We recently had a talk here on the Isle of Man, given by a member of the Tax Justice Network. In their own words they - 'analyse and explain the role of tax and the harmful impacts of tax evasion, tax avoidance, tax competition and tax havens.'1 What follows is not intended as a criticism of them - I entirely agree that the problem they are highlighting is a very real one - but rather my thoughts on the inherent problems of using taxation as a means of funding societies essential services.
Problem 1 – Taxation is theft, plain an simple
To quote the economist Murray Rothbard -
"Taxation is theft, purely and simply even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of the State’s inhabitants, or subjects."
When I attended the talk there was a bucket by the door for donations towards costs. I also bought a glass of lemonade. These are examples of voluntary interactions, nobody forced me to attend and nobody forced me to buy the lemonade. I could have stayed at home and drunk water. These types of voluntary exchanges are the way the majority of economic interactions in our society take place, with both parties agreeing in advance. There are two groups that are the exception and don't function this way, criminals and the State. If someone puts a gun to your head and demands your wallet, this is not a voluntary interaction, rather it's a demand backed by the threat of violence. When the State posts you a tax return, it's not politely inquiring whether you'd like to exchange X percentage of your income for the services it's offering, it's demanding (albeit politely) you hand it over or else.2
I said there were two groups, there's really only one, and that's criminals, because the State is in truth a criminal organisation masquerading. (I'm not having a go at anyone who works for government here, merely pointing out that the structures are indistinguishable). If you're ok with this, then you have to be ok with society being built on a bedrock of violent coercion rather than voluntary cooperation and think that this isn't going to cause problems somewhere higher up the structure. Personally, I have my doubts.
Problem 2 - Taxation funds terrorists.
The Tax Justice Network's website points out that taxation pays for things like schools, roads, hospitals and other such essential services. They neglect to mention that it is also the major source of funding for international terrorism. During my lifetime by far the biggest purveyor of terrorism in the British Isles has been the British State, I've lived through it engaging in a full blown genocide against the people of Iraq, bombing Afghanistan, blowing up Tripoli and supplying such lovely people as General Suharto with the military equipment he needed to wipe out the inhabitants of East Timor.3 This is not a comprehensive list. It's also true the world over with murder by the State running into the hundreds of millions for the 20th century alone.4 If you support taxation, you must reconcile that with murderous violence it funds.
Problem 3 – Taxation destroys economic calculation
When two people agree to exchange something voluntarily we can safely assume that they both want what the other has more than what they currently posses, and therefore believe they will profit from the exchange. This is a process the economist Frederic Bastiat poetically referred to as 'economic harmonies', interactions that leave both parties better off. It's not fool proof, we've all made purchases we've later regretted, but it places the individual as being the best judge of which exchanges will profit them.
This is in contrast to a coerced exchange, where a criminal demands your wallet say. You're obviously not made better off by this encounter. But let's say the criminal after relieving you of your money, uses it to buy groceries for you, based on what they believe is best for you to eat. Maybe they will make 'better' choices than you would, but how can this be known? Voluntary exchanges are likely to profit the people making them because they are the ones agreeing to them. With coerced exchanges there is no such check, and therefore no way to know whether they benefit the participants or not. So there's no way to know if people would choose the kind of health and educational services the State provides if their money was returned to them and they paid for them directly. For example – lots of people support the violent persecution of other people who consume certain drugs. But they support this in the absence of having to directly pay for it, so they don't have to make a direct economic calculation as to whether it benefits them or not. If a bill arrived through the supporters doors each month for their proportion of what this war on drug users costs, I believe a lot of them would experience a quick change of heart. De-linking services from their costs leads to people supporting things that they wouldn't consider worth it if they experienced the costs directly. War being another fine example.
Problem 4 – Taxation allows the State to monopolise important services
Typically it's assumed to be a good thing that taxation pays for schools and hospitals and roads etc.5 Services that are considered essential. But it's not as if these things wouldn't exist in the absence of the State, its hardly likely that without the Department of Central Educational Planning we'd all be illiterate, or without National Socialist Health Care there'd be no one to set broken bones. People provide every imaginable service in the absence of the State. What we need to ask is what type of structure is likely to provide these services better. The Stateist model is one where a group, realistically accountable to no one, takes money without the owner's consent and spends it in the way they best see fit. The voluntary model is one where anyone can attempt to provide a service, but they may only acquire funding from people willing to pay them (no threatening letters in the post) and their customers may withdraw their support at any time if they perceive a better option is presented by someone else. It seems obvious to me that the latter model is going to come closer to providing people with what they desire. You can say that people don't necessarily desire what's good for them – that maybe true, but it's only helpful if there exists a group of experts who do know what's best for everyone in all situations and these same experts can be placed into a position of power over the rest of us. Think about who your current politicians are and whether they fit that description.
Would costs be too high for people to afford such 'essential' services? There is no set cost for an abstract concept like education, the rise of the internet has brought the cost down whilst sending the quality available through the roof. The schooling system is largely about socialising the cost of child care, allowing both parents entering the workforce to pay a mortgage on a property made artificially expensive by land restrictions imposed by the State. (Often to the benefit of large building corporations). As for health care, regulations imposed by the State coupled with inefficiency drive up the cost to levels even taxation can't cover, creating waiting lists for operations. (Waiting lists are the hallmark of the centrally planned economy, but virtually absent in market economies). Additionally it's not at all true to say that State run health care is free to all at the point of use. It's only free to those born within certain arbitrary geographic boundaries called national borders. The fences separating one tax farm from another. Whereas a market will serve anyone who can afford it and bring costs down for those who can't (there is also the role of charity), a State run health service will push costs up and leave people to suffer and die for being born on the wrong side of a line.
Problem 5 - Taxation creates inequality – the bad kind
A point made by the Tax Justice Network which I entirely agree with is that large companies acquire an unfair advantage on the market by avoiding paying the taxes that small companies are subjected to. I totally agree with this and I've blogged before about Amazon's rise to power being aided by tax advantages and government subsidies.6 The Tax Justice Network seek a solution to this in attempting to close these loop holes that allow big companies to avoid tax. This may indeed solve the huge problem of unfair competitive advantage, but I'll refer you back to Problem 2, it would also mean more money going to terrorist organisations. However bad Amazon's working practices are, they haven't yet committed a genocide in Iraq. We might not like one size fits all Starbucks using their tax advantage against independent cafés, but in fairness, it wasn't Starbucks who blew up Tripoli. The crimes of corporations pale into insignificance when compared to the crimes of the State. (I appreciate at some point it may become hard to discern a difference between corporation and State).
What do I mean by the bad kind of inequality? I'm making the distinction between inequality that arises due to voluntary transactions and inequality that arises due to coercive ones. If Jack produces a new kind of widget that everyone wants then lots of money will flow his way. It's probably a good thing too as Jack has demonstrated that he can produce things people want and now has capital with which to do more. If Diane produces a gizmo that nobody wants then she won't earn much money from it. Again a good thing as she has not shown she can produce things people want and therefore isn't currently a good person to manage capital. This is inequality arising from voluntary transactions. If Diane gets a government grant to keep producing gizmos however, now inequality is arising out of coercive non-voluntary means and Diane has more capital to produce a service no one asked for. A corporation like Amazon is sending book shops out of business all over the country, and that would be fine if this were solely a result of people's desire to buy from them instead. Whilst it no doubt partially is, it's also a result of the grants and tax advantages Amazon are given, the State is effectively choosing them as a winner by giving them a head start in the race. Bad inequality!
So recognising these five problems my alternative solution would be to see this 'bad' inequality as being a result of taxation and work towards ending tax as a solution to that and all the other problems it creates. Is this unrealistic? Maybe, but I'm not sure it's any more unrealistic than attempting to apply tax equally to big and small, powerful and week, companies - is that likely to happen either? Furthermore by ending tax and doing away with the State altogether we can move a a society based on peaceful voluntary interactions, which I suspect will take us to a much better place than we're currently heading!
2. I know I've referred to this a thousand times already but the cartoon 'George Ought to Help' really does explain this concept perfectly in four minutes - https://www.youtube.com/watch?v=PGMQZEIXBMs
3. John Pilger's work is informative-
4. Just do an internet search on the word 'democide'.
5. For a cynical take on the education system see Murray Rothbard's book, 'Education - Free and Compulsory' available for free at -
To look at how government health regulations cost lives -