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Taxation

Taxation is a form of extortion, where a threat is offered, and unless the victim pays up, the threat will be followed through. For some reason, a lot of people seem to think that extortion is fine if the extorter (the tax man) works for the government.

The Moral Argument

Taxation is a form of initiation of force, which is immoral, destructive, and unacceptable whether perpetrated by an individual, mafia, or government. Specifically, taxation negates the concept of property rights by claiming that the government has first right to the income or money of its citizens. When every man's work is the property of the state, and he is allowed to keep only what the state feels appropriate, that is Communism which leads to poverty and death. It is the opposite of the view that man has a right to exist for his own sake, that his life is his moral standard.

Any political system that endorses taxation as moral makes the claim that man is a sacrificial animal, who is to be sacrificed in whatever manner the state deems necessary. It must be remembered that the ends to do not justify the means -- the means are part of the ends and affect those ends. If the role of government is confined properly to the protection of its citizens and nothing else, then the budget will be fairly small and can be financed through moral means.

The Unseen Results

Practically speaking, taxation is not just an instance of taking money from the private sector and transferring it to the public sector. It is not an instance of moving it from one pocket to the other. There are many other undesired side effects.

These taxes inevitably affect the actions and incentives of those from whom they are taken. When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only fifty-two cents of every dollar it gains, and when it cannot adequately offset its years of losses against its years of gains, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. People who recognize this situation are deterred from starting new enterprises. Thus old employers do not give more employment, or not as much more as they might have; and others decide not to become employers at all. Improved machinery and better-equipped factories come into existence much more slowly than they otherwise would. The result in the long run is that consumers are prevented from getting better and cheaper products to the extent that they otherwise would, and that real wages are held down, compared with what they might have been.

There is similar effect when personal incomes are taxed 50, 60 or 70 percent. People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a fraction of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.
Henry Hazlitt, Economics In One Lesson

Not only do the artificial conditions set up by taxation make the private sector less efficient, but in addition, money spent centrally can never be as beneficial as money spent locally. The fundamental alternative between tax-and-spend and self-reliance is a choice about who is to spend an individual's money (the product of his labor.)

Money is not an end in itself. It is the means to an end. The means that it represents is your labor - the amount that other people value what you have produced. The end that it can achieve is your values. To benefit from your labor, you must be able to direct that labor or its equivalent (money) towards accomplishing your values. Because only the individual knows his values and their relative importance, only the individual can know how best to spend the result of his labor.

A government official in some central location, unless endowed with a form of omniscient ESP, cannot know how best to spend the money that has been appropriated into his charge. Therein lies the gross inefficiency.
You think that you need a new pair of shoes -- he thinks you need a diplomat in Lithuania.
You think that you'd like a new car -- he thinks you would rather support someone on welfare.
You think that you'd like to buy a house -- he thinks that you'd rather build a new jail to house drug offenders.
You think that you need some new medicine to survive -- he thinks that you should spend your money on a bloated FDA to spend years testing while you die waiting for approval.
Sure, all of these things that he, the government official, thinks you need might be of some use to you, but the difference between those uses and what you really want is the inefficiency. And that is not even mentioning his salary, which by the way, he thinks is in your interest to pay.

Some people, like Benjamin Franklin, see taxation as an inescapable fact of nature ("In this world nothing is certain but death and taxes.") Others see it as a method of draining their work for uses they neither approve of nor enjoy. When another man's claim, proposal, or need is a blank check on your efforts, that is when resentment builds. Only when people deal with each other as people with equal rights, inalienable under the law, as people whose only interaction is as voluntary traders, when no one is sacrificed to anyone and nothing is extorted to "common" or "individual good" -- only then can people truly see each other as a benefit and an asset rather than another competitor for the same stuff.

Taxation is Not Necessary to Pool our Resources

Sometimes it is claimed that without a government building large public works projects and infrastructure (with tax money), these things would never be build and we would all be the worse for it. Where there is something that people value, there is profit -- the difference between how much something is valued and the cost to provide it. Large scale makes private ventures more difficult, but the rewards greater. The railroads in the United States are an example of a massive project which was accomplished with private volition and funding, despite government attempts to interfere.

Of course, if the public work or infrastructure is not valued by people then there is no profit to be made and private industry will not build it. But that's a good thing.