An Illusion about Taxes

Clayton Morgareidge, for the Old Mole Variety Hour, July 20, 2009

An Illusion About Taxes

Two publications that represent our ruling elite are the Wall Street Journal and The Economist. They are both outraged by the congressional Democrats’ healthcare plan for, among other things, the tax burden it would impose on their constituency. “The Democrats want to ram through one of the greatest raids on private incomeand business in American history,” screams an editorial in The Wall Street Journal . The Economist grumbles that “the House bill hopes to achieve near-universal health coverage by soaking the rich.” So this seems like a good moment to think about taxes.

Soaking the rich is something the rich (with a few notable exceptions) see as a bad thing. But should the rest of us see it as a good thing? Should we join up with Robin Hood to steal from the rich and give to the poor? But whether we think soaking the rich is good or bad, either way we buy into the illusion that the rich actually own their wealth. In their book The Myth of Ownership: Taxes and Justice, Liam Murphy and Thomas Nagel try to expose this illusion.

The most extreme objection to taxation is the idea that taxation is theft. Here is Murray N. Rothbard writing back in 1969:

The first great lesson to learn about taxation is that taxation is simply robbery. No more and no less. For what is "robbery"? Robbery is the taking of a man's property by the use of violence or the threat thereof, and therefore without the victim's consent. And yet what else is taxation?

A more moderate, but just as cynical, a view of taxation is the common saying that nothing is inevitable but death and taxes. Taxes are a necessary evil. But what makes people resent paying taxes, even when they would agree that they could not live without the benefits of government? According to Murphy and Nagel, it’s because we suffer from an illusion that is inevitable in our economic system, the illusion that that our gross income, what appears at the top of our pay stubs, or on the deposits that go into our bank accounts from investments, is our own private property, and that the taxes we must pay are taking away from us something that is rightfully ours. We may agree that it has to happen, but we nevertheless feel that we have paid out something that was, if only fleetingly, our own.

Well, you might ask, why shouldn’t I think of it that way? I earn X amount of dollars, that’s my salary, and some of that is taken away from me and sent off to Salem and Washington DC, leaving me with less than I had.

But look again at what you call your “pre-tax” earnings. Your gross salary is already the result of a lot of book keeping, of the vast accounting system that goes with our economy. Any economy is a vast system for distributing wealth – between capital and labor, for starters, but also among different kinds of workers and among the owners and producers of millions of kinds of services and resources. So your share of the wealth is already the result of a complex system of allocation. And in fact, what government does is always already part of that. Whatever you and your employer produce only happens within a system that is regulated and facilitated by governments at all levels – from police protection to highways to the money system. So there is no way to separate out what you have coming to you independently of what must be provided for government.

Here’s how Murphy and Nagel put it:

…individual citizens don’t own anything except through laws that are enacted and enforced by the state. Therefore, the issues of taxation are not about how the state should appropriate and distribute what its citizens already own, but about how it should allow ownership to be determined (176).

Thus

We have to think of property as what is created by the tax system, rather than what is disturbed or encroached on by the tax system. Property rights are the rights people have in the resources they are entitled to control after taxes, not before (175).

So if our society decides that everyone should have access to good healthcare and that this requires that more of the nation’s wealth should be funneled through a government agency running a public insurance plan, then that reallocation of wealth is not a “raid on private income and business.” Taxation is not theft; it is an adjustment in the economic system, the system that distributes all the wealth our society produces.

But even if we get over the illusion that people’s gross income truly belongs to them, we may not get over theresentment, and that is because the determination of who gets what is not democratic or transparent. Congress is not going to give us the healthcare reform over 70% of us want, namely medicare for all because Congress represent the wealthy insurance companies and for profit healthcare industry more than they do the voters. This is why our taxes feel like they are extorted from us by a foreign, occupying power: our voice is not heard, our interests are ignored. A great example of this was the The Economist claiming that the minimal healthcare reform proposed by the Democrats is very “far to the left of American political discourse” – which only goes to prove how narrow is the band of voices the mainstream press can hear or acknowledge.

In an interview with Bill Resnick here on the Old Mole a couple of weeks ago Robin Hahnel said this about raising taxes on the rich:

Many liberals have basically given up too much philosophical ground when we talk about taxes. The truth of the matter is that that is wealth that all of us have created, and what we’re doing is taking it in a way that it needs to be used rather than letting it be frittered away by those who have it. Another way to put is that the wealth that the very wealthy have – a much higher percentage of that is not earned or deserved than the income and wealth of those of us who have less.

In other words, the whole economic system gives the rich more than their due, and a progressive tax system is at least a first and partial step towards adjusting that inequity.