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Thursday, August 30, 2007

The Fallacy of the Tax Protester

I've been reading the webpages and arguments of the various income tax protesters. The arguments come down to two main points. The first is "Income taxes are morally wrong". The second is "Income taxes are legally wrong."

However, most tax protesters miss out on the most important point. If you don't pay income taxes, the government will use force to take away your stuff or send you to jail. The government has far more resources than you. It has to make sure that anyone who doesn't follow its rules is punished. Even if you are morally or legally right, the government can still harass you, confiscate your stuff, imprison you, or waste your time.

As long as only a small number of people refuse to pay taxes at any given time, it is practical for the government to crack down on all of them.

Let's consider the first argument: "Income taxes are morally wrong." I agree with this argument. Unfortunately, its legal validity is zero. Income taxes are wrong because they effectively enslave people. With an income tax rate of 50%, that means that 50% of all economic activity is confiscated by the government. It's a huge disincentive to engaging in productive activity.

The income tax means that people cannot work without permission from the government. Everyone is a slave.

The income tax is immoral because it gives value to the dollar, which is intrinsically worthless. A dollar has no inherent value, except that the government demands I give it dollars in exchange for permission to conduct economic activity. The value of a dollar is thus proportional to the government's income tax collection ability. The value of a dollar is proportional to the government's spying capabilities. If there were no income tax, the dollar would have no value at all. People would switch to alternate monetary systems. Any reasonable system you can think of is better. The income tax is the reason none of them are used. Anyone who attempts to operate a private monetary system is shut down by the IRS.

The fundamental problem with income taxes is that all economic activity must be reported to the government. If two people want to make a private transaction, it should be none of the government's business. However, if the people have economic gain from the transaction, then the government claims that it is entitled to know about the activity and tax it. This creates a huge adversarial relationship between the government and its citizens.

Most of the time, taxes are collected in a manner that's transparent to the taxpayer. Payroll taxes are automatically deducted from your paycheck. The government even tends to overwithhold so people get a tax refund. This gives people the illusions that the government is giving them money when they get a refund, when in fact it is merely a partial return of stolen property. When you purchase something in a store, the sales tax is automatically added to the bill and paid by the store owner. Again, this makes the tax invisible to the average person. All corporate taxes are passed on to the average person in the form of higher prices.

What the tax protesters do is they say "Aha! I can arrange my financial activities in a manner so that I don't have to report them to the government." They can do this by performing barter transactions, although barter is tricky because it isn't commonly used. They can do this by various trusts or dealing primarily in cash. Eventually, though the government's spying apparatus, their activities are discovered and they are imprisoned or their assets are confiscated.

Then, the tax protester is forced to use the second argument. "The income tax is legally wrong." However, courts typically disallow tax protesters from making this argument in front of a jury. The courts kind of have a weird point. If some people were able to stop paying income taxes, the dollar would become worthless and the entire economic system would unravel. I think that such a fragile system deserves to unravel. Hopefully, it can be reformed in an orderly fashion.

There is another possibility. A large number of people could do substantial barter transactions and not report them for taxation. The government's power would be reduced by that amount of untaxed economic activity. As long as no dollars change hands and no records are kept, it would be very hard for the government to track the barter activity. This would weaken the government's power. At some point, the unreported economy might be bigger than the reported economy. At that point, the unreported economy could effectively hire security services to protect it from the government. That would be the end of the government, because then everyone would start seeking the protection of the private security organization instead of the government. A private police force is preferable to a government-mandated police force. In cases of suspected abuse, people would shop around for alternate vendors. This scenario is the hope of an agorist revolution.

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