Taxation Isn’t Only Theft, It’s Destruction

Jon Alternative Media, Economy, Government

Where the state is, there is the power to tax; for rulers cannot rule without taxation. As Ludwig von Mises wrote: “The funds that a government spends for whatever purposes are levied by taxation.” Or as Murray Rothbard put it: “All state actions rest on the fundamental binary intervention of taxes.”
Where the state is, there also is the growth of the state. Why does a state’s scope enlarge? One theory is that interest groups seek to use the state’s taxing power for their own benefit. I would like to suggest a complementary theory. When the power to tax is conferred upon rulers, many harmful incentives necessarily are conveyed with it. These encourage the rulers to expand their destructive acts.
Incentives Purposeful action involves choice among alternatives. Choices embed incentives (rewards) and disincentives (costs), both of which can be monetary or non-monetary. Consider, for example, the Crown’s provision of justice in medieval England. Convicted felons were typically hanged and their goods forfeited to the Crown, although the King might pardon a felon who agreed to serve in the Royal army. This incentive structure motivated the Crown to convict felons, because for each conviction the payment was either the felon’s property or use of the felon as a soldier (the incentives). The Crown faced disincentives too, not only out-of-pocket costs but also disloyalty, disaffection, loss of reputation and resentment, if it wrongly convicted innocent people of felonies.
Under this incentive structure, the Crown likely displays a marked enthusiasm for arresting and convicting felons (and perhaps non-felons). The incentive structure also induces the Crown to change the laws so as to define more crimes as felonies. If this dynamic sounds similar to the case of police and municipalities in the United States benefiting from the seizure and forfeiture of goods and the resulting expansion of crimes subject to seizure and forfeiture, that is because it is.

This post was published at Ludwig von Mises Institute on December 9, 2016.