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When someone asks about your job, you might say, “I work for...” and then name some organization. But in reality, you’re working for yourself. It’s your money you take home, and that money enables your survival. In the past, people survived by hunting animals, cultivating land, building shelters and fabricating garments. You can still do that today, but you probably don’t want to. You’d rather get a job so you can pay someone else to hunt, farm, build and sew for you.
But you probably won’t get anyone to do these things unless you give them something they want. In a simple barter economy, if you need firewood and you can only offer cotton in exchange, it might be hard to find someone willing to make that trade. You’d need someone with firewood who also wants cotton. That’s why barter is inefficient and money is useful.
Money lets you trade cotton for firewood indirectly. You sell the cotton, get some money, and then use it to buy firewood. If the guy with the firewood wanted steak and not cotton, then money is useful to him in a way that your cotton isn’t; he could use the money from you to buy steak. Money enables many more trades because there are exponentially more combinations of potential trading partners. While barter effectively requires each person in the trade to act as both buyer and seller, with money, you only need to be one or the other.
Because it allows more trading opportunities, money helps create greater prosperity. Think about it: you wouldn’t trade with someone unless you felt you’d be better off afterwards. If you wouldn’t benefit in some way, why would you bother trading in the first place? Well, the person on the other end of the deal feels the same way. He wouldn’t trade unless he also gains. So, by definition, when people willingly enter into a fair trade—assuming they have proper information and are acting rationally—everyone involved is better off. Therefore, the more fair trades that a given society encourages, the more prosperous the society becomes.
That’s also why economies with greater tax burdens can’t grow as fast as those with lower taxes. When governments take money from citizens, it reduces the number of transactions those citizens can make, thereby limiting the gains made through trade.
Taxes, unlike voluntary transactions where everyone benefits, are mandatory. I don’t know any people—no matter how noble or civic-minded they may be—who can honestly say they feel better off when they look at their pay stub and see how much of their work is being taken by the government. Taxation is a necessary cost of maintaining an orderly society that’s capable of defending itself, so we tolerate it. But it’s also a cost that should be minimized, because taxation crowds out the private transactions that lead to prosperity.
Someone else may end up better off thanks to your tax dollars, but it’s a zero-sum game. Whatever gains are enjoyed by the recipient(s) of your money is directly offset by your loss of that money. In a private exchange, the parties execute a trade only when they both stand to benefit; there are two winners in the deal. But when the government gets involved, your money is simply shifted somewhere else. That’s why government spending—even though it may result in economic activity—can never lead to prosperity the way that private transactions do. If both parties benefit from a private exchange, there is an overall gain. Multiply that by billions of transactions every day, and you begin to see how an economy can grow. But with government spending, where each winner is balanced by a loser, it’s always a wash; there is no growth, just a change in the location of taxpayer money.
You don’t get to choose whether you pay taxes. If the government decides you should pay taxes and you don’t, I hope you have a good lawyer. Evade your taxes, and you’ll lose your freedom. So in a way, taxation is a form of quasi-slavery that society imposes on itself. Every taxpayer is a partial slave to every voter.
What if, instead of paying taxes in money, the government forced you to work on a chain gang in order to pay taxes? If you have to work until 5PM every day, but everyone else gets to go home at noon, would that be fair?
Although an income tax seems like a confiscation of your money, it is really a confiscation of your time. After all, you earn your income by sacrificing your time. If you work 40 hours each week, and you pay 50% of your income in taxes, that means you work 20 hours a week for yourself and 20 hours for the government. Sure, you don’t notice, but that’s only because you spend your 20 government hours sitting at the same desk, drinking the same coffee, and talking to the same co-workers that you do during the 20 hours each week you spend working for yourself.
Imagine it wasn’t like that. Imagine, instead, that you worked your 20 government hours each week busting rocks on that chain gang. Some of the other folks on the chain gang only have to bust rocks for 10 hours a week, because their tax rate is 25%. You spend twice as much time on the chain gang.
That’s how the graduated income tax discriminates. (Proponents like calling it a “progressive” tax, because that sounds like progress, and how could progress be bad?) By setting different rates for different people, the government forces some citizens to sacrifice more of their lives on the IRS chain gang. If taxation is partial slavery, why should some slaves be more partial than others?
People who favor a graduated tax say it’s fair because it makes people pay more as they earn more. True, but that would be the case under a flat tax as well. Suppose there’s one tax rate, at 20%. Someone making $50,000 a year pays $10,000; another person making $250,000 pays $50,000. According to my calculations, $50,000 is more than $10,000 by about $40,000. Even under a flat tax, higher earners pay more. What progressive tax advocates really want is for the high earners to pay more than more, to penalize them for their success by making them spend disproportionately more time on the IRS chain gang. That doesn’t sound fair to me.
It’s been said that simple democracy is three wolves and a sheep voting on what to have for dinner. That’s why democracy must be coupled with individual rights to maintain a just society. These rights protect the individual against the tyranny of the majority. But when the majority can vote to seize more of your life than mine, the system is not equitable.
To ensure a vibrant economy, taxes should be minimal. And to ensure a just society, the graduated income tax should be abolished.