There is a proper role for a limited government in a free society. Specifically, the government’s role is the protection of the individual’s rights to life, liberty, and property. To protect these rights, the government enacts objective laws through a legislature, executes these laws through an executive branch and adjudicates them with a judicial system, all committed to that specific role. This includes enlisting a military, hiring and training police officers, and establishing court systems with legal jurisdiction to enforce criminal law, enforce contracts and settle civil disputes. In carrying out these roles, a government uses force but only retaliatory or defensive force. Properly, a government does not initiate force against its own citizens.
Yet still, these things – even though much reduced from our current improper welfare/regulatory state -cost money…
Traditionally, governments have implemented a system of taxes to fund the functions of government. However, given that a proper government’s role is to protect its citizens from force, rather than to initiate the use of force, taxes are ultimately immoral.
Taxation is the forceful confiscation of private property by a government. No matter what is being taxed or how high or low the tax rate is, individuals are involuntarily compelled to give up some portion of their property so that the government can pay for its proper functions. . If the individual refuses, they are subject to criminal penalties. If the individual continues their resistance against these penalties, they will be forcefully taken to jail., Every act of taxation has the threat of, and ultimately, an act of physical force against the individual. The initiation of force on an individual is evil, and, governments have a monopoly on the legal use of force.
In addition to being backed by force, taxes also result in a loss of economic efficiency, which makes every individual in society poorer. No matter if the taxes are high or low, progressive or regressive, on income, on spending, on assets, or on all of these, they always result in some loss of economic resources called “deadweight loss.” The greater the tax rate, the greater the loss of economic freedom and benefits to every individual in society.
If taxes are both economically inefficient and backed by the evil use of force, what does an ideal funding mechanism look like so that the government is able to pay for the things that protect individual rights? It’s crucial to acknowledge that no system that violates the sovereignty and judgment of the individual citizens can be justified morally. There have been many proposed mechanisms that don’t involve coercion to fund government, including usage fees, lotteries, voluntary contributions, etc. The important points are: 1) taxation is immoral, and 2) a proper government, limited in scope, would require much less funding, and 3) there are non-coercive (civilized) ways to raise necessary funds.
Given that the culture is far from accepting these three points, it’s important that policy makers do everything in their power to reduce the level of taxation (force) in the society. Every system of taxation has pros and cons regarding efficiency and fairness. Mathematical economic theory proves that the most efficient tax—the tax with the smallest deadweight loss—is actually a regressive tax, meaning that wealthy people pay a smaller portion of their income in taxes than poor people. But is efficiency fair? Does it seem right that Jeff Bezos, Bill Gates and Warren Buffett should pay a lower tax rate than a single mother working three jobs to make ends meet? Though majority opinion is NOT the principle upon which a wise and just government is founded, most people would say no.
In the opposite scenario, most people would say that it is fairer to make Bezos, Gates and Buffet pay a much higher percentage of their income than the single mother does. However, if taxes are high enough that the billionaires no longer invest in their companies, fewer jobs are created, and the single mother might lose one of her jobs. The economic efficiency loss is much larger and might be even more harmful to the single mother than the tax rates under the regressive system.
What about a flat tax where everyone pays the same percentage of their income? That system might be unfair too, as some individuals must pay much more in taxes while receiving the same amount of protection as the person who pays much less.
Ok, how about a head tax where everyone pays the same dollar amount no matter how wealthy or poor they are? This system is efficient, but again, some people might perceive unfairness when the single mother again pays the same amount as the billionaires.
The bottom line is that there is no perfect system of coercion. Every system has tradeoffs between efficiency and perceived fairness. Until fully abolished, the best solution is that taxes are low, transparent, and predictable. There should be no tax deductions or tax credits, no social engineering or incentives for certain kinds of behavior, no cronyism, no special interests wasting economic resources fighting for their special exemptions.