Front Page Titles (by Subject) Part VII: Taxation Is Robbery - Fugitive Essays: Selected Writings of Frank Chodorov
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Part VII: Taxation Is Robbery - Frank Chodorov, Fugitive Essays: Selected Writings of Frank Chodorov 
Fugitive Essays: Selected Writings of Frank Chodorov, Compiled, Edited, and with an Introduction by Charles H. Hamilton (Indianapolis: Liberty Fund, 1980).
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Taxation Is Robbery
The Revolution of 1913
This article appeared in analysis (November 1950).
The replacement of one ruling regime by another does not in itself measure up to a revolution; that can be accomplished by a gang fight or an election. A revolution is an effective change in relationship between rulers and ruled, a shifting of the incidence of power from society to the state, or vice versa. The American Revolution was an effective one not because it got rid of the British crown, but because it set up a weaker state, vis-a-vis society.
The Constitution was not necessary to the revolution. The new relationship between rulers and ruled was summed up in the Articles of Confederacy, and the country could have managed without another legal document. But we cannot argue with a fact: the Constitution of 1789 charted the course of the new state-society relationship as nearly as a political document could, and thus became the profit-and-loss statement of the preceding rebellion. The going ethos was individualistic; in his pursuit of happiness the early American felt quite satisfied to go it alone, accepting restraint only insofar as restraint was necessary for the security of property and the maintenance of peace. He would tolerate coercion to restrain coercion, and no more. His experience with the British crown taught him to distrust political intervention, and his skepticism necessitated delimitation of the powers of the proposed establishment. Otherwise, he would have nothing to do with the Constitution.
We pervert the fact when we speak of the Constitution as a guarantee of rights; such an idea did not occur to the framers, nor even to those who opposed ratification. A Bill of Rights was incorporated into the document as a concession to the prevailing skepticism; but the Bill did not establish the prerogatives of the individual and the new government did not guarantee them; it simply agreed to respect them. They inhered, by common consent, in the individual as a matter of existence or as a gift from God, and the Bill was merely a memorandum to that effect. It was a warning signal that the authority of government must not transgress these prerogatives. As James Madison put it in one of his letters, the Bill of Rights was superfluous and unnecessary, and though he did not object to its inclusion, he was apprehensive lest a specific Bill of Rights should invite circumvention and thus defeat the purpose. After all, government simply has no business with rights, except to leave them inviolate.
The principal preoccupation of the framers of the Constitution was with restraints on authority, and those who opposed it argued the insufficiency of these restraints. Much has been said about the “checks and balances” incorporated in the Constitution, but entirely too little emphasis is put on the temper of the times that made these provisions necessary. In the light of the present abdication of social power in favor of political power, the early American attitude toward government is most striking. True, there were some who favored a strong centralized government, and some went so far as to advocate monarchy; but it is doubtful whether even these envisioned a concentration of power such as our present government wields. It was simply unthinkable. The revolution was in the hearts of men.
Not the least of the checks put on the new government was the limitation of its taxing powers. It was understood, of course, that authority is always in proportion to revenue, and if the latter could be held down, the former would take care of itself. About the only taxing power generally conceded to the proposed federal government was that of levying on imports; the “infant industry” argument carried weight, particularly as it implied retribution against the recent enemy. Hamilton argued that customs revenues would be insufficient and begged for internal excise taxes; his argument on this point, in The Federalist, is a remarkable piece of special pleading. If the government were not permitted to tax production, he said, it would have to ask for direct taxes. The principal direct tax, that on land values, he peremptorily dismissed on the ground that it would do hurt to the small holders who constituted the bulk of the population; this appeal to mass prejudice conveniently ignored the effect of land value taxation on the large estates in being, and on the prospects of the land speculators who were not without influence in the Convention. The other direct tax, that on incomes, he declared both unjust and impractical; in an agricultural economy, where trade on a barter basis is considerable, a levy on incomes would not yield enough to offset the unpleasantness of collection. His plea for excise taxes prevailed.
And there the matter of federal taxation rested until, as a war measure, the Lincoln administration put through a tax on incomes. The constitutionality of this measure was questioned, and the matter might have been brought to adjudication if the tax had not been dropped, in 1872. Again the constitutionality of income taxation engaged the legal talents of Congress during the latter part of the nineteenth century. The argument was tortuous; yet there can be no question about the intent of the framers of the Constitution. Putting aside the written evidence, it is inconceivable that these leaders of a rebellion that was sparked by resentment over taxation far less oppressive would have countenanced a levy on incomes. That was not what the Americans fought for.
NO MONEY, NO POWER
The federal government rubbed along on what it could get out of customs duties and excise taxes until the enactment of the Sixteenth Amendment in 1913. It was a relatively weak government. It did not transgress the rights of the people because it could not. The balance of power was with society, as envisioned by the revolutionists, and the profits of their struggle endured in the immunities enjoyed by the citizenry: the immunities of property, person, and mind.
In respect to the right of property, the people were protected from encroachment by the strict limits put on the federal power of taxation. And because it therefore lacked the wherewithal, the government could not engage in ventures tending to invade the immunities of person and of mind. Thus, Lincoln's attempt at military conscription was unsuccessful because he did not have an army to ferret out reluctant draftees; when World War I rolled around, that lack had been overcome, thanks to the Sixteenth Amendment, and now encroachment is so effective that even peacetime conscription presents no difficulty; the person of every American may be impounded.
As for the immunity of mind, that was undermined by the subtle process of subvention, when the funds became available. With public and private educational institutions beholden to the state for their existence, it was inevitable that the doctrine of benevolent statism should have insinuated itself into textbook and classroom; and as employment in the burgeoning bureaucracy presented opportunities, both as to emoluments and self-glorification, the minds of educators and educated became receptive to the idealization of the state. The doctrine of natural rights was gradually washed out of political science and social philosophy, and in its place we have the doctrine of permissive rights. In all the disciplines dealing with human relations, including, of course, the law, the primacy of the mass, rather than the individual, has achieved axiomatic position. It is a new American ethos, induced by state beneficence. Even the tax-exemption privilege granted eleemosynary institutions is not without its influence; because of it, as well as permissible deductions from income, contributions to school and church became more liberal before limits were put upon contributions; so that, perhaps unconsciously, even the teachers of Christianity have come around to minimizing the dignity of the individual and the glorification of directed behavior. Though it cannot be said that this inclination toward collectivism was deliberately planned, the state has not failed to use the funds at its command to propagandize itself into public favor.
Thus, the immunities written into the compact of 1789 have been eradicated by the proceeds of the Sixteenth Amendment. This one measure effected a change in the relationship between society and its ruling regime as thoroughly as if it had been done by invasion and conquest. The revolution of 1913 undid the profits of the revolution of 1789.
Our adjustment to the new relationship blinds us to the fact; perhaps an exercise in speculation will help to clarify it. Let us imagine an impossible bargain entered into between the American colonials and George III: in exchange for the removal of all their disabilities and indignities he had put upon them, as enumerated in the Declaration, they offered him the power to tax their incomes. Assuming that he understood the proposition—which is as unlikely as their making it, since income taxation was only vaguely apprehended in those days—he would most assuredly have accepted it. Why not? A prior lien on all their production would have been an attractive price for the gewgaws of liberty they wanted. There would have been no revolution. The dominance of the British crown would have been assured, and the immunities of property, person, and mind enjoyed by Americans between 1789 and 1913 would never have been known. The American attitude toward the state would always have been what it is now; that is, one of dependence and subservience.
It requires no great imagination to draw up a bill of particulars against the present American state comparable to the indictment of the British crown in the Declaration, and one could well argue that there is more cause for revolt today than there was in 1776. The will, however, is absent.
Among the casualties of the revolution of 1913 is the doctrine of federalism. It is a casualty of major importance. From 1789 until the Civil War, the tradition of coequal authority between local and federal governments held firm, and even after that war (which settled only the question of secession), the states maintained their autonomy by virtue of their economic independence. The country was a Union, not a nation; it was only when the federal government obtained power over the citizens' property that our constitutional structure was mutated. The events leading up to it are well worth reviewing.
It all began when the passion for leveling was let loose by a too literal interpretation of the doctrine of equality. The revolt against feudal absolutism was sparked by the truth that “all men are created equal,” and envy was quick to turn this truth into a license for spoliation; the early American was no freer of covetousness than any other man. Recognizing this, the Founding Fathers sought to prevent the use of the powers of government for a program of confiscation; that, indeed, was the primary purpose of the checks and balances. However, during periods of economic distress, these safeguards of property rights regularly became the target of demagoguery; “hard times” were invariably blamed on the cupidity of the few. After the depression of 1873 the passion for leveling was whipped into a froth and there was a general demand for reforms, most of them aiming to break down the immunity of property safeguarded by the Constitution.
One of the reforms called for during the latter part of the nineteenth century had a substratum of economic sense. It was a demand for tariff reductions. The South (which had tried secession as a means of righting the injustice of the protectionist system) was now joined with the West in this demand. Its position was sound. The prices the South obtained for its raw products were set in the competitive markets of the world, while the prices it paid for manufactured goods were loaded with tariffs. The consequent disaffection found expression in the Granger-Populist movement.
This was grist for the mills of the Democratic party, idle and gathering dust for many years. The party was historically committed to free trade, even though its integrity had been more than tarnished by protectionism, and Grover Cleveland, its candidate in the campaign of 1892, grabbed at the ready-made issue presented by the agricultural malcontents. His sagacity went further. Contending that the loss of tariff revenues would go hard with the federal treasury, he proposed to make up the deficiency with an income tax. This was a direct appeal to the passion for leveling, for in those days it was taken for granted that an income tax would be levied on the wealthy only. Thus, a measure of justice was packaged with an appeal to envy into a successful campaign platform.
The income tax law introduced by the Cleveland administration (and declared unconstitutional in 1894) was indeed attached to a low-tariff bill. And up to the enactment of the Sixteenth Amendment, the political fiction was maintained that an income tax was needed to offset lower customer returns. This was pure hogwash; the state never relinquishes one form of revenue for another, for it is inherently incapable of restraining its lust for power. The highest tariff walls in the history of the country sprang up after income taxation was constitutionalized.
Ironically enough, the hope of those who favor free trade, or even lower tariffs, was forever done away with by the income tax. The state now has no economic interest in importations, no reason for encouraging them. Before the Sixteenth Amendment, nearly half of all the revenues of the federal treasury came from customs duties; today that source provides less than two percent, Where it not for the large revenues from income taxation, the state would be compelled by its own needs to pursue a tariff-for-revenue-only policy, rather than a protectionist policy. The current program of economic isolation— including quotas, so-called quarantine restrictions, and the devaluation of our money in respect to foreign moneys—would simply be impossible. Foreign trade would be as important to the treasury as it is to the general economy.
A tariff-for-revenue policy, furthermore, would have made impossible the current urgency for a managed economy, for no state can go in for that sort of thing if the country's borders are open to the goods of other nations. Fixed or regulated prices cannot stand up against foreign competition, and an arbitrary scale of wages is likewise undermined. A hermetically sealed economy is the prerequisite of a managed economy. Our venture into socialism known as the New Deal would never have been undertaken if the barriers to foreign trade had not first been set up, and such barriers could not have been erected if the fiscal affairs of the government were dependent on tariffs; the income tax obviated that dependency.
THE UNION IS DISSOLVED
Protectionism breeds protectionism. The relief expected by the agricultural communities did not follow on the Sixteenth Amendment; their difficulties were rather increased. The further entrenchment of protectionism gave rise to the argument that if the manufacturers are to be protected from foreign competition, why not the farmers? Thus came “parity” prices and the whole program of taxing consumers in favor of agriculturists. Naturally, the disequilibrium in the economy was felt by other groups, who in turn clamored for relief through special privilege for themselves. Government by pressure groups is inherent in democracy, but it is held within limits by the amount of munificence the government can dispense. The income tax extended these limits to nearly the full productive capacity of the country. The power of confiscation this law conferred on the government led inevitably to the taxing of Peter to quiet Paul, and back again, meanwhile gathering to the political machinery the luxury of unlimited coercion over both.
All of this naturally turned the attention of the citizen from home government to the national establishment; their loyalty followed their property. But, the final disintegration of the Union was effected by the rise of another pressure group, that of the home politicians. From the very beginning of the Union, congressmen were in the business of purchasing political preferment with whatever special privileges and grants they could wangle from the central authority; “pork barrel” legislation did not begin with the Sixteenth Amendment. But with the enlargement of the barrel, their preoccupation with it overshadowed any interest they have had in principles of government or in national affairs as such. Before income taxation, the best the government could offer the local politician in the way of bribery were land grants, franchises, a few posts in the limited bureaucracy and “rivers and harbors” bills. The price was not high enough to buy up the integrity of the people's representatives completely; a truly patriotic congressman was not a rarity.
The ink was hardly dry on the Sixteenth Amendment before the heretofore picayune grant-in-aid program began to blossom; in 1914 came the Smith-Lever Act establishing the Agricultural Extension Service with, in those days, the rather considerable initial appropriation of $480,000; this was followed in rapid order by others; it would take a book of proportions merely to list the legislation passed since 1913 to favor political ambitions. It is a truism to say that the congressman is now only a liaison officer between his constituents and the Treasury Department. In fairness, one should not point to this consequence of the Sixteenth Amendment as evidence of the moral decline of die politician; it is rather proof of a dwindling social integrity. That the politician unashamedly boasts of the prosperity his “influence” has brought to his community, by way of airfields, bridges, dams, and smokestacks, only reflects the general attitude. And the general attitude, visibly expressed in the endless safari to Washington in behalf of “worthy” causes, is in turn the result of the transfer of economic power from society to the state.
The swag principle of government is favored by the natural distribution of population and the resultant concentration of wealth in the more populous areas. There is no way out of it; some sections of the country offer greater productive opportunities than others, and there the aggregate of wealth must be greater. As a result of this economic phenomenon, seven states in the Union yield more to the income tax fund than they get out of it, and forty-one show a net profit. Covetousness is encouraged. Somehow, a Mississippian does not see any immorality in forcing a Pennsylvanian to support his local economy. His pride might prevent him from accepting a gratuity from a neighbor, but he suffers no such inhibition when it comes to a “foreigner.” Thus, it has come to pass that the more numerous “poor” states have constituted themselves a congressional bloc (organized only by their common cupidity), intent on getting all they can from the seven opulent states. That is the bald fact; the justification for it is the doctrine of “national interest.”
But, the quid pro quo, whether a Nebraska governor gets a new road or post office for his state, or the senator from Arizona brings home a chunk of patronage, is the abdication of local social power in favor of the greater monopolization of coercion by the central establishment. The price of favors is sovereignty. Just as the citizen was turned into a subject by the confiscation of his property, so does the local politician transfer his allegiance from his community to the source of munificence. A Calhoun, struggling to keep inviolate the customs of his state, has no place in our mores; the people would not elect him. Nor could a governor of Rhode Island hold office today if he presumed to defy, as did several of his predecessors, the authority of Washington. State lines are practically obliterated, the states reduced to parish status, their politicians nationalized. The independent home government emerging from the revolution of 1789 has been destroyed by the revolution of 1913. The Union is dissolved.
Socialism via Taxation
This article first appeared in analysis in three pans (February, March, and April 1946). It was the basis for the Human Events pamphlet Chodorov authored a year later, “Taxation Is Robbery.”
Whenever it declares itself on the subject of taxation, socialism shows how well it knows its stuff. The Pharisees of that order have pointed out how the bourgeois system of “forced dues and charges”—as the Encyclopedia Britannica describes taxes—can well bring about the abolition of private property. It is a device for both siphoning capital out of citizens' pockets into the coffers of the state and discouraging the accumulation of capital. In that they are eminently correct, even though, characteristically, they avoid mentioning the greater peculation of wages. But, since the end justifies the means, they are strong for taxes, the bigger the better.
The scribes of what we call capitalism, neither as knowing nor as honest, have gone about camouflaging taxation with theories, canons, sanctimonious justifications, and, of course, a library of laws, until its mask has become its true face. When you unmask it, by means of reason and historical investigation, you see that taxation is highwaymanry made respectable by custom, thievery made moral by law; there isn't a decent thing to be said for it, as to origin, principle, or its effects on the social order. Man's adjustment to this iniquity has permitted its force to gain momentum like an unopposed crime wave; and the resulting social devastation is what the socialists have long predicted and prayed for.
The fact of taxation was known long before it was so named. If the thing was referred to by any particular word, it must have been some prehistoric counterpart of swag. The Danes who made periodic collecting visits to their neighbors called Dannegeld. However, a name and a theory are unimportant to the unsophisticated brigand who takes what he likes; both become important only after the browbeaten victim learns how to buy peace at a price, and the brigand finds it nice to put himself on a par with the merchant. The path of skulduggery is made easier with a coating of morality, which is aptly applied to an established custom, by the lawyer and the professor of economics. And so, the business of taking what does not belong to you has been well obfuscated by a “philosophy” of taxation.
Our adjustment to taxation is so complete that these statements will undoubtedly be put down as brash, incontinent, crackpot. One could call upon modern practices to prove the point, for the ancient art of getting something for nothing has not been lost, nor have we forgotten the habit of making peace with iniquity. The “protection” tariff levied on businessmen by racketeers is, in substance, taxation, although it cannot be so dignified because it is not recognized in law; not yet, anyhow. On the other hand, the recently legalized (and moralized) checkoff system by which the laborer is compelled to pay the job monopolist for the privilege of making a living is definitely a case in point. But, it is a recognized principle of logic that analogies prove nothing; so, we must apply ourselves to an analysis of the theory and practice of taxation to prove that it is in fact the kind of thing above described.
First, as to method of collection, taxation has been divided into two kinds, direct and indirect. Indirect taxes are so called because they reach the state by way of private collectors, while direct taxes arrive without bypass. The former levies are attached to goods and services before they reach the consumer, while the latter, with the exception of stamp taxes, are demands made upon previous accumulations of wealth.
It will be seen that indirect taxation is a permission-to-live price. You cannot find in the marketplace a single satisfaction to which a number of taxes are not attached, added to the price, and you are under compulsion either to pay them or go without; since going without amounts to depriving yourself of the meaning of life, or even of life itself, you pay. The inevitability of this charge on existence is expressed in the popular dichotomy, “death and taxes.” And it is this very characteristic that commends indirect taxation to the state, so that when you examine the load carried by the goods you live by you are astounded by the disproportion in the price between the cost of production and the charge for permission to live. Somebody has computed the number of different taxes carried by a loaf of bread and has come to the figure 125, but the computer admits the probability of unascertainable taxes. Whiskey is perhaps the most notorious example of the way products have been transmuted from satisfactions into tax gatherers. The manufacturing cost of a gallon of whiskey, for which you pay around twenty dollars, is less than a half-dollar; the spread is partly taken up by the cost of distribution, but at least ninety percent of the money passed over the counter goes to maintain city, county, state, and national officials.
The hue and cry over the cost of living would make more sense if it were aimed at taxation, the largest single item in the cost. And humanitarians who are concerned with this matter would do well to consider this: the incidence of indirect taxation falls most heavily on goods of the widest use, so as to ensure the greatest return, and as the poor are the largest segment of society and therefore the greatest consumers, it is on those least able to support the state that the burden is put.
TAKING WHILE YOU'RE NOT LOOKING
It is not only the size of the yield, or its certainty, which gives indirect taxation preeminence in the state's scheme of appropriation. Its most commendable quality is that of being surreptitious. It is taking while the victim is not looking. Those who strain themselves to give taxation a moral character are under obligation to explain the state's preoccupation with the hiding of taxes in the price of goods. Is there not a confession of guilt in that? In recent years, in its search for additional sources of revenue, the state has been tinkering with a sales tax, an outright and unequivocal permission-to-live price; wiser solons recognize in this measure a political danger and have therefore vigorously opposed it. Why? If the state serves a good purpose, the producers will hardly object to paying its keep.
Merely as a matter of method, not with deliberate intent, indirect taxation yields a profit of proportions to the private collectors, for which reason they support the state in making such levies. To the original payer of the tax it becomes a bookkeeping cost, and as such it must be added to all the other costs of operation which go into price making. As each processor and distributor computes his profits as a percentage of the total costs of operation, the original tax is pyramided from hand to hand, and what the consumer pays for the product is considerably in excess of the amount delivered to the state. The most notorious of indirect taxes are custom tariffs. Follow an importation of raw material, say silk, from importer to cleaner, to spinner, to weaver, to finisher, to manufacturer, to wholesaler, to retailer, each one adding his markup to the price paid his predecessor, and you will see that in the price paid by milady for the petticoat there is at least double the toll collected at the customs office. It is because of these profits that merchants and manufacturers cannot see the wrong in customs duties.
Support for this indirect method of robbing the worker comes from still another source. The greater the tax load of an industry, the greater the investment necessary for engaging in it, giving large accumulations of capital a distinct competitive advantage. Any farmer can make whiskey, and many of them do; but the investment in revenue stamps and the various license fees that must be paid in advance make the opening of a distillery and the organizing of distributive agencies a business only for the affluent. It is the state which has turned the individually owned and congenial grog shop into a palatial bar under mortgage to the brewery or distillery which advanced the license fees. The manufacture of cigarettes has likewise been concentrated into the hands of a few giant corporations by the tax system; three-quarters of the price of a package of cigarettes is an outlay in taxes which the manufacturer must be prepared to meet. It would be strange indeed if these powerful interests were to voice any opposition to indirect taxation, which they never do, and the inarticulate, uninformed, and unorganized consumer is forced to pay the higher prices resulting from limited competition.
SOAKING THE POOR RICH
Direct taxes differ from indirect taxes not only in the manner of collection but also in the more important fact that the former cannot be passed on. Those who pay them cannot demand reimbursement from others. In the main, the incidence of direct taxation falls on accumulations rather than on goods in the process of exchange. Since under our monopoly system only a few can accumulate any considerable amount of wealth, this method of appropriation appeals to popular envy; it makes its way with a soak-the-rich label. But the label turns out to be a false one, since the principle involved permits the application of direct taxes to the most modest incomes. There are more poor than rich, and therefore their income in the aggregate is the largest mine to be tapped. So that every soak-the-rich tax must become in time a soak-the-poor tax.
The clear-cut direct taxes are those levied on incomes, inheritances, gifts, land values; included also are road tolls, licenses, and, since in effect they are taxes, punitive fines. As for incomes, what started as a modest imposition on those who would hardly feel it, has been widened until it includes taxation on wages at the source. Employers are now required to deduct and turn over to the authorities a percentage of the worker's wage; the so-called social-security taxes are in fact levies of the same kind. The sugarcoated fiction of a gratuity to the taxed wage earner is maintained by requiring the employer to make an equal contribution to the security fund, but since this contribution is added to his cost of doing business and therefore to his prices, it will be seen that the wage earner pays this part too when he buys the product. A further dishonesty of the social-security tax is that the revenues thus obtained are used to meet the general expenses of the state, while the old-age pensions and unemployment benefits, for which the tax is ostensibly levied, are met by new taxes on current production.
Direct taxation is the last resort of the state, being applied only when indirect taxation has been stretched to the political breaking point, and when the state has attained the necessary strength. In ordinary times the opulent, to whom direct taxation is a threat, are able successfully to oppose it; for the opulent are also articulate, resourceful, and powerful. Yet, when war or mass poverty endangers the social and political structure under which these elements of society prosper, their opposition to direct taxation slackens; the mass fear which in such times weakens social power gives strength to the political arm, which then ruthlessly reaches out into every pocket in the country. Once the “emergency” is passed, social power must reassert itself to gain any amelioration in taxation, but its cause is a difficult one because the precedent and the method remain. The history of every country in the world is a record of progressive increase in taxation, culminating, as it must, in a complete breakdown in the national economy.
Taxes, of all kinds, discourage production. It is a silly sophism, and thoroughly indecent, to maintain that the state spends what it collects and that therefore there is no lowering of purchasing power; thieves also spend their loot, with more abandon than the rightful owners would have spent it, and one could therefore make out a case for the social value of thievery. Neither thieves nor officials produce a marketable good to offset what they take; they contribute nothing to the purchasing power because they contribute nothing to the general fund of wealth. Every increase in the cost of living slows down me wheels of industry, while every levy on savings discourages the accumulation of capital. Why work when there is nothing in it? Men do not go into business to support politicians.
YOU HAVE NO RIGHT TO PROPERTY
A word on the income tax is in order—a book would be more appropriate. In principle this tax, as the founders of the Constitution realized, is more vicious than any other, for it is a direct attack on the sanctity of private property. By its very surreptition indirect taxation is a backhanded recognition of the right of the individual to his savings, and the argument for all other taxes is the need for revenue; but the income tax establishes the prior right of the state to the property of its subjects. If you follow through on the principle involved you come to the conclusion that the individual's right to property is a temporary and revocable stewardship. The Jeffersonian ideal of inalienable rights is liquidated, and substituted for it is the Marxist concept of state supremacy. It is by this tax measure, rather than by violent revolution, or an appeal to reason, or popular education, or any ineluctable historic force, that the reality of socialism is forced on us. Notice how the centralization advocated by Alexander Hamilton is accomplished by this fiscal measure, and that the contemplated union of independent commonwealths is effectively dissolved; not only are these states reduced to parish status, but the individual is no longer a citizen of his state but belongs to the nation.
A basic immorality becomes the center of a vortex of immoralities. When the state invades the right of the individual to the products of his labors, it appropriates an authority which is contrary to the nature of things and therefore establishes an unethical pattern of behavior, for itself and for those upon whom the authority is exerted. Thus, the income tax has made the state a partner in the proceeds of crime; the law cannot distinguish between incomes derived from production and incomes derived from robbery; its concern is with income and not with its source. Likewise this denial of the right of property arouses a resentment which, under the circumstances, finds expression in dishonesty and perjury. Men who in their personal relations would hardly think of such methods, or who would be socially ostracized for practicing them, are proud of, and are complimented for, evasion of the income tax law. No other measure in the history of our country has caused a comparable disregard of principle in public affairs, or has had such a deteriorating effect on the morals of the people.
Taxation has surrounded itself with doctrines of justification; it had to; no miscreant can carry on without a supporting philosophy. Until recent times this pilfering of private property sought to gain the approval of its victims by protesting the need for maintaining social services. The growing encroachment of the state upon property rights necessarily brought about a lowering of the general economy, resulting in disaffection, and now taxation is advocated as a means of alleviating this condition; we are now being taxed into betterment. Whether for one reason or the other, the yardstick for all levies is the ability to-pay formula, suggesting a leveling-off process and quite appealing to our instinct of envy. Let us look into these two postulates of taxation and the supposedly ethical yardstick.
TAXATION FOR SOCIAL SERVICES
Taxation for social services hints at an equitable trade. It suggests a quid pro quo, a give-and-take, a relationship of justice. But, the essential condition of trade, that it be carried on willingly, is entirely absent from taxation; the very use of compulsion which taxation must resort to removes it from the field of commerce, puts it squarely in the field of politics. Taxes cannot be compared to dues paid to a voluntary organization, for such services as one expects to obtain from membership, because the choice of withdrawing does not exist. In refusing to trade one may deny oneself of a profit, but the only alternative to taxes is jail.
In respect to social services a community may be compared to a large office building in which the occupants, following widely differing businesses, cannot carry on without the aid of common services, such as elevator transportation, heat, cleaning, window washing, and so on. Each tenant might provide these conveniences for himself, as indeed is done in smaller buildings, or when one tenant occupies the entire space. The more tenants in the building the more important do these overall specializations become to each one, and at a pro rata fee far less than the cost of individual self-service the operators undertake to supply them; the fee is included in the room rent. Each of the tenants is enabled to carry on his business more effectively because he is relieved of his share of the overall duties.
Just so are the citizens of a community better able to carry on their several occupations because the streets are maintained, the fire department is on guard, the police department provides protection to life and property. Like all analogies, this one is not quite a synonym because the tenant may avoid the fee by moving to a building which does not provide the services, may build his own house, may go out of business; the only way to avoid taxation is to die.
When a society is organizing, as in a frontier town, the need for these services is met by volunteer labor. The road is kept open by contributions of time and effort, there is a volunteer fire department, the respected elder performs the services of a judge. As the town grows these extracurricular jobs become too onerous and too complicated for volunteers, whose private businesses suffer because of the increasing demands of social services, and the necessity of hiring specialists appears. At this point, also, compulsory taxation appears, and the question is, why must the residents be compelled to pay for being relieved of work which they formerly performed willingly? Why is coercion a correlative of taxation?
WHY TAXATION NEEDS COMPULSION
The answer may be the obvious one that men are inclined toward getting something for nothing. Then again, it may be the realization that while these social services do provide certain conveniences, these merely spell more chances to work but no more returns per unit of labor. The barber, for instance, does earn more than he did when population was sparse because he has more customers, but his increased earnings arise from a greater exertion of effort and not from the social services. The clothier cannot charge as much as he did per suit when he sold only one suit a week, because he now has competitors, but he does have a larger net profit because he sells more suits. The printer has more jobs but he gets no more per hour. That is to say, the population increase offers more opportunity to produce, and it is to this greater effort that the increase in earnings must be credited. The per-hour wage does not go up because of increased population or the social services introduced.
The natural inclination is to hold on to one's wages, because the natural inclination is to associate wages with oneself, as an inalienable right. If I have a right to myself I have a right to what I produce, as against all men, even if they are organized and possess political power. The greater concentration of population does in fact enable me to produce more, to work more intensely; but to take from me part of my product seems to be a charge for the opportunity to live, and mat strikes me as unfair, unjust. The natural inclination against taxation arises then from an innate sense of its injustice. The practice of injustice necessitates the use of force.
Trace an injustice to its cause and you will find another injustice. The burgeoning community which necessitates better streets, a sanitation department, traffic policemen, a park for the children, and so on, brings about an economic betterment which, peculiarly enough, does not accrue to the population as a whole. Where the bank building now stands there was once a pigsty, and what was once the site of a barn now supports the general store. The bank and the general store represent more intense productivity, opportunities to render wider services to the community. Competition between bankers and storekeepers for the use of these sites has greatly enhanced their value. This value arises not from the services rendered by these entrepreneurs but from the presence of the population they serve, while, as we have seen, the presence of this population necessitates the social services enjoyed by the community.
It would seem logical that this value—which we call land rent—should go to defray the expenses of these common services. However, under our prevailing land-tenure system this economic increment accrues to the erstwhile farmer who holds title to the sites, or maybe to the banker who holds a mortgage on them. The economic betterment which the community as a whole creates is diverted to individuals who return nothing for it to the general fund of wealth. This is the injustice which fosters the injustice of taxation.
It is the landowner, then, who in truth owns the social services for which the producers of the community are forced to pay. And he owns them in the full sense of the word, for he collects the rent which follows from them, and sells them when he disposes of his holding. He makes no bones about it; when he puts his plot on the market, he proclaims the advantages of the subway station, the neighborhood school, the efficient fire and police protection given it, and he computes his price accordingly; the buyer, likewise, acquires title to the social services which center in that location. It's all open and aboveboard. What is not advertised is that these social services have been paid for by compulsory “dues and charges” levied on the producing part of the public. These folk receive for their pains the vacuous pleasure of writing home to their country cousins about the marvelous underground railway system, the beautiful boulevards, the fabulous zoo and the other wonders of the great city; also, they have the opportunity of working more intensely. And that is all they get for their tax bill.
TAXATION AS A CURE-ALL
We come now to the modern doctrine of taxation—that its justification is the social purpose to which the revenue is put. It is interesting to note that this doctrine emerges from a general condition of poverty, and hence of social unrest, and that the advocates advance it as a cure-all. It is quiescent during the short interludes of relative prosperity which the country enjoys. It is the humanitarian's prescription for the social malady of poverty amidst plenty, the doctrinaire's method of leveling economic inequalities, the charitarian's first-aid treatment of apparent injustice. But, like all proposals which spring from the goodness of heart, taxation for special purposes is an easy top-surface treatment of a deep-rooted illness, and as such is likely to do more harm than good.
In the first place, this doctrine denies the right of the individual to his property. That is basic. Having tacitly or openly fixed on this premise, it jumps to the conclusion that the needs of society are the end of production, and offers the mechanism of taxation as the means for its diffusion. In the fact that it concerns itself not with the control of production, or with the means of acquiring property, but only with distribution, it is, strictly speaking, not socialistic, and its proponents are usually quick to deny that charge. Their purpose, they assert, is reform, not revolution; even like boys whose innocent bonfire inadvertently puts the forest ablaze.
The doctrine does not distinguish between property acquired through privilege and property acquired through production. It cannot, must not, do that, for if it did it would question the validity of taxation as a whole. When we examine privileges we find that they are economic advantages granted by the political power, and political power is born in and thrives on taxation. If taxation were abolished, for instance, the cost of maintaining the necessary social services of a community would fall on rent—there is no third source—and the privilege of collecting rent would vanish. If taxation were abolished the sinecures of public office would vanish, and these constitute a privilege which in the aggregate bear heavily on production. If taxation were abolished, our so-called protective system would go out and with it would go the privilege of collecting higher prices from producers. Taxation for social purposes has no intent of abolishing existing privilege, but really creates new privileges for bureaucrats who will carry out the plan. Therefore, it doesn't dare to make a distinction between the two kinds of property.
Furthermore, the discouragement of production which must follow in the wake of this distributive scheme further aggravates the condition it hopes to correct. If Tom, Dick, and Harry are all engaged in producing goods and services, the taking from one of them, even if what is taken is given to the others, must lower the economy of the three. Tom's opulence, in this case, is because he has rendered services to Dick and Harry which they found desirable. He may be more industrious, or gifted with superior capabilities, and as a result they have favored him with their trade; although he has acquired an abundance, more than they have, he has not done so at their expense; he has because they have. If the political power deprives him of his possessions, he must cease to patronize Dick and Harry, and they are to the extent of the tax levied on him without employment. So that the dole handed out to Dick and Harry actually impoverishes them. The economy of the community is improved not by the distribution of what has already been produced but by an increase in the abundance of things men live by. We live on current production. Any measure, therefore, which discourages, restricts, or interferes with production must lower the general economy, and taxation for social purposes is distinctly such a measure.
TAXATION BREEDS POWER
Putting aside the economics of the matter, the political implications are even more damaging to the soundness of the idea. Never must it be forgotten that taxes are compulsory “dues and charges.” That being so, every increase in the limits of taxation automatically extends the limits of compulsion and, consequently, decreases the power of resistance. If the end to be achieved is the “social good,” the power to take can conceivably extend to total production, for who shall say where the “social good” terminates? At present the “social good” embraces free schooling, free hospitalization and medical services, unemployment insurance, old-age pensions, farm subsidies, aid to “infant industries,” low-rent housing, free employment service, contributions to the merchant marine, projects for advancement of the arts, and the distribution of expensive literature on how to get well, keep well, and do well. We have seen how, as the problems of poverty increase, the “social good” has spilled over from one private matter to another, and now the definition of this indeterminate term seems to include every human interest and activity. The democratic right to be wrong, uninformed, misguided, or even stupid is no restraint upon the imagination of those who undertake to interpret this goal; and whither this goal goes, there goes the power to enforce compliance.
The omnipotence to which taxation for social purposes leads rests on an assumption of human omniscience. The infallibility of committees, science, graphs, charts, and tables is accepted a priori, and any questioning of the dicta of experts is frowned upon as presumptuous heresy. Society as a whole is divided into those who know and those who are incapable of knowing; upon the first devolves the duty of leading the unfortunate. There may be something in the theory of superior people, in the nature of things, but nature's failure to put upon them distinctive indicia is a handicap which can be overcome only by the assumption of political power. That power the self-anointed are never reluctant to assume.
Taxation's final claim to rectitude is its ability-to-pay formula, and this turns out to be a bit of too much protesting. It is in fact a cruelly deceptive shibboleth. In the levies on consumption, from which the state derives its largest revenues, it is impossible to apply the formula. Whether your income is a thousand dollars a year or a thousand dollars a day, the tax on the loaf of bread is the same; ability to pay plays no part. Because of the taxes he pays on necessaries, the poor man may have to deprive himself of some marginal satisfaction, say a pipe of tobacco, while the rich man, who pays the same taxes on necessaries, will hardly feel impelled to give up his cigar. After all, the rich man consumes more than the poor man only in the matter of luxuries; he probably eats less than the laborer, and no man can wear more than one suit at a time; therefore, the permission-to-live price bothers him far less than it does his less fortunate fellow man.
The formula is applicable only in levying taxes on incomes before they are spent, and here again its claim to fairness is unfounded. Every tax on wages, no matter how small, affects the worker's pattern of living, while the heavy levy on the rich man, depending on his income, may affect only his indulgences. Wage income, moreover, is easily ascertainable, and avoidance of any part of the tax, legally or illegally, is negligible, while income from the operation of a business or from investments can be lost in the intricacies of accountancy, honestly or dishonestly, and hence ability to pay loses its egalitarian meaning. The claim to equity, which is implied in the formula, would be valid only if all above a predetermined, uniform standard of living were confiscated by the state. But then, of course, the equity of confiscation would have to be established.
When we look to the intent behind ability to pay we see that it is an unconscious confession of immorality. What is this but the highwayman's code: take where the taking is good? Neither the highwayman nor the tax collector gives any thought to the source of the victim's wealth, only to the quantity. The state is not above taking what it can from the income of known or suspected thieves, murderers, or prostitutes, and its vigilance in this regard is so well established that the breakers of other laws find it wise not to break the income tax law. Nevertheless, ability to pay finds popular support—and this must be accounted the reason for its promulgation—because it assuages the sense of injustice aroused by the inequities of our monopoly economy. It is an appeal to the envy of the incompetent as well as to the disaffection of the mass consigned by our system of privileges to involuntary poverty. It satisfies the passions of avarice and of revenge. It embraces the promise of retributive justice, the leveling-off ideal. It is Robin Hood.
TAKING WHAT THE STATE CREATES
Supporting the formula is the argument that incomes are relative to the opportunities afforded by the state, and that the amount taxed is merely payment for these opportunities. Again the quid pro quo. This is only partially true, and in a sense which is not intended by the advocates of this fiscal formula. Where income is derived from a privilege—and every privilege rests on the power of the state to support it—it is eminently fair that the state confiscate the proceeds, although it would be fairer if the state did not create the privilege in the first place. The monopoly rent of natural resources, for instance, is income for which no service to society is rendered, and is collectible only because the state makes it possible; a 100 percent tax on rent would therefore be equitable. The profits garnered by “protected” industries because of the embargo on foreign competition would be fair game for taxation. A tax on all businesses which receive subsidies, to the full amount of these subsidies, would make sense, although the granting of subsidies would still require explanation. Bounties, bonuses, doles, the “black market” profits made possible by political restrictions, the profits on government contracts—all income which would disappear if the state withdrew its support from that particular business or occupation ought properly to be taxed. The state should take what it is responsible for.
But that is not what is meant by those who promulgate ability to pay. They insist that the state is a contributing factor in production, and that its services ought properly to be paid for; the measure of the value of these services is the income of its citizens, and a graduated tax on these incomes is only due compensation. If earnings reflect the services of the state, then it follows that larger earnings result from more services, and the logical conclusion is that the state is a better servant of the rich than of the poor. That may be so, but it is doubtful that the tax experts wish to convey that information; what they want us to believe is that the state helps the individual to better his circumstances. That idea gives rise to some provocative questions. For the tax he pays, does the farmer enjoy more favorable growing weather? The merchant a more active market? Is the skill of the mechanic improved by anything the state does with that part of his production which is taken from him? How can the state quicken the imagination of the creative genius or add to the wisdom of the philosopher? Where the state receives a cut from gambling, is the luck of the winner bettered? Are the earnings of the prostitute increased because her trade is legalized and taxed? Just what part does the state play in production that would warrant its demand for a rake-off?
All this argument, however, is a concession to the obfuscation with which custom, law, and sophistry have covered up the true character of taxation. There cannot be a good tax, or a just one; therefore, every tax rests its case on political power. And the power behind every levy fattens on its collections, while the power of the individual is commensurately weakened. The ultimate of the progressive process of taxation is the absorption of all production by the state—which is the ideal of socialism.