Patrick Carroll – April 2, 2023
A Singapore-based webcomic called The Woke Salaryman recently posted a comic extolling the virtues of taxation and encouraging people to pay their taxes. The comic, called “Why are taxes important?” goes through three common talking points about the supposed benefits of taxation and public services.
Since these same points come up so frequently in debates over taxation, it’s worth taking the time to respond to them in turn. So let’s start with the first point and see what can be said in response.
1) Public Services
The first point the comic brings up in favor of taxation is the fact that taxes fund public services.
“It may not always be immediately apparent, but we enjoy a lot of public services without a second thought of how they came to be,” it says. The comic goes on to list a variety of services the government provides, such as properly paved roads, healthcare facilities, parks to enjoy, and public education.
Though these kinds of public services are often presented as an obvious boon to society, it’s worth asking why we should assume that. It’s not like this is a free lunch, after all. As Henry Hazlitt reminds us in Economics in One Lesson, we need to keep in mind the unseen costs of such services, namely, the things this money might have been spent on if it hadn’t been used to fund public services (economists call these forgone opportunities opportunity costs).
The fact is that every dollar spent on public services is a dollar that can’t be spent on private services, so at best, this is just a one-for-one transfer. For every $1 million in public services we gain, we lose $1 million in private services.
In reality, however, it’s almost always worse than that, because politicians—unlike private-sector entrepreneurs—have no way of knowing which allocation of resources will be the most beneficial to consumers.
If consumers value hospitals much more than public parks, for example, entrepreneurs in a free market will be able to make a profit by taking land used for public parks and using it for hospitals instead. Over time, this will lead to less land being used for parks and more land being used for hospitals. Thus, resources will tend to be directed toward meeting the most urgent needs of the consumers.
With public services, however, there is no way of knowing whether the service being provided is the best use of the resources being used, because there’s no profit and loss (this is known as the economic calculation problem). Thus, governments may maintain plenty of public parks out of an attempted benevolence, but they might actually be tying up land and other resources that could have been used for more important ends, like hospitals.
However, since there are no losses to indicate this kind of waste is taking place, governments will tend to perpetuate these wasteful uses of resources, all the while patting themselves on the back for being so helpful to the community. In reality, public services are likely far less helpful than the services that would have been provided in the free market had consumers been allowed to keep their money and spend it on the things they valued most.
Having listed examples of public services, the comic finishes the section with the following point. “Where does this money come from? That’s right; taxes. Put it simply, taxes are like your (mandatory) subscription fee to living in your country or community.”
The problem with this point is that legitimate subscription fees are paid voluntarily by willing customers. But taxes are not voluntary. They are, in fact, a form of extortion. Now, some argue that taxes technically are voluntary because you can always leave the country if you don’t like them, but such claims are dubious to say the least.
The 20th century economist Joseph Schumpeter put it well when he wrote that “the theory which construes taxes on the analogy of club dues or the purchase of a service of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of mind.”
2) Encouraging and Discouraging Behavior
The second argument the comic presents in favor of taxes is that they can be used to encourage and discourage certain types of behavior. When it comes to encouraging socially desirable behavior, the comic gives some examples such as tax relief for parents (encouraging people to start families) and tax deductions for donating money to charity (encouraging philanthropy).
Socially undesirable behavior can likewise be discouraged with extra taxes, such as taxes on tobacco and alcohol to reduce the prevalence of smoking and drinking.
One issue with this use of the tax system is that it amounts to a kind of paternalism. The state not only presumes to know what’s best for you, but is kind enough to give you various carrots and sticks to keep you on the right track—for your own good, of course.
Not only does such a system foster resentment against the state—or at least it should—for trying to micromanage our lives, it also breeds social strife. When these kinds of policies are on the table, everything they touch is inevitably politicized. A variety of factions and tribes then form, each of them attempting to win control over the political system so they can 1) stop the other tribes from enacting their carrots and sticks and 2) force their own carrots and sticks on everyone else.
Suffice it to say, this is hardly a recipe for social harmony.
3) Helping the Poor
The final argument the comic makes in favor of taxes is that they help support the more disadvantaged in society.
“Most societies try to provide EVERYONE a decent shot at life; not just the wealthiest. For everyone to grow together, the government will collect money via various types of taxes, and use the resources to provide everyone with equal access to opportunity. This is done via grants, subsidies, or other forms of government support.”
At the outset, it’s important to distinguish between two motivations for direct government transfers from the rich to the poor. The first is egalitarian—people believe the government should equalize the level of affluence in society, even if that means taking from some to give to others. The second is humanitarian—providing a social safety net for the poorest so they can afford to meet their basic needs.
The egalitarian argument is often based on the idea of fairness. But why should income equality be considered fair? After all, many rich people worked very hard for their wealth, while many poor people have squandered resources even when they could have made better choices. Is it really fair to take from the former to give to the latter? And if so, how much is required to balance the scales? As the economist Thomas Sowell famously asked, “what is your ‘fair share’ of what someone else has worked for?”
The humanitarian point is of course the better argument for using taxes to redistribute wealth from the rich to the poor. Very few will say we should simply let the poor starve so that rich people can have their yachts.
But taxing the rich to fund social safety nets and letting the poor starve are not the only options here. The third option is for the government to simply get out of the way.
Though the government likes to depict itself as the defender of the poor, the reality is that it often causes—or at least exacerbates—many of the economic problems the poorest among us face. Aside from mismanaging tax dollars as explained above, it also maintains a litany of regulations such as licensing requirements, zoning laws, IP laws, and tariffs that push the cost of living far higher than it needs to be.
If these laws were repealed, economic prosperity would improve rapidly, and what little poverty remained after that could easily be addressed by charities and mutual-aid societies.
Why not take the more direct root of wealth transfers through taxes? Because at the end of the day welfare systems still amount to robbing Peter to pay Paul. That doesn’t mean we should simply hang the Pauls of the world out to dry. But it does mean that solutions which don’t involve legal plunder should be favored wherever possible.
The Path to Prosperity
The comic closes by reiterating the benefits of taxation and exhorting people to contribute their fair share. “Want to live in a society that thrives?” it concludes. “Pay your taxes.”
This message is hardly unexpected for a comic promoting taxation. But in light of the above analysis, a rather different takeaway seems to be in order.
Far from being helpful, taxation is actually tremendously harmful, not just for taxpayers, but for almost everyone. It leads to wasted resources and political strife, and it unfairly takes from those who have earned their money through voluntary work and exchange.
There are beneficiaries, of course, but they often look far more like politicians and special-interest groups than the poor and downtrodden we’re told we are helping. And even when taxes do genuinely help those who are disadvantaged, they are inevitably funding bureaucratic, mismanaged programs that are only needed because of barriers the politicians themselves erected.
The path to a peaceful, prosperous, and harmonious society has nothing to do with taxation. That kind of society can only be achieved when people are allowed to keep their hard-earned money and spend it as they see fit.
So, want to live in a society that thrives?
Protest your taxes.
Image Credit: The Woke Salaryman
