Is taxation theft?

“Taxation is theft” is probably the best-known libertarian slogan. It sounds provocative, but the argument behind it is simple, and most attempts to answer it end up admitting more than they intended.

The argument in one paragraph

If a private person took a part of your income every month, without asking, and threatened to lock you up if you refused, everyone would call it theft or extortion, however wisely they promised to spend the money. Taxation has exactly this structure. The only difference is who does it. Unless there is some special reason why the state may do what nobody else may, taxation is theft. Libertarians argue that no such reason holds up.

The test comes from the non-aggression principle: an act is legitimate if it would be legitimate for anyone to do it.

“But I agreed to it”

The most common reply is that taxation is not theft because we consented to it, through the social contract, through democracy, or simply by living here.

• Express consent. Almost nobody ever signed anything. There is no form you can decline.
• Tacit consent. “If you stay, you agree.” But the state does not own the country you live in; you, your landlord or your family do. As David Hume put it in 1748, saying a poor peasant consents because he could emigrate is like saying a man carried onto a ship asleep consents to the captain because he could jump overboard.
• Democratic consent. A majority voting to take from a minority is not the minority’s consent. If three people vote that the fourth must hand over his wallet, the wallet is still stolen.
• Hypothetical consent. “Any reasonable person would agree.” Perhaps, but then why the threat of prison? A deal people would freely accept does not need to be enforced on everyone who declines.

Lysander Spooner’s comparison in No Treason (1870) is still hard to beat. The highwayman, he wrote, at least takes responsibility for his act: he does not pretend to be your protector, he does not follow you around afterwards, and he does not demand your gratitude. Paraphrased, his point is that the tax collector is worse than the robber, because the robber does not claim the right to keep doing it.

“But you use the roads”

A second reply is that taxes are a payment for services: roads, schools, police, healthcare. You benefit, so you must pay.

The problem is that the “seller” decides alone what you buy, how much it costs and whether you may buy elsewhere. If a company delivered goods you did not order and then demanded payment, threatening prison, no court would call it a sale. Benefiting from something does not create a duty to pay whatever the provider demands. Your neighbor’s beautiful garden makes your street nicer; that does not give him the right to bill you.

And many taxes pay for things the taxpayer actively opposes: wars, subsidies to industries they boycott, programs they find harmful. A voluntary system would let people pay for what they actually use and value. See public goods without a state.

“But without taxes, there would be no state”

This is true, and for anarcho-capitalists it is not an objection but the conclusion. For classical liberals and minarchists it is a real dilemma: they want a small state but accept that even a small state needs some compulsory funding. Some proposed alternatives such as voluntary taxation, lotteries, user fees and fees for court services. Ayn Rand, for example, argued that a limited government could be funded voluntarily.

How much do you really pay?

Most people think of “tax” as the income tax deducted from their pay. That is only a small part of the bill. In the Czech Republic, for an ordinary employee:

• Income tax on wages.
• Social and health insurance paid by the employee, and an even larger share paid by the employer “on top” of your gross wage. Economically, all of it comes out of the value of your work; the employer would otherwise pay it to you.
• VAT of up to 21% on almost everything you buy.
• Excise duties on fuel, alcohol, tobacco and electricity, often taxed again with VAT on top.
• Property, transfer and other taxes and many fees.
• Inflation, the hidden tax: when the state and central bank create money, your savings lose value without any vote. See money and inflation.

When you add it up, an average employee in many European countries works from January until well into the summer for the state. Try our calculator how many days do you work for the state?, which uses current Czech rates and OECD data for 38 countries.

Hidden taxes are the most dangerous

Taxes that people do not see are the easiest to raise. That is why governments prefer them.

• Employer contributions never appear on your payslip as yours.
• VAT is built into prices, so you never see a bill for it.
• Inflation looks like “prices rising” rather than “the state taking”.
• Debt is taxation of the future: your children will pay for today’s deficits.

The French finance minister Jean-Baptiste Colbert reportedly said that the art of taxation consists in plucking the goose so as to obtain the most feathers with the least hissing. A first step towards freedom is simply to make people hear the plucking.

Is a lower tax always better?

From a libertarian point of view, every reduction in taxation means less coercion and more freedom, whatever else changes. Economists add practical reasons:

• Deadweight loss. Taxes stop some trades that would have benefited both sides. That lost value goes to nobody.
• Incentives. High marginal rates discourage extra work, saving and investment, and reward tax planning instead.
• Competition. Countries that cut taxes and simplify them, such as Estonia with its flat income tax and taxation of companies only on distributed profits, tend to attract investment and entrepreneurs.

Common objections

• “Taxes are the price of civilization.” Civilization is the voluntary cooperation of people: trade, science, art, families. Most of it was built by people who were taxed, not because they were taxed.
• “Who would help the poor?” Before the welfare state, mutual aid societies, churches and charities did, and private giving remains enormous today. See public goods without a state.
• “You signed a contract when you got citizenship.” Most people got it at birth, without asking.
• “Then leave.” If a burglar says “if you don’t like it, move out”, that does not make the burglary legitimate.

Where to go next

• Why the state is funded this way at all: what is the state?
• The tax that hits savers: money and inflation.
• Calculate your own number: days you work for the state.