The Absurdity of Taxing Effort

One of the major problems one has, in challenging the status quo, is that people are wedded to "what is" - and have great difficulty in seeing past accepted norms to "what could be".

Taxation is one of these "accepted norms".

We were all born into a world where people pay tax. No one fundamentally challenges the system. Sometimes people put forward various "reforms", but no one seriously puts the whole taxation issue under a clear spotlight.

Let me first make my own position crystal clear. Taxation is immoral. Taxation is the forced appropriation of another's property. Taxation cannot be likened to payment for goods and services - which is the result of a voluntary transaction. No, taxation is theft pure and simple.

So, dithering about discussing various "forms" of taxation is a worthless exercise - without discussing the fundamental premises on which taxation rests.

I'd like to look at just one of these premises - which form the foundation today's "modern" tax systems - and expose the stupidity of it.

The Premise: that taxation of effort is a viable way to raise revenue for the state.

Consider this:

1) If you work (expend effort) then you will pay tax.

2) The harder you work (more effort), the higher the rate of tax you pay. This is known as "progressive" taxation.

The two statements above form the basis of nearly all taxation systems. So to make this whole tax thing (and its underlying premise) clearer, let's consider the principle of taxing effort, and the logical consequences. And to do this, let's move tax into a different realm - not work, but sport.

Okay - here's the deal: You're invited to become a member of a world-class sports team. It doesn't matter what, take your pick: football/rugby/baseball/cricket/basketball.

You are presented with the contract, which in effect, offers you a certain amount of money - under certain conditions:

1. For each win you will have a certain percentage deducted from your income.

2. The greater the win - the more will be deducted.

3. If you win the whole season - and come out as "top team", then each player will have a further lump sum deducted.

So, what would be your response?

Well, part of you wants to win because that's the competitive nature of the sport - and the main reason you're involved. However, because of the financial penalties for winning, you'll always be mindful of the fact that if you're "too" successful - then you'll only receive a small percentage of your earnings - after the "success tax" has been taken off.

You will have a conflict of interest! And the end result is that you'll be tempted to take the "middle road" - not too much success, and not too much failure, to satisfy your need for both money and self esteem.

Madness you say? Why on earth would you tax sporting success? Wouldn't that lead to overall mediocrity in sporting performance? Wouldn't that lead to people skiving off their best sporting effort? You bet!

Well, this is the very same principle that is applied to the "sport" called work.

If you put in years of effort in order to get a good "job" - which pays a higher than average salary - then you will be penalised for that effort, by having to pay more in tax.

If you spend your evenings planning a business - in order to quit your low-paying job and finally make more money - then the reward for your initiative and effort will be that you'll pay more in taxes.

So the rules of this "game" are:

1, The less you work, the less tax you will pay.

2. If you don't work at all, you will receive bonus payments (welfare or "negative tax").

3. The more you work, and the more successful you are, the more tax you will pay.

I put it to you, that this is the ultimate recipe for economic decline. For who in their right mind will work harder or smarter - when they know they will be penalised for it?

And that is the essence of the tax system - a huge barrier to initiative and effort, the very things that should be encouraged.

That is the nature of the society you inhabit - one where your best effort is penalised.

Now this is entirely "legal", but is it moral? Of course not!

You wouldn't consider it moral if applied to sport - so why consider it moral when applied to work?

No wonder people are always looking out for ways to avoid taxes - doing "cash" work, not reporting "extra" income, working in the "black" market, banking offshore and generally trying their best to hang on to what is rightfully theirs.

And if you have any self respect, it's the obvious, common sense thing to do!

Remember, there IS a distinction between what is MORAL and what is LEGAL. They are certainly NOT always the same thing.

Okay, you might be thinking, but what about a flat tax, or a sales tax?

Well, a "flat" tax would remove one element of a corrupt and perverse system - the payment of a higher RATE of tax for higher rates of effort. But it in no way addresses the fundamental issue of the absurdity of taxing effort. A flat tax is still the taxing of such effort - but on a level playing field.

A sales tax, on the other hand, has one distinct difference from from income tax - in that it taxes consumption (enjoyment?), instead of effort.

This would have certain macro-economic advantages, in that it would encourage people to save and be frugal. It would encourage people to stay home and watch TV, instead of going out for a night on the town. So, in the greater scheme of things, a sales or consumption tax would likely increase the national rate of savings and lead to a greater national prosperity.

Of course, the nay sayers would criticise a consumption tax on the grounds that it would penalise the poor most. And that's probably true. If a guy earning $100,000 a year manages to save $25,000 and spend the rest, he is clearly ahead of the person on $25,000 a year with no savings and not enough money to even enjoy life.

But a flat tax and a consumption/sales tax are both beside the point. Yes, either one would be an improvement on the means by which the state finances its operations (and transfer payment systems). But this would hardly impact on the underlying immoral imperative of ANY tax system - that it is money expropriated by the threat of force.

But you might ask, "where is 'force' a factor in a sales or consumption tax - seeing as my income is not being taxed, and I'm not being 'forced' to buy anything?"

Well, there's two answers to that question: first you cannot get by in life without buying something. And second, with a sales tax force IS being applied - to those who collect such taxes, the businesses that provide all the goods and services.

Under a sales tax regime (no income tax) it's business people who become the new tax collectors - proxies for the state. And if they refuse, then THEY get thrown in jail.

All this does is shift the burden of tax collection from you, the income-earner, to those in business.

No, whatever its form, taxation is taxation, and is still the forcible expropriation of someone's property without their consent.

No free society can exist where such a taxation system exists. The two are incompatible.

A free society can only come into being when ALL transactions are based on mutual agreement and contractual undertakings - both of which are entered into voluntarily.

The essence of freedom is your right to do business and enter relationships with people and systems of your choice. In other words, the all-important element of voluntarism. Anything else is just a charade.

Yours in freedom

David MacGregor