A New Way to Look at Taxes

by Steve Buckstein Thursday, April 15. 2010

TaxCode1040 A New Way to Look at Taxes Almost twenty years ago economist Mark Skousen penned a little essay, Persuasion Versus Force, that has the power to change how we look at taxation forever.

One early paragraph sets the stage:

“Supreme Court Justice Oliver Wendell Holmes once said, “˜Taxation is the price we pay for civilization.’ But isn’t the opposite really the case? Taxation is the price we pay for failing to build a civilized society. The higher the tax level, the greater the failure. A centrally planned totalitarian state represents a complete defeat for the civilized world, while a totally voluntary society represents its ultimate success.”

On this Tax Day, read the entire essay and you may just come away with a more profound understanding of what this day, and the Tea Party protests are really all about.

Persuasion Versus Force

Steve Buckstein is Senior Policy Analyst and founder of Cascade Policy Institute, a Portland-based think tank.

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Posted by Steve Buckstein at 10:40 | Posted in Measure 37 | 40 Comments |

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valley p

“The higher the tax level, the greater the failure. ”

It would be news to the Danes, Swedes,Norwegians, French, Germans, and so forth that they are less civilized than Americans due to their higher taxes. Particularly when you look at respective poverty, murder, other violent crime, and incarceration rates.

The experiment has been done. Higher taxes in advanced societies makes them “more civilized” in many respects. Dog eat dog capitalism is hardly an improvement.

“A centrally planned totalitarian state represents a complete defeat for the civilized world,”

Right. How do you explain China…a totalitarian government overseeing a free market economy? Where does that fit in?

Rupert in Springfield

>Particularly when you look at respective poverty, murder, other violent crime, and incarceration rates.

Only if you didnt know anything about statistics.

A comparison would have to be done of those crime rates before and after their welfare state was enacted. If you find those items went down in comparison to ours after they enacted their current policies, then you would have something. If you find they have always been lower than ours then you don’t have much of anything.

>Right. How do you explain China…a totalitarian government overseeing a free market economy? Where does that fit in?

Pretty easily if you think about it for two seconds.

Has freedom increased or decreased as China tended to a more market economy?

I think most would know the answer to that one.

Oh well, nice try.

valley p

“A comparison would have to be done of those crime rates before and after their welfare state was enacted.”

Why? Its not a question of before an dafter in Denmark. Its a question of whether one can compare tax levels and a range of social data across different nations and draw any useful conclusions. The one I’m drawing is that Denmark and nations with similarly high taxation levels are as or more civilized than lower tax nations like the United states based on a set of social factors. If you want to go off on a tangent of comparing Denmark present to Denmark past to dodge my point, be my guest.

“Has freedom increased or decreased as China tended to a more market economy? ”

From this distance it appears that economic freedom has increased somewhat but political freedom has not. The Heritage Foundation ranks China 140th in its index of economic freedom. (Denmark is 9th, just behind the United States). Interestingly, the Heritage thesis is that this lousy ranking should make China a no growth state, yet their economy is growing faster than anyones. They may need to revisit their thesis. Freedom House ranks China as “not free” in terms of politics and free speech.

So you may think China is free. Experts disagree with you.

Rupert in Springfield

>So you may think China is free. Experts disagree with you.

And you may think you can read, but the evidence is otherwise.

No one ever claimed China was free.

You lose – Attempted topic shifting – Making up things no one ever said to attempt creation of winnable argument .

valley p

Right. You made an implication but avoided making a commitment. Fine. Whatever.

Don Yocham

Quick note before tackling the issue that the article addresses. One cannot refer to what we have in the United States, much less China, free market capitalism. We haven’t experienced free market capitalism in this country for at least forty years, with the erosion of free market capitalism beginning about 100 years ago. Referring to it as such represents an all too common misunderstanding of how an economy works, the role of money, etc.. Call it corporate socialism, fascism, kleptocracy, or whatever, but do not call it capitalism.

Now, on to the central point, which you are missing. If individuals were inherently more civilized, we wouldn’t need taxes to support the state to prosecute those who use force and fraud to get what they want because there wouldn’t be anyone to prosecute. It is the primary axiom of utopian anarchy (which doesnâ€™t mean “chaos”, it means “without government”). However, a utopia is a utopia, whether collective or anarchic. In the real world, there are people that do not respect the limits that rejecting force and fraud imposes while others prefer short term gains to long-term benefits. Therefore, some form of government is necessary to punish violators of the above creed (if only government limited itself to such a central role).

I also presume that civilized people are charitable and compassionate within their means and according to what they value. When government says it must step in to redistribute wealth to help the needy, or impose some centrally determined value upon all taxpayers, it is implicitly stating that the citizens lack compassion and charity. If citizens had the compassion that civilized people possess, then government wouldn’t need to “force people to be charitable”, which is not charity in any case. Since most societies, including the U.S., doesn’t need government to impose “charity”, you have to wonder what their true motive is in the first place.

As an aside, I sharply disagree with the author regarding persuading. Government shouldn’t persuade either, because it quickly resorts to force in order to do so.

That civilized society in Europe exists concurrently with higher taxes does nothing to prove that more taxes lead to more civilization. More taxes do not make civilized people more civilized, it simply imposes a burden that civilized people otherwise wouldn’t have to bear. To the extent that taxes are necessary to compel charity and compassion; to the degree that force and fraud occurs which must be prosecuted (paid for by taxes), the lesser the degree to which society depends on basic civilized behavior.

If effect, this is part of the broader issue of laws versus rules. Laws extend from our natural understanding of right and wrong while rules are the governments way of telling us what we cannot do or, watch out tyranny, what we can do. Just because the rules say you cannot do something doesn’t make it wrong, and just because the government doesn’t prohibit something doesn’t make it right. That there are over 1 million laws on the books in the U.S. helps prove this point. They call them laws and then refer to the saying “ignorance of the law is not excuse”, but no one can be accountable for knowing 1 million laws. These are rules, not law. If a society is dependent on rules to let them know what they can or cannot do, they are truly uncivilized.

eagle eye

This guy has really been drinking the kool-aid.

“Taxation is the price we pay for failing to build a civilized society.”

This is completely utopian thinking. As utopian as the totalitarians. In a way, they’re in the same bed. They both talk as if the only alternatives are totalitarian vs. a utopian libertarian society. Whereas in reality, both of these (false) alternatives would be complete nightmares.

It’s also interesting where the argument about persuasion leads. Why have laws against murder? (Put aside the question of what constitutes murder.) Persuade the killers that they should change their ways. Otherwise it’s a failure of society. Well, in a way it is, a failure of human nature at least.

But we must live with imperfect human nature, imperfect society.

The childishness of all of these utopians is to fantasize otherwise. Unfortunately, the totalitarian fantasy has been tried, more than once.

The libertarian fantasy fortunately doesn’t seem to have much appeal anywhere in the world. At least, nobody is actually trying it, or ever has.

The higher the tax level, the greater the failure. A centrally planned totalitarian state represents a complete defeat for the civilized world, while a totally voluntary society represents its ultimate success.”

Steve Buckstein

Eagle eye â€“ I think you missed Skousenâ€™s acknowledgement that heâ€™s not talking about only two extreme alternatives. Following his statement that â€œTaxation is the price we pay for failing to build a civilized societyâ€ is his statement â€œThe higher the tax level, the greater the failure.â€ Heâ€™s clearly using the two extremes to represent the two directions that society can move. He (and I) hope we will move toward more persuasion and less force. Can you at least agree with that?

Also, heâ€™s not arguing to do away with laws against murder as a step toward a more civilized society. Clearly murder itself is not persuasion, but force.

Equating taxation to force is not utopian, itâ€™s a reality. Try not paying and see how quickly the government turns to force to collect.

eagle eye

No, I don’t agree at all. The clear implication is that a society with taxes is a failure of civilization, in effect not civilized at all. That is just not true: any civilization is going to need taxation. Without taxation, you don’t have civilization, you have anarcy and barbarism.

And the logical extreme of his reasoning IS against laws even against murder. The issue is not whether murder uses force, it’s the legitimacy of the use of government force for ANYTHING. Why is not government force against murderers a case of failure of civilization?

In fact, his reasoning is very similar to that of the most mushy-headed liberals: if there is murder (or other crime), it must be the fault (or the failure) of society. It’s a very small step from there to say that social protection against crime is illegitimate.

And the utopianism is NOT in saying that taxation is coercive. Of course it is. The utopianism is in thinking that any society can do without social coercion (including the coercion of taxation). So far, all the evidence is that the answer is no.

That the false dichotomy between libertarianism and totalitarianism is false is a point made by countless social thinkers, including some who are often put in the conservative (or even libertarian camp). It includes such people as Bertrand de Jouvenel, Karl Polanyi, his more conservative brother Michael, and even the likes of Hayek.

Don Yocham

You are confusing anarchy with chaos. Anarchy simply means “without government” and does necessarily lead to chaos. Anarchy is a Utopian ideal and since not all people share the ideals upon which anarchy depends, a government is necessary to prosecute force and fraud…i.e., dispense justice. The more uncivilized a society is, the more it needs police, hence the more it needs to tax. It’s an argument of degree and limits.

Anonymous

I’m not confused at all. You are making a distinction which means little, if anything. Especially since you go on to write ‘Anarchy simply means “without government” and does necessarily lead to chaos.’ Of course it does. You can call anarchy a utopian ideal, and of course it is. That is the point — like any utopian ideal, it turns into a nightmare when one tries to realize it in practice.
Don Yocham

typo, I meant to type “does NOT necessarily lead to chaos”. But the point still stands that the more we need taxes to maintain civilized society, the less inherently civilized that society is.
eagle eye

OK, well then you’re wrong. Anarchy does necessarily lead to chaos. Unless you have a society of perfect men. Which is why the idea is utopian. And when you write “the less inherently civilized a society is”, you’re also betraying utopianism, because society is NOT inherently civilized, no society ever has been. Civilization is a rather fragile thing. It’s always in danger of dismemberment and decay.
Don Yocham

So more taxes mean more police which means more civilization?
Anonymous

Is that what more taxes means? More police? I wasn’t aware that there was a direct correlation between taxation and the need for police?
Don Yocham

More taxes means more force to prevent or encourage whatever type of behavior the state desires. Categorize it however you must in order for you to process the information.
Anonymous

So the U.S. has the highest taxes in the world? Or the Danish government, for instance, is more coercive than the U.S.? They have more need to use force to keep their citizenry in line? Please, help me understand, teacher, help me process the information.
eagle eye

I said nothing of the kind. More taxes can mean lots of things — police, parks, the Navy, the Hubble Space telescope all come to mind. Taxes can become excesive, no doubt about it. As some will remember, I voted, reluctantly, against the recent taxe measures 66 and 67.

But the question was whether it’s true that “Taxation is the price we pay for failing to build a civilized society.” I simply don’t agree with such a statement. In fact, I think it’s very perverse.

Dan

A similar thought can be seen in James Madison’s assertion in The Federalist No. 51, when he states that, if men were angels, no government would be necessary; the idea being that government exists because unregulated human nature does not naturally act as “our brother’s keeper” which would be an indicator of higher civility. Greater taxation is, essentially, greater government. Greater governement is an expression of greater distrust in individuals ability to govern themselves with internal constraints and controls on behavior. If European countries believe they need more taxation and larger government it is because they have less confidence in the individuals ability to govern themselves. But then Europe has thousands of years of history in feudalism, monarchies, city states, and all the other forms of anti-individual forms of government, so they are used to it.

valey p

Somalia is a good example of a country with no government and probably no taxation other than what war lords levy. I don’t think we would confuse it with civilization. Quite the opposite.

Steve… *taxation is not force* . Its law enacted by elected representatives or by citizen vote. Enforcement of tax collection on very rare occasions can involve force, but only if someone fails to comply with the law AND is pretty obstinate about it. And this is true for just about any law we live under. Flout it and you will be subject to the legitimate force of the state. But you might as well include speed limits, building codes, pollution restrictions, and anything you can think of along with taxes as demonstrating a failure of civilization.

What you seem to be proposing is an ideal society where everyone is self sufficient and self regulating, hence no laws are needed. That is your utopian idea. It does not exist and never can or will exist. Its best left to parables.

“If European countries believe they need more taxation and larger government it is because they have less confidence in the individuals ability to govern themselves.”

Maybe so. Or maybe they have concluded that higher taxes are a reasonable tradeoff to have a social order that has less poverty, less crime, fewer people locked up, and less economic insecurity. Western Europeans are just as free as we are. Their thousands of years of history in feudalism is also YOUR history unless your ancestors are from other than Europe. And if they are, no matter where they are from (possible exception Native Americans) they likely endured lots of oppression.

Dan

One could argue that “warlordism” (from the Somolia example) is a form of dictatorial government, not unlike feudalism.

Dan

I tend to think the “tradeoff” of higher taxation is a liberal’s way to be “our brothers keeper” at arms length through the middleman of inefficient bureaucracies. Takes the place of actual volunteerism where needs are met face-to-face through real relationships. Through taxation we can assuage our guilt toward the downtrodden and continue our self-absorbed lives without dirtying our hands . . . Sounds sooo European.

valley p

You can argue your point on Somalia all you like, but the fact is they don’t have a functioning central government or a legal structure. War lords step into the breech. Feudalism is a weak center that exercises power through agreements with sub leaders. Afghanistan might fit that description, but not present day Somalia.

Higher taxes supporting a social welfare state displaces voluntarism to other causes, or can let it focus on smaller cracks in the system. Voluntarism has never been very effective at reducing poverty and social ills, which is why social welfare systems were created in the first place.

To me it has nothing to do with guilt and everything to do with effectiveness. Denmark has near zero poverty and few of the social ills associated with it.
Anonymous

I’m not saying taxation can’t meet social ills. In fact, it’s probably the best solution for those who don’t want to be involved in meeting the needs themselves. And hey, I just saw a news report about a $1 billion dollar embassy plan for Iraq . . . complete with swimming pools, shopping center, spa, etc. What a great cause for taxation and more civilization!

Bob Tiernan

*valley p:*

It would be news to the Danes, Swedes,Norwegians, French, Germans, and so forth that they are less civilized than Americans due to their higher taxes. Particularly when you look at respective poverty, murder, other violent crime, and incarceration rates.

*Bob T:*

But check out something like the ability of assimilation of immigrants of many racial and ethnic backgrounds. The United States does this far batter than anyone else does, without having programs to do this for us. Your “civilized” Europeans have real problems with this. It doesn’t reflect well on them.

Bob Tiernan
Portland

valley p

I agree the US is much better at assimilating immigrants. Europeans fought each other for centuries to establish state boundaries around linguistic and racial identity groups, while we or our ancestors (most of us anyway) started out as immigrants moving freely to a “new” nation where we only had to subdue and displace the inhabitants and eventually free our slaves. The US has had a lot of nativism over the years (see Gangs of New York,) but by and large we, Canada, , Argentina, Australia, and a few other immigrant nations are now all reasonably welcoming to new (legal) immigrants while European nations are not and may never be. And I agree this does not reflect well on European nations.

But I was not trying to make a point about the relative civility of Americans and Europeans. We are both civilized enough. I was addressing the issue of taxation and civilization.

Bob Tiernan

*valley p:*

But I was not trying to make a point about the relative civility of Americans and Europeans. We are both civilized enough. I was addressing the issue of taxation and civilization.

*Bob T:*

And like I said — that doesn’t say much. Especially when you consider, par example, France which keeps many or most Muslim immigrants in their own ghettos. They (like other Euro nations) have so many of them because they had to import them in order to have employees pay taxes to support the massive welfare state payments every month. So these immigrants have to clean
the toilets and all that, but no, they don’t assimilate. Now there’s a lack of civilization for you.

Bob Tiernan
Portland

valley p

i don’t think this tangent is worth pursuing. But how is France “keeping” (they are free to move elsewhere but can’t afford to) Muslim immigrants in suburban slums different from America “keeping” (they are now free to move elsewhere if they could afford to, but when I was growing up they were not allowed to buy homes in white neighborhoods) African Americans in urban ghettos? I mean…I just don’t get your point. Americans lecturing Europeans on race relations is a bit of a joke.

Bob Tiernan

*valley p:*

i don’t think this tangent is worth pursuing. But how is France “keeping” (they are free to move elsewhere but can’t afford to) Muslim immigrants in suburban slums different from America “keeping” (they are now free to move elsewhere if they could afford to, but when I was growing up they were not allowed to buy homes in white neighborhoods) African Americans in urban ghettos? I mean…I just don’t get your point. Americans lecturing Europeans on race relations is a bit of a joke.

*Bob T:*

This is not worth pursuing on your part. There’s a huge difference between the examples you refer to. One can live in a poor section of Detroit his entire life, for example, and be assimilated here, whereas the examples I cite for France and other countries in Europe (but France in particular) are of Muslim enclaves where the residents remain as they were in Algeria, Morocco, Syria etc, or as their parents or grandparents were, with little or no assimilation (but they do get European welfare — a very poor reason to adopt a new country). These areas and the population has become a problem (free speech squelched by murdering and threatening to murder those whose opinions they dislike, and so on). You missed the whole point, as usual. And as is your wont, you can have the last word because I couldn’t care less.

Bob Tiernan
Portland

valley p

“This is not worth pursuing on your part.”

We finally agree.

“One can live in a poor section of Detroit his entire life, for example, and be assimilated here”

One concludes you don’t get out much. If a person grows up poor (and presumably black) in Detroit, and then spends one’s entire life there, what is it you think they are “assimilated” to exactly? America in general? They could move or travel anywhere in the nation and feel welcome and at home? Tell me you don’t believe this.

John in Oregon

I come to these comments a bit late, but then I do have other responsibilities. I noticed the well thought out comments of Don Yocham which serve to shed light on the subject. Don is quite correct with his comments that the US is not a free market system.

To shed a different prospective on Don’s broader point I look to contrast the constitutional founders with “progressive thought”. Our founders sought to create a system which took humans as they are while creating a system of liberty which limited the concentration of power in any one set of hands. Progressives believe that man can be “perfected” and move beyond. Thus we have phrases like the “living constitution”.

The rub of course is who exactly gets to decide what exactly constitutes perfection. Utopia is often defined by such as Marx, National Socialism, or President Wilson who felt that Congress should be a debating society with government run by administrators.

In contrast the founders sought to limit government power, maximize liberty, and promote competition of individuals and ideas. Such a system has a quite chaotic appearance.

As I often do I like to consider theoretical debates in light of actual events. Two such examples come to mind.

Taking the financial crisis for example, there has been discussion of the CRA, Fannie and Freddie, FED interest rates, ETC. Thatâ€™s the housing bubble, but how did it migrate into the financial industry world wide?

For the migration we need to look to the FED, Basel I, and Basel II which inspired the Recourse Rule. “The recourse rule forced large banks to put more of their money into asset-backed securities, such as mortgage-backed bonds, as long as those securities had good bond ratings or were issued by government-backed entities such as Fannie Mae and Freddie Mac.”

Implemented with the idea of promoting financial stability the capital regulations inadvertently made the banking system more vulnerable to the regulators’ errors. This is what all regulations do. They regulate behavior to a single uniform standard of behavior. And when that standard is wrong *â€¦â€¦â€¦*

To my knowledge only JP Morgan which resisted the recourse rule escaped unharmed.

Contrast that with the founders free market standard. Many banks competing. Some investing in corporate bonds, others in commodities, and yet others in Fannie / Freddie. Some banks may fail but none could bring the system down. Itâ€™s the difference of some eggs in many baskets versus all eggs in a well protected basket. The well protected basket can still fall.

The second involves a decision of Justice John Paul Stevens which serves to contrast the view of the founders with the progressive malleable constitution based on judgment. The Constitution states that the government must pay “just compensation” for seizing a citizen’s private property for “public use.” To build a bridge or fire station for example.

In the Kelo decision Stevens wrote the opinion that expanded the Constitution’s authorization of seizing private property for “public use” to seizing private property for a “public purpose.”

But as with the Progressive “Perfection” the rub is who decides what is a “Public Purpose”. “In Justice Stevens’ judgement, the government authorities’ assessment of a proper “public purpose” was entitled to “great respect” by the courts.” In other words, those who were doing the seizing will decide.

As Thomas Sowell put it “Let’s go back to square one. Just who was this provision of the Constitution supposed to restrict? Answer: government officials. And to whom would Justice Stevens defer: government officials. Why would those who wrote the Constitution waste good ink putting that protection in there, if not to protect citizens from the very government officials to whom Justice Stevens deferred?”

valley p

“But as with the Progressive “Perfection” the rub is who decides what is a “Public Purpose”. “In Justice Stevens’ judgement, the government authorities’ assessment of a proper “public purpose” was entitled to “great respect” by the courts.” In other words, those who were doing the seizing will decide.”

What about seizing private property to extend a private utility line across it? How do you feel about that one? Is it a public purpose?

John in Oregon

Red Herring

valley p

Why? Its a private taking to deliver a private product.

John in Oregon

Ultra Red Herring
valley p

OK. I’ll take that as you have no response.
John in Oregon

You got my response from the get go. A Red Herring is a deliberate attempt to divert attention from the central discussion.

Not only that. Your thesis, a government regulated utility corridor, presents nothing to show its anything but indistinguishably different from a public transportation corridor. Particularly considering in many cases utilities are publicly owned not private.

As you persist your Red Herring has now become an Infra Red Herring.
valley p

Only I explicitly said PRIVATE utility corridor. Your no response has become a double dodge.
John in Oregon

A government regulated utility, whether capital financed by investors or end product purchaser remains a government regulated utility. Your claim of “private” is a difference without a destination.

Do you have anything pertinent to the central theme of the discussion?

John in Oregon

I wanted to touch on another aspect of Don Yocham comments. > *When government says it must step in to redistribute wealth to help the needy, or impose some centrally determined value upon all taxpayers, it is implicitly stating that the citizens lack compassion and charity. If citizens had the compassion that civilized people possess, then government wouldn’t need to “force people to be charitable”, which is not charity in any case.*

I donâ€™t disagree with Don in any way. Don did prompt me to expand thinking in two ways.

Many individuals in America give private charitable donations in the firm of time and money. A common saying in private charitable organizations is “Give a man a fish and you feed him today. Teach a man to fish and you feed him for a lifetime.” Thus emphasizing the citizen charity goal of fostering self sufficiency.

In contrast the redistribution goal is give a man a fish taken from some one else. Essentially replacing the peoples definition of charity with that written by the bureaucrat.

Although the scorn of government regulators and talking heads journalism, much of American business was and still is conducted on a handshake. The transaction based on a mans word is his bond, sacred honor, and integrity.

The Wall Street Journal published “An Economy of Liars” by Gerald O’Driscoll JR. O’Driscoll opens with;

“Free markets depend on truth telling. Prices must reflect the valuations of consumers; interest rates must be reliable guides to entrepreneurs allocating capital across time; and a firm’s accounts must reflect the true value of the business. Rather than truth telling, we are becoming an economy of liars.”

O’Deiacoll, a retired vice president from the Federal Reserve Bank of Dallas, Touches on the roll of Government, when he states;

“While protecting citizens against force, both at home and abroad, is the government’s most basic function, protecting them against fraud is closely allied. By the use of force, a thief takes by arms what is not rightfully his; he who commits fraud takes secretly what is not rightfully his. It is the difference between a robber stealing brazenly on the street and a burglar stealing by stealth at night.”

O’Driscoll’s target is crony capitalism, political entrepreneurs, and “rent seekers” to list three common labels. The Goldman Sachs accusation of civil fraud being the most recent example De Jour

Within O’Driscoll’s discussion I detect a most important theme. “The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th centuryâ€¦ Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accuratelyâ€”not withstanding what any rule might otherwise allow.”

In other words when Entrepreneurs work to the regulatory rules over time those rules displace truth, honor, and integrity as a standard. Massive rules in thousands of pages displace massively. Right and proper becomes the rules including the loopholes.

O’Driscoll put it this way. “Piling on more rules and statutes will not produce something different than it has in the past. Reliance on affirmative principles of truth-telling in accounting statements and a duty of care would be preferable. Deregulation is not some kind of libertarian mantra but an absolute necessity if we are to exit crony capitalism.”

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