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A Romantic Fallacy

Taxation Fixation

by SHELDON RICHMAN

In the debate over avoiding the “fiscal cliff”—especially over whose taxes should and shouldn’t be raised—I detect an annoying attempt to romanticize taxation. I read this as an act of desperation on the part of those who want higher taxes on the wealthy, for there is nothing romantic about taxation.

The other day MSNBC’s Chris Hayes invoked Franklin Roosevelt in support of higher taxes on the top 2 percent. Pulling out all the stops, Hayes quoted from one of FDR’s October 1936 campaign speeches, in which Roosevelt said:

In 1776 the fight was for democracy in taxation. In 1936 that is still the fight. Mr. Justice Oliver Wendell Holmes once said: “Taxes are the price we pay for civilized society.” One sure way to determine the social conscience of a Government is to examine the way taxes are collected and how they are spent. And one sure way to determine the social conscience of an individual is to get his tax-reaction.

Taxes, after all, are the dues that we pay for the privileges of membership in an organized society.

As society becomes more civilized, Government—national, State and local government—is called on to assume more obligations to its citizens. The privileges of membership in a civilized society have vastly increased in modern times. But I am afraid we have many who still do not recognize their advantages and want to avoid paying their dues.

Hayes is impressed that Roosevelt was willing to say this just weeks before election day. When did taxation become a dirty word? Hayes wondered.

Let’s not get carried away. To say that “in 1776 the fight was for democracy in taxation” is misleading. Yes, the revolutioners objected to taxation without representation. But it hardly follows from this objection that they looked on taxation with representation benignly. There is every reason to think they would be appalled by the national, state, and local tax regime we labor under today, particularly income taxation, complete with IRS inquisitors. One need only look at the causes of Shays’s and the Whiskey rebellions to gauge early Americans’ attitude toward the taxman.

Roosevelt’s claim that we can judge the social conscience of the government by how it collects taxes is true in a way he could not have imagined. Contrary to FDR and Justice Holmes, taxes are neither a price (in the voluntary-transaction sense) nor club dues. On the contrary, they are exactions by threat of violence. Some social conscience! How ironic that organized society and civilization itself are said to depend on the government’s threatening peaceful people if they fail to surrender their property as demanded by politicians who presumptuously and self-servingly claim to “represent” all the people.

Far from some enlightened institution, taxation began when conquerors realized that formal and continuing appropriation of a subject population’s wealth was preferable to hit-and-run pillaging. For this to work, however, the rulers needed to convince the peasants that the regime would protect them from predators in return for their regular remittances. That’s right: It was a protection racket, from which the racketeers and their cronies profited handsomely. For the taxpayers, there was little choice in the matter. They weren’t buying protection as people buy insurance in the market, and they weren’t paying dues as they would later pay dues to mutual-aid societies. They paid or they were punished. The ideology of benevolent state protection reduced enforcement costs because the ruled outnumbered the rulers and widespread tax resistance would have doomed the regime. Things have changed little in our time.

Roosevelt’s shameless self-serving posture is clear in this line: “And one sure way to determine the social conscience of an individual is to get his tax-reaction.” We are expected to believe that someone who objects to surrendering his money to politicians and bureaucrats lacks a social conscience—as though we need them to exercise generosity. The long bloody history of government militarism, brutality, destruction, duplicity, exploitation, and economic havoc provides ample reason for reluctance accommodate the voracious politicians.

“As society becomes more civilized,” Roosevelt said, “Government—national, State and local government—is called on to assume more obligations to its citizens.”

Note the passive voice “is called on.” Who called? Again, in light of the nature of government, there’s supreme irony in asserting that we need more of it as society becomes more civilized. One should expect the use of aggressive force to diminish as society evolves.

At times people have favored bigger government, but this hardly proves FDR’s point. Typically the demand for government action followed crises—real or imagined—created by the government in the first place. Take the Great Depression. With the economy in shambles, the public supported government relief, and the Hoover and Roosevelt administration were happy to oblige. But the economic catastrophe was the government’s doing. The central-bank-engineered boom of the Roaring Twenties ended, as sound economics teaches, with a bust, and a mere recession became a Great Depression through official mismanagement and corporatist intervention—complete with a variety of tax increases.

The systematic exploitation of crises (again, real and imagined) to increase the intrusive power of government is best documented in Robert Higgs’s classic, Crisis and Leviathan. Recommend this book to anyone who sees politicians as knights on white steeds riding to our rescue. As someone else put it, government is good at breaking our legs then making a big show out of distributing crutches.

Even if one believes there is no alternative to taxation for the provision of security for life, liberty, and property, one still should want to keep taxes low and transparent, since government itself is always the biggest potential threat to those values. As Adam Smith put it, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”

None of these considerations are nullified by our current fiscal debacle. On the contrary, one may see in it the very template Higgs describes in his book. Politicians spend and borrow because it is in their political interest to so, and when the inevitable crisis comes, they propose to seize more resources from the industrious rather than shrink government back to a less threatening size.

Contrary to what they say, the fiscal mess did not result from a failure to tax. Our problem is the politicians’ irresistible temptation to spend–other people’s money. If you don’t believe it, have a look at this OMB chart posted recently by Ed Krayewski at Reason.com. Revenues went up starting in 2004 (after the tax rate cuts) until the Great Recession set in. Spending climbed in good times and bad.

As Ron Hart points out, Bill Clinton’s balanced budget contained spending of $1.7 trillion. “Adjusted for inflation, our federal government would be spending $2.3 trillion today and collecting $2.5 trillion in ‘revenues,’ resulting in a $200 billion surplus. But instead of increasing government spending in line with normal inflation, under Bush and Obama we are spending $3.8 trillion today. Democrats, who believe we have a ‘revenue’ problem instead of a ‘spending’ problem, must also think they have a bartender problem, not a drinking problem.”

Republicans are hardly better. They talk about a spending problem, but they rarely act as though they believe it. If they did, they wouldn’t be fretting over the automatic (and meager) cuts in the Pentagon’s outrageously bloated budget under sequestration. They’d be calling for more, considering that the U.S. government now spends more on the military than it did during the Cold War.

There’s nothing romantic about taxation, and the patriot appeal is chicanery. Those who say otherwise are, wittingly or unwittingly, mere stalking horses for politicians looking to do more mischief.

Sheldon Richman is vice president and editor at The Future of Freedom Foundation (www.fff.org) in Fairfax, Va.