on the need of maintaining the necessary functions of government, gener­ally called “social services.” But, such is the nature of polit­ical power that the area of its activity is not self-contained; its expansion is in proportion to the lack of resistance it meets. Resistance to the exercise of this power reflects a spirit of self-reliance, which in turn is dependent upon a sense of economic security. When the general economy falls, the inclination of a people, bewildered by lack of understanding as to basic causes, is to turn to any medicine man who promises relief. The politician serves willingly in this capacity; his fee is power, implemented with funds. Obscured from public view are the enterprises of political power at the bottom of the economic malady, such as monopoly privileges, wars and taxation itself. Therefore the promise of relief is sufficient unto itself, and the bargain is made. Thus it has come about that the area of political power has gradually encroached upon more and more social activities, and with every expansion another justification for taxation was advanced. The current philosophy is tend­ing toward the identification of politics with society, the eradication of the individual as the essential unit and the substitution of a metaphysical whole, and hence the elimina­tion of the concept of private property. Taxation is now justified not by the need of revenue for the carrying on of specific social services, but as the necessary means for un­specified social betterment.

Both postulates of taxation are in fact identical, in that they stem from acceptance of a prior right of the state to the products of labor; but for purposes of analysis it is best to treat them separately.

Taxation for social services hints at an equitable trade. It suggests a quid pro quo, a relationship of justice. But, the essential condition of trade, that it be carried on willingly, is absent from taxation; its very use of compulsion removes taxation from the field of commerce and puts it squarely into the field of politics. Taxes cannot be compared to dues paid to a voluntary organization for such services as one expects from membership, because the choice of withdrawal does not exist. In refusing to trade one may deny oneself a profit, but the only alternative to paying taxes is jail. The suggestion of equity in taxation is spurious. If we get any­thing for the taxes we pay it is not because we want it; it is forced on us.

In respect to social services a community may be com­pared to a large office building in which the occupants, carry­ing on widely differing businesses, make use of common con­veniences, such as elevator transportation, cleaning, heating, and so on. The more tenants in the building, the more de­pendent are they all on these overall specializations, and at a pro rata fee the operators of the building supply them; the fee is included in the room-rent. Each of the tenants is enabled to carry on his business more efficiently because he is relieved of his share of the overall duties.

Just so are the citizens of a community better able to carry on their several occupations because the streets are maintained, the fire department is on guard, the police de­partment provides protection to life and property. When a society is organizing, as in a frontier town, the need for these overall services is met by volunteer labor. The road is kept open by its users, there is a volunteer fire department, the respected elder performs the services of a judge. As the town grows these extra-curricular jobs become too onerous and too complicated for volunteers, whose private affairs must suffer by the increasing demands, and the necessity of hir­ing specialists arises. To meet the expense, it is claimed, compulsory taxation must be resorted to, and the ques­tion is, why must the residents be compelled to pay for being relieved of work which they formerly performed will­ingly? Why is coercion a correlative of taxation?

It is not true that the services would be impossible with­out taxation; that assertion is denied by the fact that the services appear before taxes are introduced. The services come because there is need for them. Because there is need for them they are paid for, in the beginning, with labor and, in a few instances, with voluntary contributions of goods and money; the trade is without compulsion and therefore equitable. Only when political power takes over the manage­ment of these services does the compulsory tax appear. It is not the cost of the services which calls for taxation, it is the cost of maintaining political power.

In the case of the overall services in the building the cost is met by a rent-payment, apportioned according to the size and location of the space occupied, and the amount is fixed by the only equitable arbiter of value, competition. In the growing community, likewise, the cost of social services could be equitably met by a charge against occupancy of sites within the community, and this charge would be au­tomatically met because it is set by the higgling and haggl­ing of the market. When we trace the value of these loca­tions to their source we find that they spring from the presence and activity of population; the more people com­peting for the use of these locations the higher their value. It is also true that with the growth of population comes an increasing need for social services, and it would seem that the values arising from integration should in justice be ap­plied to the need which also arises from it. In a polity free from political coercion such an arrangement would apply, and in some historical instances of weak political power we find that land rent was used in this social manner.

All history points to the economic purpose of political power. It is the effective instrument of exploitative prac­tices. Generally speaking, the evolution of political exploi­tation follows a fixed pattern: hit-and-run robbery, regular tribute, slavery, rent-collections. In the final stage, and after long experience, rent-collections become the prime proceeds of exploitation and the political power necessary thereto is supported by levies on production. Centuries of accomoda­tion have inured us to the business, custom and law have given it an aura of rectitude; the public appropriation of private property by way of taxation and the private appro­priation of public property by way of rent collections be­come unquestioned institutions. They are of our mores.

And so, as social integrations grow and the need for overall services grows apace, we turn to taxation by long habit. We know no other way. Why, then, do we object to paying taxes? Can it be that we are, in our hearts, conscious of an iniquity? There are the conveniences of streets, kept clean and lighted, of water supply, sanitation, and so on, all making our stay in the community convenient and comfortable, and the cost must be defrayed. The cost is de­frayed, out of our wages. But then we find that for a given amount of effort we earn no more than we would in a com­munity which does not have these advantages. Out at the margin, the rate per hour, for the same kind of work, is the same as in the metropolis. Capital earns no less, per dollar of investment, on Main Street than on Broadway. It is true that in the metropolis we have more opportunities to work, and we can work harder. In the village the tempo is slower; we work less and earn less. But, when we put against our greater earnings the rent-and-tax cost of the big city, do we have any more in satisfactions? We need not be economists to sense the incongruity.

If we work more in the city we produce more. If, on the other hand, we have no more, net, where does the in­crease go? Well, where the bank building now stands there was in olden times a pigsty, and what was once the site of a barn now supports the department store. The value of these sites has risen tremendously, in fact in proportion to the multiplicity of social services which the burgeoning popu­lation calls for. Hence the final resting place of our in­creased productivity is in the sites, and the owners of these are in fact the beneficiaries of the social services for the maintenance of which we are forced to give up our wages.

It is the landowner then who profits from the taxation. He does indeed own the social services paid for by pro­duction. He knows it, makes no bones about it, tells us so every time he puts his lot up for sale. In his advertisements he talks about the transit facilities it enjoys, the neighbor­hood school, the efficient fire and police protection afforded by the community; all these advantages he capitalizes in his price. It’s all open and above board. What is not adver­tised is that the social services he offers for sale have been paid for by compulsory dues and charges collected from the producing of the public. These people receive for their pains the vacuous pleasure of writing to their country cousins about the wonders of the big city, especially the wonder of being able to work more intensely so that they might pay for the wonders.

We come now to the modern doctrine of taxation?that its justification is the social purpose to which the revenue is put. Although this has been blatantly advertised as a dis­covery of principle in recent years, the practice of taxation for the amelioration of social unrest is quite ancient; Rome in its decadence had plenty of it, and taxes to maintain the poor house were levied long before the college-trained so­cial worker gave them panacea proportions. It is interesting to note that this doctrine grew into a philosophy of taxa­tion during the 1930’s, the decade of depression. It stamps itself, then, as the humanitarian’s prescription for the mal­ady of poverty-amidst-plenty, the charitarian’s first-aid treat­ment of apparent injustice. Like all proposals which spring from the goodness of heart, taxation-for-social-purposes is an easy top-surface treatment of a deep-rooted illness, and as such it is bound to do more harm than good.

In the first place, this doctrine unequivocally rejects the right of the individual to his property. That is basic. Having fixed on this major premise, it jumps to the con­clusion that “social need” is the purpose of all production, that man labors, or should labor, for the good of the mass. Taxation is the proper means for diffusing the output of ef­fort. It does not concern itself with the control of production, or the means of acquiring property, but only with its dis­tribution. Strictly speaking, therefore, the doctrine is not socialistic, and its proponents are usually quick to deny that charge. Their purpose, they assert, is reform not revolu­tion; even like boys whose innocent bonfire puts the forest ablaze.

The doctrine does not distinguish between property acquired through privilege and property acquired through production. It cannot, must not, do that, for in so doing it would question the validity of taxation as a whole. If taxa­tion were abolished, for instance, the cost of maintaining the social services of a community would fall on rent?there is no third source?and the privilege of appropriat­ing rent would disappear. If taxation were abolished, the sinecures of public office would vanish, and these constitute in the aggregate a privilege which bears most heavily on production. If taxation were abolished, the privilege of making profits on customs levies would go out. If taxation were abolished, public debt would be impossible, to the dismay of the bondholders. Taxation-for-social-purposes does not contemplate the abolition of existing privilege, but does contemplate the establishment of new bureaucratic privileges. Hence it dare not address itself to the basic problem.

Furthermore, the discouragement of production which must follow in the wake of this distributive scheme ag­gravates the condition which it hopes to correct. If Tom, Dick and Harry are engaged in making goods and render­ing services, the taking from one of them, even if the part taken is given to the others, must lower the economy of all there. Tom’s opulence, as a producer, is due to the fact that he has served Dick and Harry in a way they found desir­able. He may be more industrious, or gifted with superior capabilities, and for such reasons they favor him with their custom; although he has acquired an abundance he has not done so at their expense; he has because they have. In every equitable trade there are two profits, one for the buyer and one for the seller. Each gives up what he wants less for what he desires more; both have acquired an increase in value. But, when the political power deprives Tom of his possessions, he ceases, to the extent of the peculation, to patronize Dick and Harry. They are without a customer in the amount of the tax and are consequently disemployed. The dole handed them thus actually impoverishes them, just as it has impoverished Tom. The economy of a com­munity is not improved by the distribution of what has al­ready been produced but by an increase of the abundance of things men live by; we live on current, not past, produc­tion. Any measure, therefore, which discourages, restricts or interferes with production must lower the general economy, and taxation-for-social-purposes is distinctly such a measure.

Putting aside the economics of it, the political implica­tions of this eleemosynary fiscal policy comes to a revolu­tion of first magnitude. Since taxation, even when it is clothed with social betterment, must be accompanied with compulsion, the limits of taxation must coincide with the limits of political power. If the end to be achieved is the “social good” the power to take can conceivably extend to total production, for who shall say where the “social good” terminates? At present the “social good” embraces free schooling up to and including postgraduate and professional courses; free hospitalization and medical services; unemploy­ment insurance and old age pensions; farm subsidies and aid to “infant” industries; free employment services and low-­rent housing; contributions to the merchant marine and projects for the advancement of the arts and sciences; and so on, approximating ad infinitum. The “social good” has spilled over from one private matter to another, and the definition of this indeterminate term becomes more and more elastic. The democratic right to be wrong, misin­formed, misguided or even stupid is no restraint upon the imagination of those who undertake to interpret the phrase; and whither the interpretation goes there goes the power to enforce compliance.

The ultimate of taxation-for-social-purposes is absolutism, not only because the growing fiscal power carries an equal increase in political power, but because the investment of revenue in the individual by the State gives it a pecuniary interest in him. If the State supplies him with all his needs and keeps him in health and a degree of comfort, it must account him a valuable asset, a piece of capital. Any claim to individual rights is liquidated by society’s cash invest­ment. The State undertakes to protect society’s investment, as to reimbursement and profit, by way of taxation. The mo­tor power lodged in the individual must be put to the best use so that the yield will further social ends, as foreseen by the management. Thus, the fiscal scheme which begins with distribution is forced by the logic of events into control of production. And the concept of natural rights is inconsist­ent with the social obligation of the individual. He lives for the State which nurtured him. He belongs to the State by right of purchase.

Taxation’s final claim to rectitude is an ability-to-pay formula, and this turns out to be a case of too much protest­ing. In the levies on goods, from which the state derives the bulk of its revenue, the formula is not applicable. Whether your income is a thousand dollars a year or a thousand dollars a day, the tax on a loaf of bread is the same; ability-to-pay plays no part. Because of the taxes on necessaries, the poor man may be deprived of some marginal satisfaction, say a pipe of tobacco, while the rich man, who pays the same taxes on necessaries, will hardly feel impelled to give up his cigar. In the more important indirect taxes, then, the magic formula of social justice is non-existent.

It is applicable only in levying taxes on incomes before they are spent, and here again its claim to fairness is false. Every tax on wages, no matter how small, affects the work­er’s measure of living, while the tax on the rich man affects only his indulgences. The claim to equity implied in the formula is denied by this fact. Indeed, this claim would be valid only if the state confiscated all above a predetermined, equalitarian standard of living; but then, of course, the equity of confiscation would have to be established.

But no good can come of ability-to-pay because it is in­herently an immorality. What is it but the highwayman’s rule of taking where the taking is best? Neither the high­wayman nor the tax-collector give any thought to the source of the victim’s wealth, only to its quantity. The State is not above taking what it can from known or suspected thieves, murderers or prostitutes, and its vigilance in this regard is so well established that the breakers of other laws find it wise to observe the income tax law scrupulously. Nevertheless, ability-to-pay finds popular support?and that must be rec­ognized as the reason for its promulgation?because of its implied quality of justice. It is an appeal to the envy of the incompetent as well as to the disaffection of the mass con­signed by our system of privileges to involuntary poverty. It satisfies the passions of avarice and revenge. It is the ideal leveler. It is Robin Hood.

Supporting the formula is the argument that incomes are relative to the opportunities afforded by the State, and that the amount of the tax is merely payment for these opportunities. Again the quid pro quo. This is only par­tially true, and in a sense not intended by the advo­cates of this fiscal formula. Where income is derived from privilege?and every privilege rests on the power of the State?it is eminently fair that the state confiscate the pro­ceeds, although it would be fairer if the state did not es­tablish the privilege in the first place. The monopoly rent of natural resources, for instance, is income for which no service is rendered to society and is collectible only be­cause the state supports it; a hundred percent tax on rent would therefore be equitable. The profits on protective tariffs would be fair game for the tax-collector. A levy on all subsidized businesses, to the full amount of the subsidies, would make sense, although the granting of subsidies would still require explanation. Bounties, doles, the “black market” profits made possible by political restrictions, the profits on government contracts?all income which would disappear if the state withdrew its support?might properly be taxed. In that event, the State would be taking what it is respon­sible for.

But that is not the argument of ability-to-pay ener­gumens. They insist that the State is a contributing factor in production, and that its services ought properly to be paid for; the measure of the value of these services is the income of its citizens, and a graduated tax on these incomes is only due compensation. If earnings reflect the services of the State, it follows that larger earnings result from more services, and the logical conclusion is that the State is a better servant of the rich than of the poor. That may be so, but it is doubtful that the tax experts wish to convey that information; what they want us to believe is that the State helps us to better our circumstances. That idea gives rise to some provocative questions. For the tax he pays does the farmer enjoy more favorable growing weather? Or the mer­chant a more active market? Is the skill of the mechanic im­proved by anything the State does with what it takes from him? How can the State quicken the imagination of the creative genius, or add to the wisdom of the philosopher? When the State takes a cut from the gambler is the latter’s luck bettered? Are the earnings of the prostitute increased because her trade is legalized and taxed? Just what part does the State play in production to warrant its rake-off? The State does not give; it merely takes.

All this argument, however, is a concession to the obfus­cation with which custom, law and sophistry have covered up the true character of taxation. There cannot be a good tax nor a just one; every tax rests its case on compulsion.

Republished from the Mises Institute.