Tax

Tax is the method most commonly used to fund government spending. Capitalists, although firm believers in laissez-faire government, do realize that even this minimal government needs funding. However, capitalists also deplore taxation as a means to obtain this funding*. Why do Capitalists not believe in taxation? Supporters of tax often cite the benefits of government spending as reasons for taxation. This is flawed for two reasons. Firstly the ends cannot justify the means, the benefits of increased government investment cannot justify taxation, and secondly, the benefits of government spending are created through what is known as the broken window theory.

If a window were broken, then some people would see this as an economically beneficial situation, as someone now has to be employed to make a new window, someone to transport the new window and someone else to fit it. However, the reason broken windows are not economically beneficial is that the money the owner of the window used to replace the broken window with could not be used to spend on other things which would also create this employment. Therefore, government spending, whilst it undoubtedly creates employment, does so with money that would probably have been used to create employment in another area. That money is tax. As government does not create wealth, it has no right to control that wealth. By taxing and spending, the government is effectively breaking windows all over its own country.

The argument is not against government spending though, as I said before, even a capitalist Laissez-faire government needs to spend something. The argument is against tax as the source of this spending. The reason capitalists do not like taxation is because it removes freedom. When we are taxed we no longer have a say on what that money is spent. I might wish to use my money to pay for medical insurance, or to give to someone who doesn’t have any money of their own, or to buy twelve doughnuts every day. It is not what the money is spent on; it is the fact that I no longer have the freedom to choose what I believe is the best use for the money. This is why capitalists will often say that tax is immoral, as removal of freedom is an immoral act.
The UK currently gives over £30bn every year to charity, that’s very nearly £900 per year for all people of working age, or £1090 per year for all working people. If private charities can raise funds of this magnitude with government spending at 41% of GDP, imagine the level they could raise without taxation. It is also usually supposed that the government cannot be a wealth creating body. Even a Laissez-faire government could undertake profit-making enterprise in the free market in order to fund some of its operations. Also I believe, as do many capitalists that a neighborhood would be happy to donate some of its income to a government that provides protection of property rights. Another idea is to have a 1% levy on all contracts entered that the two parties wish to be protected by the nations property rights, this would fund the legal system that would then be expected to help sort out difficulties over the contract. Equally inventive schemes could be thought of for other government funding needs. The unifying theme throughout however is choice; a person must have the choice of how to use their capital.

* Whilst I believe in abolition of taxation, I realize that reform would necessarily be a slow process. Therefore I continue to fully support the proposal for a flat tax, as it is at least fairer than the current system, and is therefore a step towards the ultimate goal.