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 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 none of my friends and neighbors lost more to private theft than they paid in taxes (a couple neighbors were murdered, but that is not a property crime).
A neighborhood with large amounts of actual theft has very low property values. Taxation has a completely different effect. 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 in high tax cities like San Francisco and New York, not about the absolute amount of taxation. High taxation is correlated with neighborhoods that have high public amenities whereas high theft is correlated with neighborhoods that have few public amenities.
Libertarians don’t behave like they really believe that theft=taxation because ordinary theft is emotionally traumatic and few libertarians fear taxation nor do they even take the simple step of moving to the jurisdictions with the lowest tax rates. They don’t object to driving on freeways that were paved with ‘theft’=taxes nor to calling the police whose salaries and guns were paid for by ‘theft’=taxes.
What is a property right?
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 a good in some way. This is why leftists say that property is theft. It is the theft of others’ freedom. But leftists don’t behave like they think that all property is theft. They are typically willing to call the police to protect their private property from theft too. And most leftists don’t want to eliminate all property rights any more than libertarians want to eliminate all taxes whereas both would probably agree that they both want to eliminate all theft by the ordinary sense of the word.
Although I haven’t personally met anyone who claims that property is theft, I have met a lot of people who have claimed that taxes are theft including my sister. 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 these concepts.
A history of government, property rights, and taxation
Here is Mancur Olson’s stylized history of government. The story begins in the state of nature which is anarchy. There is no government and roving bandits steal as much as they can from everyone they encounter.* In anarchy, both taxation and property rights are minimal. There is no taxation because there is no government but neither are there property rights because outsiders keep raiding and stealing anything they want including sex and slave labor. Anyone was vulnerable to being kidnapped and forced into slavery.
Anarchy is so bad that honest farmers would prefer to ask one of the strongest bandits to settle down and become a stationary bandit because that would end the unpredictable predations of anarchy. A stationary bandit would want a monopoly on theft and keep the other bandits away. This makes life 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 arrangement 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 comes along with more coercive 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 thereby get something for nothing.
A stationary bandit (a 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 if nobody else wants it, then there is no point fussing over a property right because the definition of a property right is the ability to exclude others from a good.
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 because he can and because his self-interest results in a dictatorship because that is more productive for him than his life in anarchy. And because dictatorships are more productive than anarchies, they had more economic resources to build armies and conquer neighboring regions of anarchy if those regions were productive enough to produce tradeable goods (which are the same thing as stealable goods).
Although democracy can produce something like a social contract, property rights (and taxation) have always pre-dated democracy and were originally imposed by the ruling class. For example, Hammurabi’s code produced the first known written guarantee of property rights, and it was imposed by a dictator without asking the consent of his subjects. According to the Mancurian theory explained above, Hammurabi must have 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 taxes or other liabilities. 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 consent of the governed.
There is no guarantee that government will achieve better outcomes than anarchy. For example Walter Scheidel argues in his book, The Great Leveler, that the people of Somalia are better off since the collapse of its central government because their government had been so terrible and he claims that Somalia is in a state of anarchy.
Although Somalia is closer to a state of anarchy than any other region on the globe today, I wouldn’t categorize it as anarchy. Many call it warlordism in which there are many small-time dictators who rule over individual city-states and rural counties. Although there is violent competition between different warlords, there are not rampant roving bandits who steal everything as in anarchy. There is a decentralized system of small fiefdoms which extracts less taxation from ordinary people than the central government that they overthrew.
Since the rise of agriculture, true anarchy is rare and unstable because people naturally organize to align with others for mutual defense and that quickly becomes a form of political government.
The ethical justification for property and taxation
The three 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 closest possibility for a natural basis for property rights might have been if early humans lived in territorial bands, but some primates are territorial and some are not and anthropological evidence suggests that some foraging tribes are territorial and some are not, so it must not be innate. Furthermore, territorial hunter-gatherers have no sense of the territory belonging to any individual and don’t have the notion that permanent ownership could be sold or traded because they don’t understand the modern notion of property rights.
The idea of buying and selling land is a fairly recent idea in most of the world as Hernando de Soto’s research demonstrates and intellectual property rights spread even later (and are still not considered valid in much of the world). Copyright was only first invented in England in 1710. Patents were systematically awarded a bit earlier, beginning in the 1400s in Venice. But patent monopolies were different than they are today. They were routinely awarded to people simply because they were favored by the crown or to people who simply paid the crown for a monopoly and even merchandise like salt was patented, so a patent was often just a reward for political favor.
But it was (and is) a property right and it is easy to see why people would have considered it to be a form of theft when someone got the property right to a monopoly on salt.
The best ethical foundation for property rights and taxation is consequentialism because that is the only way to explain how the ideal property rights and taxation levels 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 the optimal property rights and taxation schemes are. 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 the most useful property rights and taxation. For example, governments used to rely more on tariffs because it was cheap to monitor goods coming in to ports, but that is less efficient than payroll taxes which were infeasible before computers. Similarly, most intellectual property rights are brand new compared with the full scope of human history, but they are justified because they help incentivize the creation of more ideas.
What could be a more basic property right than the ability for individuals to buy and sell land? And yet as mentioned above, 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 informal use of the land is 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 many of 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 because they 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 mmutilitarian consequences. They promised that it would be good for the economy, whichthey measured using GDP and similar derivatives. 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 this stylized history is incorrect because it begins with an agricultural society whereas the real state of nature was composed of hunter-gatherers where there was very little to steal and there was such low population density, that there was probably very little theft. Plus, foraging societies didn’t even have much notion of private property so theft was probably a very different conceptual matter than we think of it today.
However, the story gets right the fact that there was a tremendously high amount of violence according to the evidence Stephen Pinker compiled. Utopians have long imagined that primitive human societies were peaceful, but even if most people were peaceful and only a tiny 1/2% of a population was sociopathic, they would mess up everything for everyone else and even with normal people there was plenty of inter-tribal violence. There was little need for formal government in hunter-gatherer societies because there were so few people in each tribe to deal with and there was so little stuff to produce and divide up. Instead of government, tribal authority tended to follow kinship structures that rarely exceeded Dunbar’s number of 150. Even simple tribal government only began when societies began to produce enough surplus to produce significant potential for theft and trade and taxation.
Mancur Olson’s stylized history can only begin after the invention of agriculture when government first became the normal way to organize societies. It was only after humans domesticated plants and animals that wealth accumulation became the norm and with that came the potential for theft which also created the desire for taxation because that is necessary to provide the collective action that can secure anyone’s property rights. And when governments arose, they created public goods like property rights that encouraged investment and monetary systems that helped finance investments and roads which helped encourage trade and all of these things increased wealth which increased the potential for theft and the cycle continued:
Medianism 
