To Tax Is To Make Evil What Is Taxed
by Fred E. Foldvary, Senior Editor, 19 August 2013If a driver crosses a red traffic light, he can get fined. The fine is a punishment. If one is caught tossing litter onto a sidewalk, one can get fined, because litter is pollution. Governments levy fines for bad behavior. One purpose of a fine is deterrence, to prevent people from doing bad things. Another purpose is compensation or restitution to society for causing damage. But the most important moral reason for fines is the public recognition and declaration that the act is harmful to others. Ideally, the fine should make the actor realize that he did something wrong, and make him think about his action, to make him want to avoid doing that again.
Any fine imposed by government constitutes a proposition that the act being penalized is evil. The enactment of a law with a fine for its violation is a statement by government that this act is morally evil, and that the government is making what is morally evil also legally evil, so that the perpetrator is to be punished.
Fines can be levied in two ways. The first way is with a “property rule.” The government prohibits the invasion of property, and then fines the guilty party for violating somebody’s property rights by destruction, theft, or trespass. The second way to levy a fine is with a liability rule: the action is permitted, but the perpetrator compensates for damages. For example, pollution is typically fined with a liability rule; the pollution is allowed conditional on paying a periodic fine as compensation for the damage. The property rule can involve prison as well as a fine, while the liability rule only is punished with a fine.
When government charges a user fee, this is not a fine, but a payment for a service, just as one would pay a private-sector provider. For example, the owner of a parking lot charges a fee, and if the government owns the lot, its fee is not a fine but a voluntary payment for the parking service. Similarly, if the parking is paid for via a meter in a street, it is a voluntary fee.
Governments today also levy fines for engaging in labor. When government requires payments for littering or causing danger in traffic, this is because the act is morally wrong. The principle is that bad acts get fined. So when one engages in labor, and thereby is forced to make a payment to government, logic requires consistency. The government is declaring that the act of providing labor is morally bad, and the worker gets fined. The fact that government calls the fine a “tax” does not change its moral and legal characteristics. Governments call some payments “fees,” when in substance the payments are taxes. And so they call a payment imposed on the wages from labor a “tax,” when it is in substance also a penalty.
If labor is not morally evil, why else would a worker have to make a payment to government? With fines, the government has established a principle that bad behavior is subject to penalties. So when government imposes a payment, logical consistency requires us to think of it as a penalty for the action. By taxing wages, government declares labor to be an evil act that requires a fine. This is the “evil taxation” principle: to tax is to legally make wrong what is taxed.
Similarly, when government imposes a tax on interest, dividends, and profits from enterprise, the state is declaring that such earnings are evil, and the activities such as saving and engaging in business are evil and have to be punished. A sales tax is a declaration that buying goods is an evil act that is being penalized.
A pollution tax is a clear case of the principle that to tax is to declare evil what is taxed. Pollution is an invasion into lands that do not belong to the actor, and the tax makes the polluter compensate society for the trespass and damage. If pollution were not evil, it should not be taxed. Pollution is properly taxed because it is indeed evil. But it is a tax only in form, because in substance the payment is compensation.
Land value taxation is another application of the principle of taxing bads, and declaring what is taxed to be a bad. When there is a tax on land rent or land value, the payment prevents the moral wrong of using the property of others without compensation. The public goods provided by government generate higher land rent and land value. If the title holder keeps that rent, whether explicitly in cash or implicitly in the benefits from the land, he is using the government to force others to provide him with a subsidy. Governments today tax wages and enterprise profits to pay for public goods, and so tenants pay twice, first in higher rentals, and secondly in taxes.
Also, if the title holder keeps the land rent, that induces speculators to buy up land to sell it at a higher price later, or to gain from the greater future rents. This subsidy-induced land speculation ends up causing a real estate bubble that then causes a recession and depression when it bursts.
Hence a payment of the land rent to a community prevents the evils of the boom-bust cycle and of forcing others to provide a subsidy. Moreover, if one recognizes that the benefits of nature should be shared equally, then that portion of land rent due to natural advantages is paid in order to avoid the evil of taking what properly belongs to others. Land value taxation is paid to prevent the evil of stealing the rental property that properly belongs to the relevant community.
It could be argued that the community and its government provides the service of facilitating the purchase of goods by providing public safety, but that safety has already been paid for by the rent it generates. It could be argued that governmental provision of education justifies the taxation of wages, but a child did not ask to be born, and is morally entitled to receive food, shelter, and education. So it would be morally wrong to force an adult to make payments for government, when that same government does not recognize the legality of contracts made by young children. If there is no proper contract, there is no moral obligation to make payments.
A contract is not required when one is paying for property - namely land rent - that belongs to others. But with land value taxation, the buyer of land would in fact be making a contract with the community governance to pay to the community members what is properly theirs.
To tax is to legally declare evil what is taxed. By taxing them, governments today are declaring that labor, enterprise, and trade are evil actions. The economic troubles that the people of the world are suffering form derive from their thinking that their own labor and their own purchases of goods are evil acts. They keep electing representatives who impose taxes on wages, profits, and goods. When people recognize the “evil taxation” principle -- that to tax is to make evil what is taxed -- then they will demand a shift to taxing what is really evil, namely, pollution and the theft of community rent.
-- Fred Foldvary
Copyright 2010 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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