Why Taxation Is Not Theft

From The Myth of Ownership: Taxes and Justice by Liam Murphy and Thomas Nagel

Jay’s Note -  As a libertarian, I believed that taxation is theft. To argue otherwise among libertarians is to invite disdain or incredulity.   I wasted an awful lot of time grudgingly believing that indeed taxation is a form of stealing that must be either rejected or justified somehow as a lesser evil.  

Looking back, one of the reasons I held on to this view for so long is a method of analyzing political philosophical issues used by libertarians called "methodological individualism." This technique distills any political/economic question down to a few individuals and judges the ethics from there. For example, what if Farmer A went to Farmer B, pointed a gun at him and demanded some of his money. Even if it was for something useful to both farmers, such as to repair a road between their two farms, it would still constitute armed robbery, and justifiably so. However, libertarians extrapolate examples such as this out to all of society, so that any coerced taking of another's property by the state, even for laudable reasons, is stealing, which is why libertarians reject any proposed policy that involves the use of tax money and always support legislation that cuts taxes. 
 
Methodological individualism can be a useful technique for evaluating the appropriateness of many policies, but there's also a danger in oversimplification when employing this method and the taxation issue is a case in point.  For example, in the farmer scenario above, their property is recognized in deeds on file at the county courthouse and under the protection of the local sheriff and courts, all taxpayer funded arms of the government. If Farmer A and B were truly isolated individuals, without recourse to any higher legal authority, then any question of who is stealing what from whom could quickly devolve to which farmer is willing to use the most force to get or keep what is "theirs."  Saying "this is mine" doesn't make it so without a legion of government employees and offices to make your ownership real. Liam Murphy and Thomas Nagel make this argument much better than I ever could in their book The Myth of Ownership: Taxes and Justice. If you are just getting acquainted with libertarian philosophy, read Murphy and Nagel’s book.  You may grit your teeth at times but it will be a powerful antidote to many minimal or no-State radical capitalist assumptions.  Here are some excerpts:  

Libertarian views come in a variety of different forms, but the two that are most important for current purposes can be referred to as the rights-based and the desert-based.  The former turns on a commitment to strict moral property rights; it insists that each person has an inviolable moral right to the accumulation of property that results from genuinely free exchanges.

    The implication for tax policy of rights-based libertarianism in its pure or absolute form is that no compulsory taxation is legitimate; if there is to be government, it must be funded by way of voluntary contractual arrangements.  On this extreme version of libertarianism we should never reach the issue of the fair distribution of mandatory tax burdens, because all such burdens are illegitimate.  However, ...a less absolute libertarian position would authorize compulsory taxation to support a government that permits the market to operate, and that would justify sharing out the burden equally.

According to desert-based forms of libertarianism, on the other hand, the market gives people what they deserve by rewarding their productive contribution and value to others.  Such a view would imply that the market-based distribution is presumptively just without raising any objection to compulsory taxation--provided, again, that the burden is shared out equally.

We discuss desert-based theories of justice in chapters 3 and 5.  Here we note just one point.  The notion of desert entails that of responsibility; we cannot be said to deserve outcomes for which we are not in any way responsible.  Thus, to the extent that market outcomes are determined by genetic or medical or social luck (including inheritance), they are not on anyone’s account, morally deserved.  Since nobody denies that these kinds of luck at least partly determine how well a person fares in a capitalist economy, a simple and unqualified desert-based libertarianism can be rejected out of hand.

Both forms of libertarianism have implausibly radical consequences.  But there is a still more fundamental problem with this approach to tax justice--a conceptual problem.  Our use of libertarianism to make sense of the equal-sacrifice principle has relied so far on the following assumption:  That so long as government does not pursue redistributive expenditure policies, the pretax distribution of resources can be regarded as the distribution produced by a free market.  But, in fact, this is deeply incoherent.

There is no market without government and no government without taxes; and what type of market there is depends on laws and policy decisions that government must make.  In the absence of a legal system supported by taxes, there couldn’t be money, banks, corporations, stock exchanges, patents, or a modern market economy--none of the institutions that make possible the existence of almost all contemporary forms of income and wealth.

It is therefore logically impossible that people should have any kind of entitlement to all their pretax income.  All they can be entitled to is what they would be left with after taxes under a legitimate system, supported by legitimate taxation--and this shows that we cannot evaluate the legitimacy of taxes by reference to pretax income.  Instead, we have to evaluate the legitimacy of after-tax income by reference to the legitimacy of the political and economic system that generates it, including the taxes which are an essential part of that system.  The logical order of priority between taxes and property rights is the reverse of that assumed by libertarians.

This problem could not be avoided by moving from a baseline of actual pretax incomes to a hypothetical baseline of incomes in a government-free market world.  There is no natural or ideal market.  There are many different kinds of market system, all equally free, and the choice among them will turn on a range of independent policy judgments.

(pages 31-33)

The tax system is not like an assessment of members of a department to buy a wedding gift for a colleague.  It is not an incursion on a distribution of property holdings that is already presumptively legitimate.  Rather, it is among the conditions that  create a set of property holdings, whose legitimacy can be assessed only by evaluating the justice of the whole system, taxes included. Against such background people certainly have a legitimate claim on the income they realize through the usual methods of work, investment, and gift--but the tax system is an essential part of the background which creates the legitimate expectations that arise from employment contracts and other economic transactions, not something that cuts in afterward.

There is no default answer to the question of what property system is right--no presumptively just method of distribution, deviations from which require special justification.  The market has many virtues, but it does not relieve us of the task of coming to terms with the real values at stake in tax policy and the theory of distributive justice.  (pages 36-37)

What, then, are the legitimate ends of government, and what are the legitimate means of pursuing those ends, particularly insofar as they involve the taxing power?

It is essential to keep in mind, when considering these questions, that government doesn’t only regulate people’s lives.  By providing the institutional conditions without which modern civilization and economic activity could not exist, government is substantially responsible for the kinds of lives that people can lead.  The issue of political legitimacy therefore applies to this framework itself and to the kinds of options, choices, and lives it makes possible, as well as to the government’s control over the conduct of individuals within the framework.

That means that when we ask what we owe our fellow citizens, by way of positive assistance or mutual restraint, it cannot be understood as a question addressed to us as prepolitical beings, who will use the state as an instrument to fulfill our interpersonal obligations.  The situation is rather that we begin from the point of view of members of an existing society--beings formed by a civilization and leading lives that would be inconceivable without it--and our task is to decide what norms the design and regulation of that social structure should respect, as an expression of the consideration that is due from each of us to our fellow members as well as the independence we are entitled to retain from one another.

Taxes are part of that structure, but they have to be evaluated not only as legal demands by the state on individuals but also as contributions to the framework within which all those individuals live.  Ultimately, the question of political legitimacy is the question of what kind of framework we can all find it morally acceptable to live inside of, and it is to that question that values such as liberty, responsibility, equality, efficiency, and welfare have to be applied.  (pages 41-42)

Excerpt from their Conclusion:

Where our approach departs greatly from the standard mentality of day-to-day politics is in our insistence on the conventionality of property, and our denial that property rights are morally fundamental.  Resistance to traditional concepts of tax fairness and their political analogues requires rejection of the idea that people’s pretax income and wealth are theirs in any morally meaningful sense.  We have to think of property as what is created by the tax system, rather than what is disturbed or encroached on by the tax system.  Property rights are the rights people have in the resources they are entitled to control after taxes, not before.

This doesn’t mean we can’t speak of taking money by taxation from the rich to give to the poor, for example.  But what that means is not that we are taking from some people what is already theirs, but rather that the tax system is assigning to them less that counts as theirs than they would have under a less redistributive system that left the rich with more money under their private control, that is, with more that is theirs.

This shift to a purely conventional conception of property is, we acknowledge, counterintuitive.  Taxes are naturally perceived by most people as expropriations of their property--taking from them some of what is originally theirs and using it for various purposes determined by the government.  Most people, we assume, instinctively think of their pretax income as theirs until the government takes it away from them, and also think the same way about other people’s earnings and wealth.  Political rhetoric picks up on this natural way of thinking: “You know better what to do with your money than the government does.” “The surplus doesn’t belong to the government; it belongs to the people.”

Changing this habit of thought would require a kind of gestalt shift, and it may be unrealistic to hope that such a shift in perception could easily become widespread.  It isn’t that people are unwilling to pay taxes, but they tend to think of taxes as an incursion by the government on a prior distribution of property and income by reference to which expropriation and redistribution has to be justified.  That question has the form: “How much of what is mine should be taken from me to support public services or to be given to others?  How much of what others possess should be taken from them and given to me?”  Whereas we have been arguing that the right question is:  “How should the tax system divide the social product between the private control of individuals and government control, and what factors should it cause or permit to determine who ends up with what?”

As we have seen, putting the question this way still leaves room for radical disagreement about the answer, but it is likely to arouse strong resistance nonetheless.  It sounds too much like the claim that the entire social product really belongs to the government, and that all after-tax income should be seen as a kind of dole that each of us receives from the government, if it chooses to look on us with favor.  To this the natural indignant response would be that just because we are all subjects of the same state, it doesn’t follow that we collectively own each other, together with our productive contributions.

But there is a misperception here.  It is true that we don’t own each other, but the correct place for this observation is in the context of an argument over the form of a system of property rights that gives due weight to individual freedom and responsibility.  It doesn’t justify starting with pretax income--over which individuals couldn’t, as a matter of logic, be given full private control--as the baseline from which departures must be justified.

The state does not own its citizens, nor do they own each other collectively.  But individual citizens don’t own anything except through laws that are enacted and enforced by the state.  Therefore, the issues of taxation are not about how the state should appropriate and distribute what its citizens already own, but about how it should allow ownership to be determined.   (175-176)