Taxation isn’t just theft, it is gaslighting, social engineering and moral panic too

There is no justification for fussbucketry, social engineering or the creation of a fake ‘social contract’ to valorise extracting punitive amounts of money from the rich or badly behaved.

“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”

Wise advice from the Sun King’s finance minister, Jean-Baptiste Colbert. I assume he said it in French though. Taxation is the subject of debate especially, as is the case in Britain right now, we are in the febrile period before the setting of a new national government budget. Doubly so when the government has, more or less, told us that there isn’t enough money to provide the things they promised and we demanded.

Back in Colbert’s day the purpose of taxes was really very clear - they were the means by which the state (which famously, of course, was the King back then) paid for stuff like armies and the running of immense palaces. And Colbert’s plan was to get as much of this as surreptitiously as possible with duties, charges and licences rather than directly from people’s incomes, even rich people’s incomes.

Today we are altogether more confused about why we have taxes, here’s Stephen Daly, an academic tax lawyer giving a modern definition of taxation’s function:

“The first is that taxation serves a plurality of functions, which each have different underlying interests. The second is that, at different times with respect to different taxes and the design of tax systems, these can be intertwined but also in tension with each other. The third is that the civic function of taxation makes various, at times unpopular, demands of the tax system, which may cut against the other functions of tax. Because it mandates that people should explicitly engage with the tax system, it means that taxes should be “seen” and not simply incorporated into transactions or taken out of the view of the taxpayer. As a result of these unpopular demands, the article suggests that the task for modern States is to champion the civic function without being pinned down to either its contours or content.”

Daly argues against Colbert by saying that taxation must be explicit (and by implication potentially unpopular) and has purposes beyond the simple need to raise money for the state’s functions.  We are told that we need taxes to manage international trade, to control inflation, to reduce inequality, to reduce alleged negative externalities, and to change people’s behaviour. All while making sure that the voters don’t hiss too much. There’s even an argument that taxes are a form of ‘social contract’ whereby we all chip in to provide ‘public goods’:

“...tax represents a social contract between us, the population, and the government. In that social contract, there has to be what is called, in legal terms, a consideration. Something that represents the payment between us. Well, tax is the consideration in the social contract, and because we have to pay tax and therefore have a relationship with government, we're interested in what government does.”

Until we arrived at this idea of a ‘social contract’ the explicit purpose of taxation had always been to fund the activities of the state - national defence, the rule of law and the mitigation of poverty. There was no need for a conception of a ‘social contract’ or, indeed, any evidence that this resulted in a lack of patriotism or regard for the nation. But then an economist called Keynes presented an argument that we could pull ourselves up with our own bootstraps and, in doing so, gave to the government a role far beyond that of previous times. Where before the state had managed a limited range of functions (national defence, the justice system, trade and so forth), Keynes and his acolytes told us that the government could manage the whole economy. This is a conceit of monumental proportions and assumes that all spending is equivalent and therefore the state directing spending is how we secure economic growth:

“From the theoretical point of view, it makes no difference whether money is spent by consumers on final goods and services, by governments on politically driven wasteful expenditures, or by businesses on value adding forms of investment. All provide demand and therefore all are equivalent so far as macro theory and policy are concerned.”

The state has always had a tendency to direct people’s choices but, for much of history, this was primarily to make sure they bought English beer not French brandy with any moral judgement about drinking left to the priests. This changed with two things, the size of the franchise and a series of moral panics about drink, drugs and gambling. The state found that sin taxes were popular (at least with those who weren’t sinners) and lucrative so began to make the argument that these taxes were necessary for the good of society - the ‘social contract’ became doing what nanny says rather than sharing the cost of roads or schools.

Of course the reality of these sin taxes is that they become important as sources of revenue - the UK government raises over £25 billion from taxing smoking, drinking, gambling and soft drinks plus another £25 billion from duty on fuel for road vehicles. And all of these taxes are explicitly intended to change behaviour - stop smoking, drink less, gambling is bad, and cars cause congestion. If the government was honest it would say to smokers ‘you all know the risks so smoke if you want but we’re going to screw as much tax as we can from your addiction’, but instead it pretends that it cares deeply for the smoker and wants him or her to stop. And the same goes for drinking, driving and gambling (plus soon, if some people get their way, sliced white bread and breakfast cereal).

While all this fussbucketry is going on, another bunch of people want to use taxation to make everything equal. Our tax system they say should be ‘progressive’ (i.e. taxing the better off more) not because that’s a good way to get more feathers with less hissing but because is is ‘fair’:

“...a progressive tax system redistributes wealth within an economy from the wealthy towards the poorest and most vulnerable, to reduce poverty and inequality and ensure that the benefits of development are felt by all. IFS analysis from 2019 found that though benefits do much of the work in reducing income inequality, taxes also redistribute from rich to poor, and are responsible for at least a fifth of the total redistribution the tax and benefit system achieves.”

This idea of equity involves an assumption that paying taxes is part of a ‘social contract’ as well as that there is something wrong - ‘unfair’ - about one person having more income than another person. Without the ‘social contract’ idea, there are no grounds for taxing one person at a higher rate than another person, but once you claim ‘we’re all in it together and we all must contribute’ the faux-moral argument for progressive taxation becomes stronger. All this presupposes that first, society and the state are the same, and second, that a majority can direct that more money is extracted from some people so as to pay for things that the majority demands. Worse, the purpose of this additional taxation is entirely punitive - you have too much money and therefore we will take some more of it off you to make everything fair and equal.

This is, of course, a lie. The government doesn’t take money off you to make everything fair and equal but rather it does so in order to reward groups of voters with money and free stuff. These rewards are straightforward incentives for people to use their votes to sustain (and expand) the scale, scope and power of government. And the government’s marketers - we usually call them politicians - present a message that all of this can be achieved by taxing someone else and that as a result of taxation you are going to be richer. Both of these messages are straight up fibs and, while we sort of know this, we go along so as to protect the bits of money and free stuff we might get.

In one respect taxation is theft, we have no choice about paying it and, if we refuse to pay, the state uses its powers to take that money anyhow. But because we want that free stuff the politicians dangle before our eyes it is difficult for anyone to make this claim. Even an anarcho-capitalist like Fredrick Bastiat recognised the need for a state to protect the life, liberty, and property of the individual. But what Bastiat and others made clear was that there is no ‘social contract’ allowing the government to seize property, there is no validity to using moral panic to punish someone’s consumption choices, and no ethical basis for using state force to engineer society.

In the end Colbert’s theory of taxation is the right one. We want the state to do some things for us - protect the nation, our life and property - so we need a means of raising the money needed to perform that purpose. Even if we set wider functions to the state such as to mitigate poverty, educate children and ensure people have health care, there is still no justification for fussbucketry, social engineering or the creation of a fake ‘social contract’ to valorise extracting punitive amounts of money from the rich or badly behaved.