A month ago on the “closed system” thread, faced with the claim that Objectivism is “a system of interconnected principles which are immutable, which cannot tolerate any contradiction, otherwise the whole system is collapsed”, I countered with two points that I thought amounted to reductio ad absurdum. The first concerned Rand’s definition of Art, and perhaps we can have another thread for that. The second concerned voluntary taxation, I wrote:
To my surprise, the only reply I got embraced the absurdum with both arms.
Just what does “collapse the system” mean, anyway? Reason and Egoism are toast if it turns out that Government can’t be financed by voluntary means?
And yes, if government cannot be financed voluntarily, if some initiation of the use of force by the government is required for its existence, then yes, Reason and Egoism are toast and Objectivism fails as a philosophy, as a system of system of interconnected, immutable, non-contradictory principles.
All I could say was “Wow”. Then today I was looking through the “Why eliminate controls gradually” thread and find the tenor of the discussion hovers on the premise that taxation could end if enough people just agreed to eliminate it.
A bit about me, I’m a CPA, and I have a Master’s degree in Taxation. I remember mentioning this to Andrew Bernstein once, and he sort of squinted at me suspiciously, until I said “if I told you I was studying psychology would you assume I was in favor of mental illness?” Study of tax policy and its history plays a fairly minimal role in earning such a degree (one course, in my case), instead you learn about legal research and procedure, and then there are courses on each of the main branches of tax: corporate, estate, partnership and so on. How taxation worked in the Roman Empire or feudal Europe is barely touched on, but after an independent study of history I feel confident about making general statements on the matter.
Following are some passages from Rand’s article, Government Financing in a Free Society, in The Virtue of Selfishness:
In a fully free society, taxation—or, to be exact, payment for governmental services—would be voluntary. Since the proper services of a government—the police, the armed forces, the law courts—are demonstrably needed by individual citizens and affect their interests directly, the citizens would (and should) be willing to pay for such services, as they pay for insurance.
The question of how to implement the principle of voluntary government financing—how to determine the best means of applying it in practice—is a very complex one and belongs to the field of the philosophy of law. The task of political philosophy is only to establish the nature of the principle and to demonstrate that it is practicable.
Please note the last sentence, she is claiming that voluntary government financing is practicable, and implies that she will show that it is. One might go so far as to say she hasn’t grounded her theory of Government until she has. But does she do this? I say no, and I’m going to critique each of the specific “suggestions” she offers.
But first, a general observation: compulsory taxation has been a feature of every Government in recorded history. If you know of a contrary example, please share. The most enlightened rulers in history have lowered taxes, or reformed the means and bases of taxation, however, over thousands of years of recorded history no system of voluntary taxation has yet been invented. Is this for lack of will? Taxation has always been one of the principle causes of political unrest, wouldn’t the ruler with a truly innovative, henceforth pain-free way of financing the functions of Government be swept into office or onto the throne?
I don’t think I’m engaging in hyperbole when I say, pardon some cribbin’ from Edward Gibbon, the invention of such a system would be a “singular event in the history of the human mind”. I’m of the view that it can’t be done, and if this makes me the last devotee of Ptolemy before the Copernican revolution, I’ll be happy to wear posterity’s dunce cap.
The closest example I know of is the United States under the Articles of Confederation. Pre-Constitution, the federal government didn’t have the power to impose taxes, and following the Revolution the soldiers went unpaid. Robert Morris, who had fronted their pay out of his own pocket, expected to be paid back. Requests were made to the states, and the money didn’t materialize. The unrest this caused, possibly orchestrated by him, was a factor leading to the replacement of the Articles of Confederation by the Constitution, under which the federal government does have the power to tax. We easily could have had a second revolution instead.
Back to Rand:
The choice of a specific method of implementation is more than premature today—since the principle will be practicable only in a fully free society, a society whose government has been constitutionally reduced to its proper, basic functions.
There’s a glaring chicken vs. egg paradox (contradiction?) here, how can the society be fully free if compulsory taxation is still in place? What’s worse, she doesn’t indicate why the implementation of a new form of Government financing must come so much later.
From there she moves on to her three “illustrations”, a lottery, a stamp tax, and insurance on credit transactions. The problem with a lottery is obvious, how would the Government’s lottery compete with private gambling? Is there any reason to think Government sponsored gambling will have a competitive advantage? Granted some people voluntarily accept a lower return on war bonds, but how many gaming tickets will patriotism sell in peacetime? One may as well suggest the Government engage in any other kind of business, say, pornography or prostitution or raising chickens. Rather than belaboring the point (by all means, it can be discussed further), I conclude that without a ban on private gaming, this idea is a nonstarter.
Next, the stamp tax. She doesn’t call it that of course, but she describes a system where contracts have to registered (including a fee) with the state in order to be later enforced by the courts. She allows that this registration is optional. I don’t believe it takes much imagination to visualize a system similar to our current credit rating bureaus (or Dun & Bradstreet or even the Better Business Bureau) that could compete with the Government in providing private arbitration. The Government’s advantage is the ability to initiate force, but a bad mark with D&B could easily put your opponent out of business without the Sheriff coming to padlock the door. It’s all a matter of cost, if a private system is more economical, naturally the Government’s fee revenue is going to dry up.
Finally, there’s insurance on credit transactions. The argument against the stamp tax applies here mutatis mutandis, and is even easier to visualize since the system is already in place. It’s rare for credit card companies to sue for nonpayment, since borrowers can avail themselves of bankruptcy and the cost of litigation is typically more than is worth the lender’s while to pursue. So, deadbeats get bad credit records, then no one will extend them credit; that’s the way the system works, and Government’s role nowadays is mostly to hamper this system (see Fair Credit Reporting Act etc.). In her presentation of this idea, Rand adds the (chilling?) observation that the current system amounts to a “subsidy” from the Government; given that the banks involved pay taxes under the present system (corporate tax, etc.), one wonders why she put in this hint that something unfair is currently going on.
Is there a fundamental reason why voluntary taxation can’t work? I see a common problem running through each of Rand’s illustrations. I’m happy to concede, for the sake of argument, that the legal system can be self supporting. The trouble is that police and especially armed forces can’t be. This means that under a voluntary model tied to services whatever income is produced from the legal system side has to cover the cost of the other two functions. Therefore, the prices that must be charged for the voluntary services can’t, in principle, compete with free market alternatives.
Wrapping up, here’s Rand again:
In order fully to translate into practice the American concept of the government as a servant of the citizens, one has to regard the government as a paid servant.
And to add my own view: one must recognize (and reconcile?) the paradox that even “good” government sustains itself by coercive means, and these means have to be maintained under carefully defined controls and limitations. “Eternal vigilance”, “a republic if you can keep it”, etc.