The Objectivist Sales Tax

In his book, Human Rights and Human Liberties, Tibor Machan, details Ayn Rand's suggestion that the courts of a free society could be financed via a charge ("insurance") on contracts. Contracts might be disputed, so to guarantee their standing in court, parties would pay some small fee.

There are several problems with that proposal.

If natural law requires that government provide courts, police, and army, then, government must provide them. That means that the courts must exist and be in place and that they be available for citizens (and non-citizens) for conflict resolution between private parites, as well as for law enforcement, in addition to redress of grievances by citizens (and non-citizens?) against the government.

(Understand that Ayn Rand got her ideas from the German sociologist Max Weber. The word "police" appears nowhere in the U.S. Constitution because "police" were 50 years in the future of 1789. In 1789, law enforcement was via the courts, which still persists today: your city cops are the sworn officers of a court of competent jurisdiction. Otherwise, they would have no more power than security guards.)

The courts also exist so that citizens can corral the government. If the government oversteps its authority, you take them to court, i.e, you get a court of competent jurisdiction to issue a restraining order (to prevent action) or a writ of mandamus (to require action). This is, as I understand it, a right that the courts must provide (regardless of your ability to pay for the operation of the court system).

Finally, in the narrow sense mentioned by Professor Machan and Ayn Rand, courts exist to arbitrate disagreements between citizens (and non-citizens?). So, if my dog digs up your roses, you can sue me. According to the theory proposed by Rand and Machan, there would be some question as to whether or not you could sue me if my dog destroyed your roses. Is there a contract? Who paid the court fees?

A few years back, I had an American Express card. If I rented a car through Herz using the card, the liability insurance was automatically included in the rate. That is a contractual term and is exactly the kind of implicit contract that will appear as "the Objectivist sales tax."

In other words, every transaction is a sale. So, every transaction from your fastfood drive-through McBreakfast to the leasing of a 747 or a sports stadium would have to be "insured" (taxed) to be enforcible in court.

That contradicts the expectation that under natural law, an objectively constituted government provides courts of law.

(Edited by Michael E. Marotta on 6/12, 9:54pm)

Post 1

Friday, June 13, 2008 - 4:19am

Good points, all. So how do we go about financing a proper Objectivist government? Do we all pay a head tax? Will it be through property tax? Various use and services taxes? Income tax? (God forbid!).

I am completely open to any reasonable suggestion.

Bob Kolker

Post 2

Friday, June 13, 2008 - 5:53am

Michael -- I think you're making this way more difficult than it needs to be. The courts shouldn't be financed by taxes -- they should be financed by fees charged to the users. So, if my dog digs up your roses, or at least you allege that, and you want to sue me, you would need to pay an upfront fee to cover the costs of the courts handling your suit against me. If you won the suit, the court might reimburse you for this upfront fee by making me, the guilty party, pay it for you as part of the judgment.

In no event should innocent bystanders be forced via taxes to finance our dog-related legal squabble.

Post 3

Friday, June 13, 2008 - 4:02pm

Bob K.: Do we all pay a head tax? Will it be through property tax? Various use and services taxes? Income tax? (God forbid!).

Just, you know, going with the assumption... It is indeed hard to find a way to finance government that is totally voluntary and sufficient --- though there was a movie in the 1970s called "Americathon"where they held a telethon charity to pay off the national debt. I mean, you could run the govenment like NPR runs radio. "If you enjoy our justice system and want to donate, we have an Uncle Sam beer mug for you."

The power to tax is the power to destroy. So, everyone on the right is morally opposed to income taxes, lest the government destroy our incomes. But, what would you choose to have destroyed instead? Imports? Exports? Luxuries?

Personally, from an objective point of view I have no problem with income taxes, even progressive income taxes. (... or at least no more problem than with any other kinds.) The richer you are the more you are invested in the society, the more property and other values you have to be protected by the police and army.

The Mises Society sent me a Free Market that read: Should we loot the rich? And I thought, "It will probably pay off better than looting the poor..."

Land had always been taxed. It was in teh 1700s that merchants and lawyers won the right to be taxed on the basis of their incomes and assets, thus becoming enfranchised as voters.

Bob, I too, am open to any reasonable suggestion... I just don't hear one yet....

But you do agree with me, I assume, that Ayn Rand's idea of a contract insurance fee is basically a sales tax, as every voluntary transaction is contractual.

(Edited by Michael E. Marotta on 6/13, 4:04pm)

Post 4

Saturday, June 14, 2008 - 7:35am

Michael:

Yes, every sales agreement is a contract, but the participants should be able to agree, or not, to pay "contract assurance" for a court to enforce the contract and exact damages, in case of dispute. The crucial thing is that it would be voluntary � the consequences of not participating in the contract assurance and vendors trying to bilk customers, or vice versa, would be the loss of their reputation. If a party had a bad reputation then every contracting party with them would insist on the additional overhead of contract assurance, which would impact on their profitability.

Contracting parties would be much more conscious of their reputation and would lead to a more ethical business climate, IMO.

Sam

Post 5

Saturday, June 14, 2008 - 3:24pm

Caveat Emptor

Just as manufacturers of electrical appliances have the UL (Underwriter's Laboratories) mark as a sign of quality merchandise, for which the manufacturere must pay, small businesses could easily pay a small fee or percentage of the price of their wares for the privilege of putting a sign in their shop window and receipts saying "Sale Waranteed by the Court of Ex." People would have the choice to buy from waranteed or unwaranteed businesses, with or without legal recourse as they chose.

Surely this is not a difficult matter.

(Edited by Ted Keer on 6/14, 3:46pm)

Post 6

Saturday, June 14, 2008 - 3:28pm

Quite so.

As far as funding defense is concerned, I've expressed my opinion on this before � allow voluntary contributions for defense from individuals � but make public the amount donated. You can argue that this is a violation of privacy, and maybe that's a valid argument, but I certainly wouldn't be offended. Would low donors tend to be shunned by society? Yep.

Norms of level of donations based on the perceived need for defence would quickly become accepted. Citizens who try to gain social standing would probably donate more than they might be able to afford, and I would encourage them to do so. :-)

Sam

(Edited by Sam Erica on 6/14, 5:21pm)

Post 7

Saturday, June 14, 2008 - 5:47pm

Sam writes:

Norms of level of donations based on the perceived need for defense would quickly become accepted. Citizens who try to gain social standing would probably donate more than they might be able to afford, and I would encourage them to do so. :-)

Sam

to which I respond:

That sounds like something Robert A. Heinlein would have approved. See -The Starship Troopers- (the book, not the movie!)

Bob Kolker

Post 8

Saturday, June 14, 2008 - 6:52pm

Amplifying on the voluntary military funding:

The military fund could be composed of two, separate accounts � the "more" fund and the "less" fund. Donors to one fund would cause an equal transfer from the other fund, for example, if a person was strongly against the current level of military spending, such as some anti-war people are today, their donation of, say, $1200 would be allocated to the "less" fund and a further $1200 would be transferred from the "more" fund. The opposite accounting would take place for people donating to the "more" fund.

This would be a dynamic system with the funding reacting to the "votes" of the donors. A donor could opt to change his allocation at any time, pro rated over the year. Some donors might contribute equal amounts to both funds. If the "more" fund was getting depleted there would be a reserve in the "less" fund and if the situation persisted, the population, as a whole, would reduce the level of their donations.

The amount of donation by an individual could be made public but there would be no need to divulge which fund was favored.

Sam

Post 9

Sunday, June 15, 2008 - 12:12am

A Modified Property Tax

I think that military funding might require a transactional tax upon land transfer, in essence, a periodic property tax or a land sales tax. If the tax is not paid, the land title would be guaranteed by whom? If you will not pay tax to defend your land, why should the government defend it for you from squatters or foreign powers? I.e., does your refusal to pay the tax place an obligation on others to protect your land for you at no cost? (Perhaps military veterans could get a waiver from this tax.) I realize this will not be palatable to most posters here. But if one considers existing law and the legal precepts of squatter's rights and variances and rights of way, it is only the existence of the state or the landowners own use of force which makes large landholdings feasible.

Homesteads would only be taxable upon transfer, and small homesteads held within a family could be exempted from this tax. Large landholdings and second homesteads or homesteads sold for other uses would be taxed at a one time charge upon title transfer. The value of the transfer could be set by the parties involved, but if the value were set too low the government or another party could claim the land at double the set rate. Hence, if I sold you my land, worth $100,000, at the price of $10,000, in order to avoid the high tax rate, any other party could bid $20,000 or more and claim the land.

Post 10

Sunday, June 15, 2008 - 4:03am

In general military defense is not divisible. When you "fight them on the beaches" (as Churchill said) you defend -everyone- inland, whether or not they paid.

When you bomb the enemy, you do it for everyone, not just those who paid. Both payers and non-payers benefit.

I think you have a model of military operations in mind that has not existed since the Revolutionary War. Military operations in the world generally take place on a large scale, particularly in a full bore (sic!) war.

The only pin-point operations I know about are guerilla ops (commando raids on specific targets) and pin point bombing raids.

You suggestion reminds me of a way that fire fighting operations used to be done. A home owner bought the service and was given a medallion to place upon his house to let the fire fighters know he paid for the service. The theory was to let the house of the non payer burn down. However in a general alarm fire letting one house or building burn endangers nearby houses or buildings, so the fire fighters have to douse the structures belonging to the non paysers as well as the pays. To put a point on it, the medallion system does not work.

Bob Kolker

Post 11

Sunday, June 15, 2008 - 10:44am

<i>In general military defense is not divisible. When you "fight them on the beaches" (as Churchill said) you defend -everyone- inland, whether or not they paid.</i>

It's a problem of the commons that can be solved in much the same way that advertising solved the problem of the commons with radio and TV transmissions. Lump in something that people are willing to pay for, with a "service" that can't readily be collected for, as a package deal. For example, make contributing to a national defense fund optional and voluntary, but if you don't subscribe, you go on a website of people who are not protected against kidnapping, abduction, murder, etc. by foreign nationals. That is, there is an individual component of national defense where you personally need protection against individual foreigners, and then a more collective component against invasion or attacks by massed armies or nuclear weapons. Lumping the two together in a package would result in many if not most people grudgingly choosing to pay for the collective component even though their personal marginal benefit from that contribution is miniscule, in order to receive the individual protection component where their personal marginal benefit greatly exceeds what they paid for that component.

A theoretical example:

A) Price of collective defense component: $100 / month
Value to individual of the marginal increase in collective defense as a result of their contribution: way less than $0.01 per month.

B) Price of individual component: $100 / month
Value to individual of this component of national defense: $300 / month.

C) Package deal of A and B lumped together: price $200 / month, value to individual $300 / month.

It would be altruism to buy package A as a standalone, but while an individual might prefer package B, they'd spring for package C if package B wasn't offered.

(Edited by Jim Henshaw on 6/15, 10:59am)

Post 12

Sunday, June 15, 2008 - 9:44pm

UL: Underwriters Laboratory is a private entity.

ASTM: The American Society for Testing and Materials is a private entity.

ASE: Automotive Service Excellence is a private entity.

(and Sears Craftsman tools are underwritten by Sears alone.)

If you ever bought a home, read your contracts. Your probably agreed to take any problems to the American Arbitration Agency.

Believe me, I am all in favor of the free market. However, this sales tax on contracts is a contradiction in the principles of objective government. Does the government, or does not the government, according to Objectivism, have a legal monopoly on courts of law?

If so, then how can contracts be "insured" only for those who pay for the service?

Let's work the problem, people.

Premise: If the government has a monopoly, then there can be no other providers. That is what a monopoly is.

Premise: If the purpose of government is to provide courts, police, and military, then it must provide them to all, regardless of their ability to pay. That is what provision is.

(Sorry, didn't mean to yell ....)

(Edited by Michael E. Marotta on 6/16, 7:33am)

Post 13

Monday, June 16, 2008 - 1:53pm

Michael:

The civil courts could be funded as discussed above by voluntary "contract assurance" by Ted in post #5 and my post #4.

The criminal courts can be funded in the same way as I proposed for the military in post #8. Here's the proposal with the fund changed.

The criminal court fund could be composed of two, separate accounts � the "more" fund and the "less" fund. Donors to one fund would cause an equal transfer from the other fund, for example, if a person was strongly against the current level of criminal court spending, such as some liberals are today, their donation of, say, $1200 would be allocated to the "less" fund and a further $1200 would be transferred from the "more" fund. The opposite accounting would take place for people donating to the "more" fund.

This would be a dynamic system with the funding reacting to the "votes" of the donors. A donor could opt to change his allocation at any time, pro rated over the year. Some donors might contribute equal amounts to both funds. If the "more" fund was getting depleted there would be a reserve in the "less" fund and if the situation persisted, the population, as a whole, would reduce the level of their donations.

The amount of donation by an individual could be made public but there would be no need to divulge which fund was favored.

There's a fundamental difference between both criminal courts and the military, and civil courts. Criminal courts and the military protect citizens from physical harm and Objectivists would agree that the government should have a monopoly on physical force. Civil courts protect individuals from financial harm and I think it is arguable that civil courts need not be a monopoly of the government..

In any case, my argument of voluntary, but visible, donations could equally apply to civil courts.

Sam

Post 14

Monday, June 16, 2008 - 10:40pm

It is for the fact that military protection is collective that I see a sales tax on real estate as I described above reasonable.

Simply listing certain persons as NOT subject to the protection of the law amounts to blackmail and protection racketeering.

So long as contract fees and general sales taxes are optional, what's the problem?

As for property tax, the person who refuses to support the government but who expects government protection is placing an unearned obligation on those others whom he expects to protect his property at no cost to him. Are you going to shoot squatters? What if I call you a squatter? Who decides? Do the deciders not get paid because you call yourself an anarchist, or what have you?

If you can explain how this doesn't amount to demanding altruistic actions from others because you won't pay to protect yourself, then I have little incentive to worry about my property transaction tax being called an involuntary fee.

Post 15

Tuesday, June 17, 2008 - 6:33am

what happens to the less money money? If it is not for defense then what does it get spent on?

Post 16

Tuesday, June 17, 2008 - 7:35am

Kurt:

The "less" fund acts as a reserve in case of events like 9/11 or Pearl Harbor. Donors would massively donate to the "more" fund, thus depleting the "less" fund according to the equal and opposite stipulation.

I wish to re-think my position on allowing donors to change their mind and shift their contribution to the opposite fund.

Sam

(Edited by Sam Erica on 6/17, 9:18am)

(Edited by Sam Erica on 6/17, 9:24am)

Post 17

Thursday, June 19, 2008 - 10:44pm

Sam Erica wrote: "The civil courts could be funded as discussed above by voluntary "contract assurance" by Ted in post #5 and my post #4.
The criminal courts can be funded in the same way as I proposed for the military in post #8. Here's the proposal with the fund changed.

Sam, thanks for the reply. I have been out of town and did not bring my laptop this trip.

I appreciate the fact that your proposals would work.

You segregate civil law from criminal law. That puts government civil law courts into a competitive situation. Those other arbitrators have as much right to be in business as a shoe store, of course. That is the reason why it is important to note that in Atlas Shrugged, the justification for Judge Narragansett in the Valley was purely civil. In other words, Rand did not see a difference between civil law and criminal law, or at least, did not write about such. That calls into question whether they can be segregated within the context of philosophical Objectivism.

In explaining the Valley to Dagny, Galt says that the Judge is there in case they have any disagreements, though, rational men do not disagree. He did not say that Narragansett was a justice of the peace to enforce the law in case someone breaks into a home while the occupant is away... or to protect Galt's intellectual property rights as he had revealed the key equation to Daniels... So, while I agree with the validity of your proposals, they are not consonate with Rand's view, though they may, indeed, be Objecitivist.

Post 18

Saturday, June 21, 2008 - 11:13am

Ted Keer wrote: "It is for the fact that military protection is collective that I see a sales tax on real estate as I described above reasonable.

Simply listing certain persons as NOT subject to the protection of the law amounts to blackmail and protection racketeering."

So you prefer coercion and theft (which you labeled "taxes") over a public listing of people who have voluntarily chosen not to purchase a government service (which you labeled "blackmail and protection racketeering")? With the latter, you have the right to opt out, but if you choose not to do so, it essentially reverts to the former. Do you think having a choice about being robbed is a bad thing?

(Edited by Jim Henshaw on 6/21, 11:14am)

Post 19

Wednesday, June 25, 2008 - 8:00pm