Every Spring, as the tax-filing season gets into full swing, a passel of anti-tax lobbying organizations attempts to scare and outrage the public by pointing to our supposedly high and oppressive taxes. Most of those organizations use the April 15 filing deadline as an occasion to inveigh against Leviathan, taking advantage of the press’s reliable desire to find tax-relevant stories for a few weeks in late March and early April.
Even after April 15 comes and goes, however, there is still some regularity in the media’s complicity in playing up anti-tax arguments. One of the most prominent annual sham events is the annual announcement of “Tax Freedom Day,” which is described as “the day on which Americans will have earned enough money to pay all federal, state, and local taxes for the year.” Although that date is, for reasons that I will describe shortly, utterly meaningless, the false date is usually computed to be in mid- to late April, allowing the lobbying group that promotes this non-event to ride the annual wave of minor interest in tax-related news, before the arrival of May flowers.
It turns out, however, that this is more than merely an annual publicity stunt promoted by a group with little more to say than, “Taxes are bad!” The notion that paying taxes is equivalent to being “forced” to work for the government, and thus that taxes force people into some form of servitude to others, is an idea that originally had a serious academic pedigree. It is no longer an argument deserving of serious consideration, mind you, but neither is it merely the brainchild of Beltway conservative hacks.
In this column, I will describe this surprisingly tenacious notion that taxes are tantamount to servitude to the government, and I will look especially closely at the academic version of that argument. It turns out that the “taxes are forced labor” argument, if it has any content at all, simply reduces to the argument that “taxes are theft.” And that old argument, in turn, oddly ends up evoking the old Marxist argument that “property is theft.”
In the end, our understanding of government and citizenship is not in any way advanced by analogizing payment of taxes to servitude. The real question, as always, is how best to set up the government to improve the lot of the people, using its taxing and spending powers judiciously. Even though we must remain fully aware that government is an imperfect creation of imperfect humans, we have no choice but to muddle along, trying to improve matters day by day and decision by decision, and rejecting extremist attacks on the legitimacy of government.
False Aggregation: Adding Up the Days That We “Work for the Government”
Before getting to the academic version of the forced labor argument, it is worth running through the basic illogic of the “tax freedom” concept, to see why it makes no sense to try to break up the year into times when one is and is not free.
A typical person is told what her “pre-tax income” is in a given year. This includes the “gross income” number on a year-end tax reporting statement, along with any money received from sources other than working (interest on bank accounts, for example). The person then computes her taxes, which amount then determines how much she keeps as take-home pay. Of course, some taxes are collected in other ways (such as sales taxes), but conceptually, the idea is that there is some amount of money that would have been “yours,” except that you were required to pay that money to the government.
According to “tax freedom” followers, it is meaningful simply to add up the aggregate tax revenues collected by all levels of government, and then to divide that number by the total pre-tax incomes that have been reported in a given year. If that ratio is 30.4% (as it apparently was this year), then one can multiply it by 365, to determine how many days of the year people “worked for the government.” This year, the announcement went out on April 21. As of that date, we are told, we can finally breathe a sigh of relief and work for ourselves for the rest of the year!
Unsurprisingly, this annual public relations charade has its critics. Among some of my tax professor colleagues, there is widespread scorn for the notion of “tax freedom.” As one colleague put it in an email: “Why not have a Food Freedom Day, when we’ve completed enough workdays to pay our costs for a year’s worth of food? Or, to meet ideology with ideology, how about a Big Oil Freedom Day or a Big Pharma Freedom Day?”
The idea, in other words, is that it is simply meaningless to say that one is working for months at a time to pay for one thing, and one thing only. One can argue about whether we spend too much on government, or on energy or pharmaceuticals, or on anything at all. But aggregating the amounts, based on this idea that we are working for someone other than ourselves, is worse than misleading, as I will describe below.
But suppose that it were meaningful—or, at least, nothing worse than taking poetic license for maximum argumentative and political impact—to add up all of the money that we pay in taxes, and then to express that as a date on a calendar. Even then, we would know only half of the story, because we are also receiving services from all levels of government throughout the year as well.
In 2014, for example, it turns out that the officially measured military spending by the United States government is 22% of the total federal budget. Would it make sense to announce a “no more military protection day” on the 80th day of the fiscal year, as if we are not receiving military protection on any of the remaining 285 days in the year? It makes sense to pay taxes on an ongoing basis, after all, because we receive services from the government every day as well. And even when we do not feel as though we are benefiting from government’s existence, we are the beneficiaries of a country whose prosperity is based on a system of government that protects the rule of law.
Of course, not all of the spending is actually beneficial. If we could somehow go back in time and refuse to spend the trillions of dollars that we wasted on the second Iraq war, for example, polls show that most Americans would be more than happy to do so. But that is a question of cost-benefit analysis, not of gaining “freedom” on a certain date from having to pay for our former leaders’ mistakes.
The (Expired) Academic Legitimacy of “Tax Freedom” and “Forced Labor”
All of the above, however, could be merely dismissed as yet one more example of the low level of political argumentation that has become the signature of the American activist right. Regrettably vapid, to be sure, but hardly any different from conservatives’ shouting angrily about climate science, or health care, or any other highly salient political issue.
In fact, however, the purveyors of the idea of “tax freedom” are riffing off of an argument that was advanced by the late libertarian philosopher Robert Nozick. In his most famous work, Anarchy, State, and Utopia (1974), Nozick argued that income taxes are “on a par with forced labor,” because they force a “person to work n hours for another’s purpose.”
Although Nozick himself later repudiated the philosophical approach that led to that conclusion (without repudiating a more general kind of libertarianism), many of his followers have refused to accept their hero’s repudiation of this key idea. With or without Nozick, therefore, we must still confront an argument that taxes (or, in this more narrow rendering, income taxes) amount to forcing people to work.
This supposedly forced labor, again, is measured by the “n hours” that one must work for someone else’s benefit. Although Nozick and his followers did not convert that idea into a date on the calendar, the idea is the same, amounting to something like this: “If I work 2,000 hours in a year to earn $100,000 in gross income, and I pay $30,000 in taxes, then I have really worked 600 hours for the government and 1,400 hours for myself, to be able to take home $70,000.”
But the most natural meaning of the term “forced labor” is that the laborer has no choice but to expend her labor, that is, that some external power is giving the person no alternative but to work. That is what makes it forced. But that completely misrepresents the reality of how taxes, and especially the income tax, affect people’s lives. There is simply no forced labor involved, for at least four reasons.
First, if a person is currently not working, perhaps because she is retired, or sick, or wealthy enough not to need to work, the income tax cannot force her to begin to work. She would only owe income taxes, after all, if she started to earn an income. And if she does not want to do that, the income tax law cannot make her do so.
Second, if a person is currently working, the income tax cannot stop her from quitting her job. The income tax will be owed on the income already earned, but no additional income tax will be owed if one stops working.
Third, a person who is currently working cannot be prevented from reducing her work hours because of the income tax, for the same reason that it cannot prevent her from quitting outright.
Fourth and finally, the income tax cannot prevent a person from changing jobs. A person who finds her job unfulfilling is completely free to seek out and, if offered, to accept another job in a different line of work. Nothing about the income tax changes that.
In short, the income tax does not force a person to work any number of hours (or at all), or to work in any particular way or on any particular kind of job. If a person faces a tax rate of 30%, then the very most that one could say (even ignoring the other logical errors in this argument) is that every minute that she works will be both “for” herself and “for” the government, in a 70/30 ratio.
There is, however, a different possible meaning of the word “force,” to which paleo-Nozickians might appeal. As I will discuss presently, however, this alternative definition is merely a re-branding of the old idea that “taxation is theft.”
Is Taxation Theft, or Is Property Theft? Could It Be Both? Or Neither?
As I noted above, there is nothing about the income tax that forces a person to work, prevents a person from quitting work, or forces her to work for certain amounts of time or on certain jobs. But, one might nonetheless argue, by reducing the take-home pay of the citizen-worker, the income tax in effect forces her to work more than she would otherwise like to work, in order to have at her disposal any given amount of take-home pay.
In the example above, for instance, one could repurpose the word “force” to mean that the person who consumed $70,000 worth of goods and services was only able to do so by producing output worth $100,000, meaning that she was forced to work longer than would otherwise have been necessary. If she were happy to live on $70,000, then without a government to take away her (presumptively legitimately earned) salary, she could have worked 30% less than she did.
As an initial matter, of course, this merely brings us back to the cost-benefit reasoning that I described earlier in this column. The citizen pays $30,000 to the government, but she receives benefits from the government, too. Some of those benefits (farm subsidies, Medicare coverage, and so on) are measured annually in dollars. Others, such as police protection and the enforcement of property rights, are built into the social contract so deeply that they cannot confidently be measured with any accuracy.
Even though those broader benefits cannot be measured precisely, however, we know as a matter of certainty that they add up, in the aggregate, to more than the total amount that citizens pay in taxes. How can I be so confident about that claim? Because we know that a world without a government would be one where the person in question would not have a $100,000-a-year job in the first place. No government, no economy. That everyone consumes more than they would without a government means that the government more than pays for itself.
That is not, of course, the same as saying that any government is as good as any other. There are surely ways that the U.S. could improve its economic performance, by changing the tax laws (such as by collecting more in taxes from wealthier citizens, to reduce the deleterious effects of inequality) and altering its spending laws (such as by increasing funding of early-childhood nutrition and education programs). But even in our current imperfect state, the government more than pays for itself.
Which brings us, finally, to the most unexpected aspect of this discussion. If the “forced labor” argument is really a claim that a person could have had more take-home pay, if only the government had not collected so much in taxes, then this is no different from the argument that taxation is theft. The government, under this argument, takes from the people the fruits of their labor, and it leaves them with the choice of making do with less, or working more to make up the difference.
That argument, however, invites us to think about all of the reasons that people find themselves with less take-home pay than they might otherwise have received. Governments’ actions might be one reason, but surely there could be others. If someone, or something, is taking the fruits of some people’s labor, then those workers must perforce be the victims of theft.
The government, in other words, is hardly the only entity that could steal the fruits of people’s labor. If a worker is generating $150,000 in net profits for her employer, but the employer is paying her only $100,000 in salary, then the employer is stealing the fruits of her labor (unless one simply assumes that employers always deserve to be paid the difference between revenues and costs). The employer’s property rights, as enforced by the government, allow it to steal from the workers.
One can disagree with that old Marxist-inspired argument, of course. Many people do, and I find it to be sometimes illuminating, but generally beside the point. The point here, however, is that the forced labor argument ends up being nothing more than the argument that taxation is theft, in a different guise. And that argument in turn opens up the old question about exploitation of labor by employers, not governments.
That seems an odd philosophical foundation on which to base the modern anti-tax movement. But if we are not free because the government’s tax collections force us to work harder than we might, then we are also not free because our bosses’ pursuit of profits forces us to work harder than we would otherwise need to work. And under a system in which businesses are not all owned by workers, that would mean that we are never free at all.