Is Owen Jones right that taxation is theft?
Jones set about correcting my assertion that “tax is theft”. But I had not said that “tax is theft”. I had said that tax is paid on threat of imprisonment. It was Jones who equated this with tax being theft. And, since tax really is paid on threat of imprisonment, it was Jones himself who implicitly claimed that tax is theft.
It is odd that he does not explicitly draw the conclusion that his own ideas entail. But Owen Jones and his intellectual foibles are not as important as the issue itself. Is Jones right that, because it is paid on threat of imprisonment, it is theft?
Some think the answer is obvious. Tax isn’t theft because whereas theft is illegal, tax is legal. Tax collectors act within the law. This is unlikely to placate the “tax is theft” crew. Legalised theft is still theft, they will say. What makes tax theft is that it is paid under duress. Similarly, the “tax isn’t theft” brigade are unlikely to be moved. They know tax is paid under duress but think that it is nevertheless quite unlike ordinary theft in the respects that make ordinary theft wrong.
Which suggests what I think is the right approach to answering the question. We should consider what is wrong with theft and ask whether tax shares these features.
The most obvious harm done by theft is the loss to its victim. If someone steals your TV then you are worse off by one TV. But this loss is perfectly offset by the gain to the thief, who is better off by one TV. Transferring the TV from you to the thief has no net effect on the welfare of society.
The same goes for taxation, which transfers money from the taxpayer to the government and, ultimately, to whomever the government spends it on. In this respect, tax and theft are the same, but equally harmless.
Nevertheless, theft does harm society. First there is the unproductive use of the thief’s time and effort. Suppose it takes the thief an hour to travel to your house, case the joint, break in and abscond with your TV. Had he applied this time to doing something productive, such as making a shirt, society would be better off by one shirt (less the value of the leisure he lost).
Tax-collecting is similarly unproductive. The 58,000 people who work for HMRC create nothing. Their efforts are directed solely to transferring wealth that already exists from the population to the government.
Preventing a transfer is just as unproductive as bringing one about. If there were no theft, there would be fewer window grills, deadlocks, burglar alarms and security men. All the resources that go into theft prevention could be used to add to the sum of what we have.
Taxation has the same ill-effect. About half of all work done by accountants is devoted to minimising tax bills or complying with the demands of tax collectors. Without taxation, all those clever people could devote their efforts to something productive.
The final cost of theft that I will mention is less obvious. Theft increases the cost of doing business and, hence, reduces the amount of business that gets done. A shopkeeper must make up for her losses from shoplifting by charging higher prices. Some customers who would have bought things at their “pre-theft” price no longer do. In areas of very high theft, businesses are sometimes unable to operate profitably at any price that customers are willing to pay, and law-abiding locals must travel to shop in safer neighbourhoods.
Taxation has the same ill-effect. Suppose Jack is willing to pay anything less than £10-an-hour to have his garden weeded and Jill is willing to weed for anything more than £9-an-hour. Then they should be able to come to a mutually agreeable arrangement. But now suppose that incomes are taxed at 20%. Then Jack’s maximum is reduced to £8, which is less than Jill’s minimum. They can no longer come to a mutually agreeable agreement.
Without the tax, the weeding would have happened and benefitted both Jack and Jill. The tax stops it from happening, and stops Jack and Jill from getting the benefits they otherwise would have. By driving a wedge between what sellers are willing to accept and what buyers are willing to pay, tax eliminates much valuable economic activity. The bigger the tax, the bigger the wedge and the greater the “deadweight cost”, as economists call it.
In short, taxation harms society in precisely the same ways that theft does.
But taxation may have virtues that theft lacks. Most obviously, taxation is gathered by governments which then spend it on various things. If those things could not be supplied without being tax-funded and are more valuable than the costs taxation imposes on society, then taxation may be warranted. National defence looks like a good example. The BBC3 television programme, Eating with My Ex, funded by a tax on TVs, does not.
Where should the line be drawn? What should the government use taxation to force people to pay for? This is a question that those of us who believe in limited government give considerable thought to.
The leftists I encounter show no interest in the question, always calling for an expansion of taxation and government spending no matter how high the starting point. They speak as if taxation is a mere transfer of money with no net cost to society. They are wrong. And a better appreciation of the ways in which taxation resembles theft would help them to understand why.