Skip
to navigation

Skip to
content

Skip to
sidebar

The Ludwig von Mises Institute

Advancing Austrian Economics, Liberty, and Peace for 30
years

Advancing the scholarship of liberty in the tradition of the Austrian
School for 30 years

Store

Academy

Community

Wiki

Home

Daily

About

Blog

Literature

Audio / Video

Events

Donate

Previous

Mises Daily
Index

Taxation is Robbery, Part 1

Mises Daily: Tuesday, April 02, 2013 by Frank
Chodorov

Article

Comments

Also by
Frank Chodorov

A

A

[From Out of Step:
The Autobiography of an Individualist, by Frank Chodorov; The
Devin-Adair Company, New York, 1962, pp. 216-239.]

The Encyclopaedia Britannica defines taxation as “that part of the
revenues of a state which is obtained by the compulsory dues and charges upon
its subjects.” That is about as concise and accurate as a definition can be; it
leaves no room for argument as to what taxation is. In that statement of fact
the word “compulsory” looms large, simply because of its ethical content. The
quick reaction is to question the “right” of the State to this use of power.
What sanction, in morals, does the State adduce for the taking of property? Is
its exercise of sovereignty sufficient unto itself?

On this question of morality there are two positions, and never the twain
will meet. Those who hold that political institutions stem from “the nature of
man,” thus enjoying vicarious divinity, or those who pronounce the State the
keystone of social integrations, can find no quarrel with taxation per se; the
State’s taking of property is justified by its being or its beneficial office.
On the other hand, those who hold to the primacy of the individual, whose very
existence is his claim to inalienable rights, lean to the position that in the
compulsory collection of dues and charges the State is merely exercising power,
without regard to morals.

The present inquiry into taxation begins with the second of these positions.
It is as biased as would be an inquiry starting with the similarly unprovable
proposition that the State is either a natural or a socially necessary
institution. Complete objectivity is precluded when an ethical postulate is the
major premise of an argument and a discussion of the nature of taxation cannot
exclude values.

If we assume that the individual has an indisputable right to life, we must
concede that he has a similar right to the enjoyment of the products of his
labor. This we call a property right. The absolute right to property follows
from the original right to life because one without the other is meaningless;
the means to life must be identified with life itself. If the State has a prior
right to the products of one’s labor, his right to existence is qualified. Aside
from the fact that no such prior right can be established, except by declaring
the State the author of all rights, our inclination (as shown in the effort to
avoid paying taxes) is to reject this concept of priority. Our instinct is
against it. We object to the taking of our property by organized society just as
we do when a single unit of society commits the act. In the latter case we
unhesitatingly call the act robbery, a malum in se. It is not the
law which in the first instance defines robbery, it is an ethical principle, and
this the law may violate but not supersede. If by the necessity of living we
acquiesce to the force of law, if by long custom we lose sight of the
immorality, has the principle been obliterated? Robbery is robbery, and no
amount of words can make it anything else.

We look at the results of taxation, the symptoms, to see whether and how the
principle of private property is violated. For further evidence, we examine its
technique, and just as we suspect the intent of robbery in the possession of
effective tools, so we find in the technique of taxation a telltale story.
The burden of this intransigent critique of taxation, then, will be to prove the
immorality of it by its consequences and its methods.

By way of preface, we might look to the origin of taxation, on the theory
that beginnings shape ends, and there we find a mess of iniquity. A historical
study of taxation leads inevitably to loot, tribute, ransom: the economic
purposes of conquest. The barons who put up toll-gates along the Rhine were
tax-gatherers. So were the gangs who “protected,” for a forced fee, the caravans
going to market. The Danes who regularly invited themselves into England, and
remained as unwanted guests until paid off, called it Dannegeld; for a long time
that remained the basis of English property taxes. The conquering Romans
introduced the idea that what they collected from subject peoples was merely
just payment for maintaining “law and order.” For a long time the Norman
conquerors collected catch-as-catch-can tribute from the English, but when by
natural processes an amalgam of the two peoples resulted in a nation, the
collections were regularized in custom and law and were called taxes. It took
centuries to obliterate the idea that these exactions served but to keep a
privileged class in comfort and to finance their internecine wars; in fact, that
purpose was never denied or obscured until constitutionalism diffused political
power.

$20.00 $14.00

All that is long passed, unless we have the temerity to compare such ancient
skullduggery with reparations, extraterritoriality, charges for maintaining
armies of occupation, absconding with property, grabbing of natural resources,
control of arteries of trade and other modern techniques of conquest. It may be
argued that even if taxation had an unsavory beginning it could have
straightened itself out and become a decent and useful citizen. So, we must
apply ourselves to the theory and practices of taxation to prove that it is in
fact the kind of thing above described.

First, as to method of collection, taxation falls into two categories, direct
and indirect. Indirect taxes are so called because they reach the state by way
of private collectors, while direct taxes arrive without by-pass. The former
levies are attached to goods and services before they reach the consumer, while
the latter are in the main demands upon accumulations of wealth.

It will be seen that indirect taxation is a permission-to-live price. You
cannot find in the marketplace a single satisfaction to which a number of these
taxes are not attached, hidden in the price, and you are under compulsion either
to pay them or go without; since going without amounts to depriving yourself of
the meaning of life, or even of life itself, you pay. The inevitability of
this charge on existence is expressed in the popular association of death and
taxes. And it is this very characteristic that commends indirect taxation to the
state, so that when you examine the prices of things you live by, you are
astounded by the disproportion between the cost of production and the charge for
permission to buy. Somebody has put the number of taxes carried by a loaf of
bread at over one hundred; obviously, some are not ascertainable, for it would
be impossible to allocate to each loaf its share of taxes on the broom used in
the bakery, on the axle-grease used on the delivery wagon. Whiskey is perhaps
the most notorious example of the way products have been transmuted from
satisfactions into tax-gatherers. The manufacturing cost of a gallon of whiskey,
for which the consumer pays around twenty dollars, is less than a half-dollar;
the spread is partly accounted for in the costs of distribution, but most of the
money which passes over the counter goes to maintain city, county, state and
national officials.

The hue and cry over the cost of living would make more sense if it were
directed at taxation, the largest single item in the cost. It should be noted
too that though the cost-of-living problem affects mainly the poor, yet it is on
this segment of society that the incidence of indirect taxation falls most
heavily. This is necessarily so; since those in the lower earning brackets
constitute the major portion of society they must account for the greatest share
of consumption, and therefore for the greatest share of taxation. The state
recognizes this fact in levying on goods of widest use. A tax on salt, no matter
how small comparatively, yields much more than a tax on diamonds, and is of
greater significance socially and economically.

It is not the size of the yield, nor the certainty of collection, which gives
indirect taxation preeminence in the State’s scheme of appropriation. Its most
commendable quality is that of being surreptitious. It is taking, so to speak,
while the victim is not looking. Those who strain themselves to give taxation a
moral character are under obligation to explain the State’s preoccupation with
hiding taxes in the price of goods. Is there a confession of guilt in that? In
recent years, in its search for additional revenue, the State has been tinkering
with a sales tax, an outright and unequivocal permission-to-live price; wiser
solons have opposed this measure on the ground of political expediency. Why? If
the State serves a good purpose the producers will hardly object to paying its
keep.

Merely as a matter of method, not with deliberate intent, indirect taxation
yields a profit of proportions to private collectors, and for this reason
opposition to the levies could hardly be expected from that corner. When the tax
is paid in advance of the sale it becomes an element of cost  which
must be added to all other costs in computing price. As the expected profit is a
percentage of the total outlay, it will be seen that the tax itself becomes a
source of gain. Where the merchandise must pass through the hands of several
processors and distributors, the profits pyramided on the tax can run up to as
much as, if not more than, the amount collected by the State. The consumer pays
the tax plus the compounded profits. Particularly notorious in this regard are
customs duties. Follow an importation of raw silk, from importer to cleaner, to
spinner, to weaver, to finisher, to manufacturer, to wholesaler, to retailer,
each one adding his mark-up to the price paid his predecessor, and you will see
that in the price milady pays for her gown there is much more than the tariff
schedule demands. This fact alone helps to make merchants and manufacturers
indifferent to the evils of protection.

Tacit support for indirect taxation arises from another byproduct. Where a
considerable outlay in taxes is a prerequisite for engaging in a business, large
accumulations of capital have a distinct competitive advantage, and these
capitalists could hardly be expected to advocate a lowering of the taxes. Any
farmer can make whiskey, and many of them do; but the necessary investment in
revenue stamps and various license fees makes the opening of a distillery and
the organizing of distributive agencies a business only for large capital.
Taxation has forced the individually-owned and congenial grog-shop to give way
to the palatial bar under mortgage to the brewery or distillery. Likewise, the
manufacture of cigarettes is concentrated in the hands of a few giant
corporations by the help of our tax system; nearly three-quarters of the retail
price of a package of cigarettes represents an outlay in taxes. It would be
strange indeed if these interests were to voice opposition to such indirect
taxes (which they never do) and the uninformed, inarticulate and unorganized
consumer is forced to pay the higher price resulting from limited
competition.

Direct taxes differ from indirect taxes not only in the manner of collection
but also in the more important fact that they cannot be passed on; those who pay
them cannot demand reimbursement from others. In the main, the incidence of
direct taxation falls on incomes and accumulations rather than on goods in the
course of exchange. You are taxed on what you have, not on something you buy; on
the proceeds of enterprise or the returns from services already rendered, not on
anticipated revenue. Hence there is no way of shifting the burden. The payer has
no recourse.

The clear-cut direct taxes are those levied on incomes, inheritances, gifts,
land values. It will be seen that such appropriations lend themselves to
soak-the-rich propaganda, and find support in the envy of the incompetent, the
bitterness of poverty, the sense of injustice which our monopoly-economy
engenders. Direct taxation has been advocated since colonial times (along with
universal suffrage), as the necessary implementation of democracy, as the
essential instrument of “leveling.” The opposition of the rich to direct
taxation added virulence to the reformers who plugged for it. In normal times
the State is unable to overcome this well-knit, articulate and resourceful
opposition. But, when war or the need of ameliorating mass poverty strains the
purse of the State to the limit, and further indirect impositions are impossible
or threaten social unrest, the opposition must give way. The State never
relinquishes entirely the prerogatives it acquires during an “emergency,” and
so, after a series of wars and depressions direct taxation became a fixture of
our fiscal policy, and those upon whom it falls must content themselves to
whittling down the levies or trying to transfer them from shoulder to
shoulder.

Even as it was predicted, during the debates on the income tax in the
early part of the century, the soak-the-rich label turns out to be a wicked
misnomer. It was impossible for the State to contain itself once this instrument
of getting additional revenue was put into its hands. Income is income whether
it stems from dividends, bootlegging operations, gambling profits or plain
wages. As the expenses of the State mount, as they always do, legal inhibitions
and considerations of justice or mercy are swept aside, and the State dips its
hands into every pocket. So, in Philadelphia, the political power demands that
the employer shall deduct an amount from the pay envelope and hand it over. The
soak-the-rich principle has been applied on a large scale to the lowliest paid
worker, not only by deductions from wages, but more so through the so-called
social security taxes. These, by the way, show up the utter immorality of
political power. Social security taxation is nothing but a tax on wages, in its
entirety, and was deliberately and maliciously misnamed. Even the part which is
“contributed” by the employer is ultimately paid by the worker in the price of
the goods he consumes, for it is obvious that this part is merely a cost of
operation and is passed on, with a mark-up. The revenue from social security
taxes is not set aside for the payment of social “benefits,” but is thrown into
the general tax fund, subject to any appropriation, and when an old-age pittance
is ultimately allowed it is paid out of the then current tax collections.
It is in no way comparable to insurance, by which fiction it made its way into
our fiscal policy, but it is a direct tax on wages.

There are more people in the low income brackets than in the high brackets;
there are more small bequests than large ones. Therefore, in the aggregate,
those least able to meet the burden of soak-the-rich taxes bear the brunt of
them. The attempt to offset this inequity by a system of graduations is unreal.
Even a small tax on an income of one thousand dollars a year will cause the
payer some hardship, while a fifty percent tax on fifty thousand dollars leaves
something to live on comfortably. There is a vast difference between doing
without a new automobile and making a patched-up pair of pants do more service.
It should be remembered, too, that the worker’s income is almost always confined
to wages, which are a matter of record, while large incomes are mainly derived
from business or gambling operations, and are not so easily ascertainable;
whether from intent to avoid paying the full tax, or from the necessary legal
ambiguities which make the exact amount a matter of conjecture or bookkeeping,
those with large incomes are favored. It is the poor who are soaked most heavily
by soak-the-rich taxes.

Taxes of all kinds discourage production. Man works to satisfy his desires,
not to support the State. When the results of his labors are taken from him,
whether by brigands or organized society, his inclination is to limit his
production to the amount he can keep and enjoy. During the war, when the payroll
deduction was introduced, workers got to figuring their “take home” pay, and to
laying off when this net, after taxes, showed no increase comparable to the
extra work it would cost; leisure is also a satisfaction. A prize fighter
refuses another lucrative engagement because the additional revenue would bring
his income for the year into a higher tax bracket. In like manner, every
business man must take into consideration, when weighing the risk and the
possibility of gain in a new enterprise, the certainty of a tax-offset in the
event of success, and too often he is discouraged from going ahead. In all the
data on national progress the items that can never be reported are: the volume
of business choked off by income taxes, and the size of capital accumulations
aborted by inheritance taxes.

While we are on the subject of discouragement of production by taxation, we
should not overlook the greater weight of indirect taxes, even though it is not
so obvious. The production level of a nation is determined by the purchasing
power of its citizens, and to the extent that this power is sapped by levies, to
that extent is the production level lowered. It is a silly sophism, and
thoroughly indecent, to maintain that what the state collects it spends, and
that therefore there is no lowering of total purchasing power. Thieves also
spend their loot, with much more abandon than the rightful owners would have
spent it, and on the basis of spending one could make out a case for the social
value of thievery. It is production, not spending, that begets production. It is
only by the feeding of marketable contributions into the general fund of wealth
that the wheels of industry are speeded up. Contrariwise, every deduction from
this general fund of wealth slows down industry, and every levy on savings
discourages the accumulation of capital. Why work when there is nothing in it?
Why go into business to support politicians?

In principle, as the framers of the Constitution realized, the direct tax is
most vicious, for it directly denies the sanctity of private property. By its
very surreptition the indirect tax is a back-handed recognition of the right of
the individual to his earnings; the State sneaks up on the owner, so to speak,
and takes what it needs on the grounds of necessity, but it does not have the
temerity to question the right of the owner to his goods. The direct tax,
however, boldly and unashamedly proclaims the prior right of the State to all
property. Private ownership becomes a temporary and revocable stewardship. The
Jeffersonian ideal of inalienable rights is thus liquidated, and substituted for
it is the Marxist concept of state supremacy. It is by this fiscal policy,
rather than by violent revolution, or by an appeal to reason, or by popular
education, or by way of any ineluctable historic forces, that the substance of
Socialism is realized. Notice how the centralization hoped for by Alexander
Hamilton has been achieved since the advent of the federal income tax, how the
contemplated union of independent commonwealths is effectively dissolved. The
commonwealths are reduced to parish status, the individual no longer is a
citizen of his community but is a subject of the federal government.

Comment on
this article.

Frank Chodorov was an advocate of the free market, individualism, and peace.
He began as a supporter of Henry George and edited the Georgist paper the
Freeman before founding his own journal, which became the influential
Human Events. He later founded another version of the Freeman for
the Foundation for Economic Education and lectured at the Freedom School in
Colorado. See Frank Chodorov's article
archives.

You can subscribe to future articles by Frank Chodorov via this RSS
feed.

You can receive the Mises Dailies in your inbox. Subscribe or
unsubscribe.

Print

Subscribe by
Email

RSS
Feed

Full-Text
Feed

Find us on
Facebook

Follow us on Twitter

Subscribe to our RSS feed

Mises on
Amazon.com

Mises YouTube
channel

Mises as
Picasa

Markets and Data

Mises on iTunes U

Mises channel
on YouTube

Get
articles and news in your inbox

Browse the Daily

Album View of Mises Daily
Articles

List View of Mises Daily
Articles

Mises Authors

Subscribe
to the Daily Audio Podcast

Subscribe to the Daily Daily
Feed

Subscribe to the Daily
Daily Full-Text Feed

About the Author

Frank Chodorov
View Author Archive

Frank Chodorov was an advocate of the free market, individualism, and peace.
He began as a supporter of Henry George and edited the Georgist paper the
Freeman before founding his own journal, which became the influential
Human Events. He later founded another version of the Freeman for
the Foundation for Economic Education and lectured at the Freedom School in
Colorado.

Bastiat
Blog

User
Blogs

Forums

Bastiat Blog

Why the Recovery is Taking so
Long, What to Do About It 4/1/2013 4:41:04 PM by Mark Thornton

The Gold Standard that Never
Was 4/1/2013 3:10:20 PM by Mark
Thornton

David Howden on the Euro
3/31/2013 12:43:19 PM by Mark
Thornton

America’s Great Depression
Quotes of the Week: Bank Failures and Real Monetary Reform 3/28/2013
11:23:02 AM by John
P. Cochran

The Cyprus Deal and the
Unraveling of Fractional-Reserve Banking 3/27/2013 5:42:54 PM by Joseph Salerno

AERC in the Classroom
3/27/2013 10:08:41 AM by Mises
Updates

Mainstream Economics
3/26/2013 2:22:59 PM by Christopher
Westley

The Most Important Question
about Human History 3/26/2013 9:03:04 AM by Mises Updates

The Best Two #AERC Tweets
3/25/2013 11:18:09 AM by Mises
Updates

Rothbard on the Six Stages of
the Libertarian Movement (VIDEO) 3/25/2013 9:42:07 AM by Mises Updates

view all… mises blog rss

Community Blogs

zerohedge
got it by 3/29/2013 12:17:00 AM by FDominicus

&quot;Peace
project&quot; by 3/27/2013 12:46:00 AM by FDominicus

Blue
print Cypress by 3/26/2013 3:12:00 AM by FDominicus

crack
up boom? crack up boom! by 3/25/2013 4:44:00 AM by FDominicus

Are
you bold enough to be a RebelMouse? by 3/23/2013 4:49:00 AM by TokyoTom

Debts,
debts, debts by 3/22/2013 4:06:00 AM by FDominicus

My
7th Prediction by 3/18/2013 1:14:00 AM by FDominicus

Guest
post: Is Koch money behind a conspicuous inconsistency? Reason.com on Kelo v.
City of New London versus Reason.com on the Keystone Pipeline by
3/17/2013 8:52:00 PM by TokyoTom

How
to initiate a bank run by 3/17/2013 9:56:00 AM by FDominicus

If
you think it could not happen by 3/16/2013 3:35:00 AM by FDominicus

view all…
user blogs
rss

Mises Forums

Is Rock and Roll
Dead? 4/1/2013 11:43:00 PM by Student

Non-Democratic
Republicanism 4/2/2013 6:03:10 AM by Jargon

Kinsella v.
Wenzel 4/1/2013 4:52:12 PM by SkepticalMetal

Austrians and
Banking Regulations 4/2/2013 5:41:45 AM by Jargon

Exchange between
Friedman and Block on Hayek 3/31/2013 1:15:06 PM by Wheylous

*** April 2013
Low Content Thread *** 4/1/2013 1:51:08 PM by Primetime

2012 Bitcoin
Article by Erik Voorhees 4/1/2013 11:16:24 PM by adam
knott

Looking for a
short lecture on Homesteading and Time 4/2/2013 4:06:50 AM by Physiocrat

Mises Institute
unearths it&#39;s true beliefs 4/1/2013 9:47:34 AM by SkepticalMetal

So are these
forums closing down? 4/1/2013 12:48:22 PM by Wheylous

view all…
forums
rss

Upcoming Events
rss

view all…

The Quotable Mises

Ludwig von Mises: "Monetary calculation and cost accounting
constitute the most important intellectual tool of the capitalist entrepreneur,
and it was no one less than Goethe who pronounced the system of double-entry
bookkeeping one of the finest inventions of the human mind." - Liberalism

RSS Feed for Literature

Literature

Fabian
Freeway: High Road to Socialism in the U.S.A. -Digital Book by Rose
Martin

Theory
of Money and Fiduciary Media by Jörg Guido
Hülsmann

Pursue
the Cause of Liberty: A Farewell to Congress by Ron Paul

Give Me
Liberty by Rose Wilder
Lane

Accent
On The Right - Digital Book by Leonard E.
Read

Awake
For Freedom's Sake - Digital Book by Leonard E.
Read

Comes
The Dawn - Digital Book by Leonard E.
Read

Deeper
Than You Think - Digital Book by Leonard E.
Read

Having
My Way - Digital Book by Leonard E.
Read

RSS Feed for Audio

Audio

Milton
Friedman versus the Rothbardians: An Empirical Test by Joseph T.
Salerno

Has
Keynesian Stabilization Policy Actually Stabilized Output and Employment?
by Robert
F. Mulligan

Entrepreneurship
and Austrian Business Cycle Theory by Jim
Chappelow

Uncertainty,
Asset Specificity, and Entrepreneurial Adaptation by Timothy D.
Terrell

Success
from Satisficing and Imitation: Entrepreneurs’ Location Choice and Implication
of Heuristics for Local Economic Development by Nathan Berg

Explaining
Persistence in Cost Efficiency Indices by Michael
Langemeier

Offshore
Voluntary Disclosure Programme Reopened by Richard Duke

Doping:
Never-ending story? Never-ending glory? by Frank
Daumann

RSS Feed for Video

Video

Drugs:
The Good, The Bad and The Ugly by Mark Thornton

Speaker Panel
by Mises
Institute

War and the Fed
by Llewellyn H.
Rockwell Jr.

The
Real Fiscal Cliff: How to Spot the Ledge by Peter Schiff

Answering
the Same Old Arguments Against Sound Money by Thomas E. Woods,
Jr.

The
Fed, the FDIC, and Other Problems by Joseph T.
Salerno

Inner
Workings of the Fed by Peter G.
Klein

How
Crony Capitalism Corrupts the Free Market by David
Stockman

"Man is not, like the animals, an obsequious puppet of instincts and sensual
impulses. Man has the power to suppress instinctive desires, he has a will of
his own, he chooses between incompatible ends."

— Ludwig von Mises, in The Ultimate
Foundation of Economic Science

518 West Magnolia Avenue • Auburn, Alabama 36832-4501 • Phone: 334.321.2100 •
Fax: 334.321.2119
Contact Us mailto:[email-masked]?subject=Comment+or+Question+about+the
Mises+Institute • mailto:[email-masked]?subject=Comments+about+the+Mises.org+web+site
• Save to
MyMises • Site Map
• Open Source •