"Abracadabra, thus we learn the more you create, the less you earn. The less you earn, the more you're given,
the less you lead, the more you're driven,the more destroyed, the more they feed,the more you pay, the more they need,the more you earn, the less you keep,And now I lay me down to sleep.I pray the Lord my soul to take,if the tax-collector hasn't got it before I wake."
There is no moral basis for taxation. It is, as the dictionary says:
...that part of the revenues of a state which is obtained by the compulsory dues and charges upon its subjects
This is an imposition that many argue is straightforwardly theft. Here is Rothbard:
For there is one crucially important power inherent in the nature of the State apparatus. All other persons and groups in society (except for acknowledged and sporadic criminals such as thieves and bank robbers) obtain their income voluntarily: either by selling goods and services to the consuming public, or by voluntary gift (e.g., membership in a club or association, bequest, or inheritance). Only the State obtains its revenue by coercion, by threatening dire penalties should the income not be forthcoming. That coercion is known as “taxation,” although in less regularized epochs it was often known as “tribute.” 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.
Now it is also the case that the state, having extracted its income from us through compulsion, then spends that money for the betterment of society. Even the robber barons perched in their Rhineland castles didn't extract money with menaces from river traffic solely for personal gain. They provided services in their demesne (most importantly security and protection from other robbers).
In our modern democracy we even have the ability, through the ballot, to decide just how much we will take in taxation - we act, some would say, as if we are a club where the rules (including those about tax) are set through the political process. In this context the existence of taxation is axiomatic - the debate isn't whether we should have tax but the scale, nature and system of that taxation. We do not ask often enough whether taxation is necessary, appropriate or right.
The main argument justifying tax is based on how the tax is used not on the fact of the tax:
Unlike protection rackets taxation gives us something in return, namely public goods which benefit all citizens. Studies have shown that it is unlikely for people to organize to provide public goods by themselves (see the free rider problem), and thus it is in everyone’s best interests for the government to provide these goods and to support them with mandatory taxation.
The problem here is that this argument takes us no nearer a philosophical justification for taxation. A further concept - the 'free rider' - is introduced but that fact seems to be something of a red herring. After all, unless your tax system is a simple poll tax, there are plenty of free riders - taxing people does not, in and of itself, eliminate this problem.
Nor can we use the idea of 'public goods' to justify taxation - this is the 'roads, who will build the roads' argument that we know is false. The roads - the precursors of the freeways and motorways of today - were built with private finance on a voluntary basis despite that 'free rider' problem. Nor can we make this argument for health, housing, welfare or indeed most of the things provided through taxation by the modern state. All of these things can (and have been in history or are somewhere in the world today) be provided on a private, voluntary basis.
It seems to me that the crucial issue - if you reject Rothbard's simple 'tax is theft' argument - isn't some sort of theological discussion of how progressive tax is or isn't but the degree of consent to taxation. And there are two ways to assess this - firstly to look at the extent to which people avoid or evade taxes and secondly to consider whether people consider themselves to be overtaxed. A further question might be the extent to which taxation undermines the taxpayers ability to make personal choices - are we taking too much to fund 'collective' decision-making leaving to little to fund 'market' decision-making.
There is a lively debate about the extent to which taxes are avoided - we've read the attacks on businesses like Vodaphone and Amazon around their tax affairs and we've witnessed ministers and shadow ministers outbidding eachother to have a go a 'tax-dodgers'. And stories like this are legion:
The inability of HM Revenue and Customs (HMRC) to properly curb aggressive tax avoidance schemes is costing the UK billions of pounds, a report suggests. The National Audit Office said HMRC was dealing with a backlog of 41,000 cases involving individuals and small companies, with up to £10.2bn at stake.
Add to this attacks on paying traders in cash, the rise in duty avoidance ('smuggling' and illegal production) for alcohol, cigarettes and other products, and the tightening of rules around gifts, trusts and charities. We have a situation where the proportion of society operating outside the tax system (wholly or partly) has risen:
...the latest estimates showed about 30 million people in the EU performed work that was not declared for tax. "Around half of all construction workers in Germany undertake shadow work; and over 80% of all Danes find shadow work acceptable – at least in some circumstances."
In the UK at least 13% of the economy is outside the tax system - this is some £308bn. We have to add legitimate avoidance of tax by business and individuals into this equation. All of which suggests that the degree of consent to be taxed must be questioned.
YouGov asked last year about the 'fairness' of the tax system:
Thinking about all the ways in which people pay taxation – such as income tax, VAT, Council Tax, excise duties – how fair do you think the system is for taxing people in [country] these days?
The result show that two-thirds of people saw the system as 'unfair' and this is regardless of whether respondents positioned themselves as 'left', 'centre' or 'right' politically. Again this suggests that the principle - taxation by consent - is creaking a little. However, other YouGov research suggests that - for all that we see the system as unfair - the most 'popular' choice is not to change taxes. However, a fifth of the population want to see a reduction - tax cuts with spending cuts - in the size of government.
None of this answers our question although it does suggest that a significant part of the population do not 'consent' to the current level of tax. And this part - whether through behaviour (avoiding or evading taxes) or through opinon - represents the challenge to those who see delivery via the state as the only option.
Finally there is the extent to which the individual is able to make personal choices post-tax. It it a statement of the obvious to say that high taxes - wherever and however they are levied - will reduce the amount of money available for consumers to spend in the market. And that if taxation reaches the point where this reduction is disempowering to the consumer then we can only describe this taxation as 'extortionate' - for want of a better word, as an act of theft.
The problem is where this point of consumer loss sits. For Rothbard it was simple - any taxation reduces the ability of the consumer to make choices. But we have rejected this argument because of the 'equity' obtained from the collective provision of some services (security, health, education). It is true that these things could be provided voluntarily and privately but also true that the guarantee of the state is positive in providing these services.
We also know - although in the UK this is generally not the case - that funding through taxation does not prevent the use of choice within a market as the means of distributing a public service. What using taxation does is make these services -typically health and education - available universally regardless of the means available to the consumer.
If, however, taxation to provide health, education and security results in some individuals being unable to sustain themselves without external assistance, then that taxation certainly conforms to our idea of 'extortionate' - the act of taxation is an act of theft, even if we subsequently give back some money in the form of benefits allowing the consumer to sustain himself.
But what if the result of taxation is to prevent someone having the means to pay a mortgage, have a holiday, buy a car or have a meal out every now and then? Is this level of taxation justified? Are we disempowering these consumers by making it difficult for them, even impossible, to have commonplace things (cars, holidays, a night out)? Stopping people - through taxation - from having things that most of us consider aspects of a regular life indicates, again, that the level of taxation for such individuals is 'extortionate' - an act of theft.
The UK is such a society - we tax the income of people on low wages meaning that for many (probably millions) things we consider normal are precluded and for some that sustaining a basic life is only possible through welfare support. The UK is also a place where millions of people avoid paying taxes, mostly in little ways, and where the majority believe the tax system to be unfair.
The solution does not lie in taxing wealth (although we have pretty significant proxies for such taxation in the form of business rates and council tax) not does it lie in getting companies or the rich to pay taxes. It lies in recognising that taxation lacks any moral basis - it is simply a matter of finding an equitable and effective way to deliver a set of services (security, health, education).
It seems to me that two things are needed:
1. The end to taxing people below the point at which we provide benefits or subsidy
2. Where we can create 'markets' or choice-based systems within public services, we should do so