Hands off my money: is tax really yours?

Especially now that we’re in the middle of a crisis, a large part of the world is grappling with how much the state ought to help people, how much they should spend on it, and who should ultimately pay.

You don’t have to spend too long on Twitter to find examples of people complaining about the supposed high taxes of other countries and vowing that America should never become like that. A common refrain is that the Democrats want to reach into your pay check and take your money, money which is rightfully yours, which you earned.

This narrative is compelling for obvious reasons. You go out, you work hard all day, and you get paid for it. That money is paid to you only because you put in a month of work, therefore it’s yours. Then the government gets their grubby fingers all over, and you’re left with a smaller amount.

We’ve probably all seen those “taxation is theft” bumper stickers, and for the libertarian right wing, it is a strongly held belief that any sort of taxation is genuine theft. However, it’s not just the right that view taxation as the state taking something which is ultimately yours — it’s a viewpoint shared by those all over the political spectrum.

Even most left wing commentators start with the assumption that tax is money that is yours to begin with, and try to make a case that you should give up more of what is yours, for the common good.

Actually, anyone who earns less than the median wage ought to vote for as much redistribution as possible, because it could only ever result in a net benefit for them. What we have instead is millions of the poorest paid Americans voting in a billionaire who spends 3 trillion dollars of “their” taxes on giving tax cuts to other wealthy billionaires.

So to what extent is the money you pay in taxes really “yours” to begin with? I’m going to argue that it isn’t yours at all, not in any meaningful way.

“Theft” means taking something to which you are not entitled, morally or legally. Obviously the government is legally entitled to the money, that is self-evident, so we are left only to consider if the government is morally entitled to the money.

When you look at a job advert, the company lists a headline figure: the potential salary. But when you calculate if the job is going to pay enough for your overheads, you have to net that figure down to what you’re actually going to take home. If the salary is $50k, you implicitly know before you even start the job that $50k isn’t the actual amount of money you’re going to put in your pocket over the course of a year.

Even so, you tell yourself that you’re entering into a contract which says “for every hour you work, we’ll pay you $25”. But you, your employer, the government and everyone else knows that what the contract actually says is something like “for every hour you work, we’ll pay you $21 and the government $4”. That $4 was never promised to you, it’s not yours.

To illustrate this point a little further, in the UK there is a type of tax called “Employer National Insurance” which is paid over and above your salary. Currently it stands at 13.8% of earnings over £719 a month. Importantly though, it’s not deducted from your pay, it doesn’t even show on your pay stub. The employer pays it to the government separately — so if your headline salary is say £1000 each month, the employer pays an extra 13.8% of £281 to the government, which works out at £39. So it actually costs your employer £1039 per month to employ you, even though your salary is £1000.

Like I said, it’s not even on your pay stub. Your pay stub has £1000 as the gross pay, not £1039. You will however see a deduction for £25 for “Employee National Insurance” (NI), and will end up getting £975 in your pocket.

I’m sure no one could reasonably argue that the £39 in that example belonged to the employee in any sense. It’s basically a corporate tax, paid by the company per employee. It doesn’t belong to the employee any more than any other corporate tax the company pays.

However, there isn’t a whole load of practical difference between the £39 Employer NI and the £25 Employee NI. Even though the line that defines your headline “salary” is drawn to put the £25 on one side and the £39 on the other, none of that £64 was promised to you anyway. The distinction between the money paid by “you” and the money paid by “your employer” is an arbitrary and reasonably meaningless construct.

If the UK government changed the rules to merge Employer and Employee NI into only Employer NI, your “salary” in this example would be £975 per month, your personal tax would be £0, and the employer’s tax would be £64. But nothing would have meaningfully changed — you still take home £975 per month and the government still gets £64.

You could argue that morally the government shouldn’t be taking any of that money, because it’s money that the company made by profiting off of your labor, and that you deserve what the market wants to pay you for that labor. However, this argument is wrong-footed for several reasons.

Firstly, the amount of income allocated to each actor in the market is not in any sense morally just. There is no real moral argument that a football player “deserves” $200 million, but a research scientist developing the antibiotics that will keep us alive for the next hundred years “deserves” only $40k.

The football player gets paid so much more because there is a lot of money in football — millions watch and enjoy it, and companies pay big money to show those people adverts. Sure, society really values football players, but does it value them 5000 times more than life-saving scientists?

The fact that you pay tax is also factored into these mystical “market forces”. If the government was to abolish personal tax in favor of equivalent corporate taxes, it’s fair to assume that the companies wouldn’t just take it on the chin. Average salaries would likely fall over time to correct the difference, so it’s specious to argue that the government is depriving you of the full value that the market has decided that you are inherently worth.

What about the idea then that because you’ve produced the goods or performed the services, you’re entitled to maximize your income from it? I agree, but it’s overwhelmingly the company that is keeping that money from you. You can see the productivity–pay gap in the following graph:

Companies are much more efficient at making things than they were a hundred years ago — with new manufacturing processes, automation, and management methodologies, the productivity of the worker has increased steadily over the last century. Unfortunately however, the worker’s salary has not kept pace, and more money is going to the already wealthy at the top.

It’s questionable whether the vastly inflated income of the CEO compared to the worker is any sense morally justified. A CEO sure doesn’t work 276 times as many hours as a factory floor worker, and their personal impact on the fortunes of the company is debatable.

Arguably the only legitimately moral case to be made in this area is actually in favor of taxation, in order to correct the obviously unfair allocation of wealth.

There’s been a lot of talk recently about the $15 minimum wage, and whether “burger flippers” really deserve that money. The thing is, society needs people to flip burgers, scan our groceries, empty garbage cans, and clean our hospitals.

Even so, a lot of opinion and indeed government policy focuses on “opportunity” — on giving these people the opportunity to liberate themselves from menial, low-paid labor through education or training, and therefore earn for themselves a better wage and standard of living.

But we’ve agreed that they’re necessary. Surely we can’t “liberate” everyone from this kind of work or we’d have no one to do it, so if it follows that there will always be people in our society doing these jobs, does it not follow that they’re morally entitled to a distribution of wealth in which they have enough money to live?

In any case, arguing that taxation is theft is at best confused about the definition of theft, and at worst, wilful misrepresentation.

A lot libertarian criticism of taxation assumes that we live in some kind of free market wild west. But we don’t. We’re born, grow up, work, and die in the context of a state. The state interferes in the free market in all sorts of ways — otherwise our rivers would be full of toxic sludge and black people would still be freely traded commodities.

The money that you make relies on living in the context the state. Your job likely requires at least basic literacy and numeracy, skills which you learned from the state. You probably travel to work on a road maintained by the state or a railroad built by the state. In the US, there is over a 1 in 6 chance that you’re actually even employed by the state.

Even if you work for the private sector though, your job and your ability to do it exists in no small part because of the state. If there was no civil society at all, the available jobs would be hunting or gathering.

You might argue that private communities would form anyway. Private citizens in the absence of state assistance would pay money to build their village a road, and pay teachers to teach their children. They’d pay to install water and sewage pipes to their houses, and they’d pay for security guards to keep them safe.

They might even form a committee to administer it all. That committee might then say, “let’s make this easier: pay us one payment every month, and we’ll pay all the individual suppliers”.

At some point along the way, they’ve created a government, and people have started complaining that it’s “stealing” their money.