Taxation is important. The American Revolution was fought over tax issues; in particular, that they were being taxed without having representation in Parliament. I agree with the sentiment, both that taxes are necessary, and that it is immoral to tax someone if he has no say in whether a particular tax should exist or whether a service that a tax pays for should exist. So let's talk about taxes. What is are the characteristics of a moral tax code?
The Morality of Taxation
Let's ask first whether it is moral to tax. Anthony, over at the Dream Lounge, has on many occasions written that an income tax is a violation of man's right to life; that by virtue of government forcing one to pay taxes by threat of violence, government is subjecting man to coercive force. It's an interesting premise, because on the surface it seems pretty logical. Choice is the means by which we preserve our life, so restrictions on choice are bad since we take life as our standard of value; a premise that I have put forth in this post. In the case of taxation, forcing someone to pay tax by threat to life is an example of a restriction on choice. Makes sense, no?
Here's the problem with that logic: one exercised his right to choose when he chose to live in a particular country. His living in that country is a tacit acceptance of a contract with his government. Violating that contract is a threat of force against that government; in the case of taxation, not paying taxes is stealing. One had passively agreed to the terms of the law by residing in the country, and then he consciously disobeyed the law. To be more specific, the contract he violated states that he gets protected by his government's army and police force, gets to drive on public roads, an option for free schooling, etc; but in return he must adhere to these rules, one of which includes paying taxes. Not holding up his end of the contract is a form of stealing his government's services. The only time that force can be used is as a defense against the initiation of force by another party. Stealing is an initiation of force, so his government is free to respond with force in the form of bringing him to jail at gunpoint.
Creating A Moral Tax
Hopefully the above point is clear and agreeable. If not, feel free to comment, but for the purpose of the rest of this post, we are going to accept that taxation is moral. Of course, whether taxation is moral is a different question from whether taxation on income is moral. We'll get there. But let's first talk a little about the process of creating a moral tax.
Taxation Axiom #1: First you justify the expense, then you come up with the money. If there were no market failures, there would be no need for government. Since there are market failures created as a result of life being of infinite value, government needs to be as big as is required to smooth out these failures. Government seeks to maximize GDP, which means keeping as much money in the pockets of individuals as possible while maintaining efficient markets. This means that government cannot tax first and figure out how to spend money later. It must identify the market failure, come up with a solution, and only then should it figure out how to pay for the agreed upon solution.
Taxation Axiom #2: The most effective tax is one that varies as a positive function of the market inefficiency. For example, you tax alcohol in a way that causes the revenues from alcohol use to pay for mitigation of the externalities (like accidents as a result of drunk driving) associated with alcohol use. The idea being that if some independent factor causes an increased incidence of the behavior (drinking), then the revenues should increase with that increase in behavior such that they cover the cost of regulation incurred by government.
Taxation Axiom #3: Tax policy during times of fiscal deficit require different policy from times of budgeting balance. In times of budget balance/surplus, the singular purpose of government is to maximize long term GDP. There are times when taking on debt is necessary to this end, and in such times, there may be occasions when the long term maximization of GDP requires a short term decrease. These are the times of budget deficit.
Applied Taxation Theory
Taxation is simple enough when the budget is in balance or surplus. You tax in order to cover the expenses of government, and leave the rest of the money in the market. If this were actually followed, there would never be a situation during which we would find a deficit that continuously grows every year with no specific long term GDP purpose.
As it stands in the United States, though, we have dug ourselves quite a hole. We spent and still spend money that we do not have, and don't really have a plan to fix it any time soon. I've heard various figures quoted with regards to how big the national debt will get before we again balance the budget at our current spending levels, but they are all upwards of four times the current national debt.
The question of spending is not particularly relevant to this post, but suffice it to say that there are some easy ways to stop spending so freaking much, like ending our wars, legalizing drugs and prostitution, getting rid of all agricultural and energy subsidies across the board. The question of revenue is relevant though. One party in particular has taken the idea that taxes should never be raised to the point of it being a religious idea. The reason for the confusion is simple; there is no understanding of the "why" in the conversation. Since government is supposed to be long term GDP maximizing, there are times when it may be advantageous for a government to be temporarily profit maximizing. This then becomes a rational discussion, specifically "what does the Laffer Curve look like" and where do we currently lie on it? That, my friends, is a debate for economists to discuss, not politicians.
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