On the political right, Libertarians like to talk about how taxation is theft and on the radical left some people like to say that property is theft. They are both right in a way, but neither side really believes their own rhetoric in the usual sense of the word ‘theft’. Libertarians don’t object to driving on freeways that were paved with ‘theft’=taxes. Libertarians don’t believe that taxation is theft or they would move to a jurisdiction with a lower tax/theft rate, but very few move to Alaska where they could avoid all state taxes. Imagine if thieves predictably robbed you by force every single year for thousands of dollars because of the house that you live in (property tax), you got held up every time you went to the store (sales and excise tax), and you even get robbed simply for working (income tax). That sounds like a very bad neighborhood to live in. I have lived in high-crime inner-city neighborhoods, but as far as I know, none of my friends and neighbors lost more to private theft than they paid in taxes (a couple people were murdered in the neighborhood, but that was not a property crime and I didn’t know them). A neighborhood with large amounts of actual theft has very low property values. Taxation has a completely different effect on property values. States and cities with high taxes tend to have high property values, so markets clearly don’t think taxation is the same thing as theft. People care about the amenities that their tax dollars buy, not about the absolute amount of taxation. High taxation is correlated with high public amenities whereas high theft is correlated with low public amenities.
A property right is the right to exclude other people from a property. It is the ability to restrict the freedom of any or all other people from enjoying some qualities of the good. This is one reason that leftists say that property is theft. It is the theft of others’ freedom. But leftists don’t object to all property rights any more than libertarians object to all taxes.
Last week I dialoged with a libertarian who considered property rights to be natural and taxes to be immoral theft. But taxation and property rights are both based upon exactly the same moral standing. Both are based on government force. If property rights are moral, then so is taxation and vice versa. And neither property rights nor taxation exist without government in the usual sense of the concepts.
Here is a stylized history of government, roughly based on Mancur Olson’s story. In the state of nature (anarchy), roving bandits steal as much as they can from everyone they encounter.* In anarchy, property rights and the level of taxation are far from ideal. Anarchy is so bad that the honest farmers would prefer to ask one of the strongest bandits to settle down and become a stationary bandit because that would end anarchy. A stationary bandit would want a monopoly on theft and keep the other bandits away. This is easier for the bandit because it reduces his travel costs and a willing population is easier to steal from. There is also going to be more to steal because the farmers will invest more in their production if the theft rate is less uncertain. In this way, warlords became dictators (or monarchs) and this is better for both the farmers and the bandit. This is how theft becomes taxation. But in the same manner, property rights are created. In anarchy there is so much predation that nobody wants to invest in creating surpluses (property) because property is too likely to be stolen. Why bother? Property rights don’t exist if property can be stolen by anyone who has stronger force, so there is no point creating property. And markets are pointless if one can get goods by using weapons (which are necessary for defense anyhow) and avoid giving any goods in exchange.
A stationary bandit (dictatorship) is an improvement over anarchy because the theft becomes taxation. Taxation is predictable and whatever is not taxed is secure from theft. That security is what becomes a property right. Property rights are, in effect, the residual after taxation is taken. In complete anarchy, everything could be taxed/stolen at any time, so there are no property rights. Taxation is really just a predictable theft and it creates property rights by limiting the amount that is stolen/taxed. Libertarians like to talk about limited government, but government always places limits on itself out of self interest. Even a dictator needs to limit the taxation rate to stay on the productive side of the Laffer curve. Simultaneously, taxation makes possible the institutions that protect property from all the other bandits out there. No taxation, no protection, no property–except for stuff that nobody wants to steal. Your collection of boogers might be safe even without taxation, but your property rights over it will evaporate if it can be ransomed for something else that is worthwhile.
Taxation begets property rights and rights beget the creation of property itself. Without property rights, there is no incentive to create property. The security of property rights gives individuals the incentive to create property and to invest in greater productivity. The dictator has an incentive to limit his tax/theft rate because he wants individuals to increase their productivity in order to grow his economy and get richer in the future. Furthermore, the dictator has an incentive to invest in the public goods that will increase the productivity of his people. Why else would a megalomaniac like Saddam Hussein spend so much of his money on roads, public health, and education for his people when he could have spent the money building more palaces and statues of himself?
So property rights and taxation have the same ethical foundation as one another. The above parable seems to put them both on a social contract foundation, but that is a mistake. Social contract theory produces fictional histories that are appealing to the human desire to understand the world through story, but it is more common in history for a strong warlord to simply take over control of a region and because the resulting dictatorship is a more productive social system than anarchy, dictatorships tended to expand and take over regions of anarchy anywhere that was productive enough to produce tradeable (and stealable) goods. You rarely see any kind of large-scale social contracts until the spread of mass democracy over the last century.
Property rights (and taxation) have rarely been produced through social contracts. They were imposed by the ruling class. For example, Hammurabi’s code produced the first know written guarantee of property rights, but it was imposed by a dictator without asking the consent of all his subjects. According to Mancurian theory (explained above) Hammurabi decided that he could grow his economy and wealth faster by committing to property rights in writing, thereby assuring his people that they could invest and produce without fear of capricious loss. And perhaps he was also motivated by noblesse oblige and he thought that his people would be better off too. In either case, this was no social contract with any consent of the governed.
The three other major ethical systems that could provide a basis for property rights and taxation are consequentialism, deontology, and virtue ethics. Many on the political right like to assert that there is property rights come from a deontological system like natural law. But they are wrong because property rights cannot be natural when they did not exist for most of the millennia of human existence. The best ethical foundation for property rights and taxation is consequentialism because that is the only way to explain how ideal property rights and taxation could change over time as technology and institutions change. Deontology and virtues do not change with technology, but consequences do change. And this is why consequentialism is the best way to explain the moral foundation for property rights and taxation. Property rights and taxation create better consequences for society than are possible in their absence.
There will always be a struggle to determine what are the optimal property rights and taxation schemes. That ongoing struggle cannot be informed by deontological rules, virtue ethics, nor contract theory because the optimal rights and taxation will continually change with technology and institutions. Virtues and ‘natural’ laws do not change with technology and institutions, but consequences do change dramatically and so do property rights and taxation. The payroll tax would be infeasible without computers, and intellectual property rights are brand new compared with the full scope of human history. But many other property rights are also quite new on the big timeline of human existence.
For example, what could be a more basic property right than the ability for individuals to buy and sell land. And yet this is a relatively new institution in human history. This basic property right still has not reached much of the world. Hernando de Soto claims that there is $10 trillion of “dead capital” that is de-facto owned by poor people and squatters around the world who do not have the de jure property rights. Thus they cannot formally sell it nor use it as collateral and their property is more vulnerable to expropriation. De Soto persuasively argues that formalizing their property rights would have beneficial consequences for them and increase economic growth generally. The people in these lands have never previously thought that it was natural nor virtuous for individuals to have the formal property right to buy and sell the land that they live on, but people are increasingly persuaded by de Soto’s arguments which promise good consequences.
Similarly, when Kennedy cut the top tax bracket from 91% down to 70% and when Reagan cut it from 70% down to 28%, they justified these changes by promising good consequences for the nation. The problem is that they were promising good mutilitarian consequences. They promised that it would be good for the economy, which has been measured using GDP and similar derivitives for about 80 years. It is debatable whether the consequences really were good for the economy as measured with GDP, but we really need a better kind of consequentialism for guiding our property right and taxation policies. A simple improvement would be to focus more on median consumption rather than GDP. That could help guide our economic policies better.
*Note that there is very little to steal in hunter-gatherer societies, and such low population density, that there was probably fairly little theft. However, there was a tremendously high amount of violence according to much evidence such as compiled by Stephen Pinker. Utopians have long imagined that primitive human societies were peaceful, but if only a tiny 1/2% of a population is sociopathic they will mess up everything for everyone else and it is probably much more common that that. Because there was little to steal in hunter-gatherer societies, there was little need for government. Societies were pre-tribal and rule was based upon authority within kinship structures that rarely exceeded Dunbar’s number of 150. Even simple tribal government only began when societies began to produce enough surplus that there was potential for theft and taxation. It is only the potential for theft that creates the desire for property rights and taxation.