Death by Taxes: Legal Plunder

In the article “Death by Taxes: A Sordid History” we discovered how the 16th Amendment was an egregious invention of those who hold to the socialist idea of “the ability to pay”. In this article, we’ll delve more deeply into the idea that successful businesses owe their prosperity to using government provided services. Also, we will consider the moral ramifications for society as a whole and how taxation is an undue burden on the wage earner in an indirect way.

Bad for Morality and for Business

Like some sort of evil tithe to the State, all taxes are paid upfront before individuals are able to take care of the necessities of life. Unlike excise taxes, which levies a tax on such things as alcohol, tobacco, and gasoline and are elected consumables, the wage earner is compelled to pay income taxes on something that is unavoidable, specifically, his ability to eek out an existence. The income tax is a tax on your right to live. The logical conclusion of the law declares that all money derived from labor is the property of the State. This means the State has legal access to 100% of your wages if they so desire. The government decides, like a master, how much of your wages you get to keep and how much you actually need. It changes the role of an elected government from agent and principal to master and slave. Does the government work for us or do we work for the government?

Furthermore, it treats something created by the labor of individuals as something held in common. It violates the very reason for having a government in the first place. Namely, to protect private property from fraud or theft. The direct taxation of incomes turns the public into a band of thieves writ large. It legalizes theft on a grand scale. Once robbery is legalized, it pays for everybody to get involved. One congressional constituency abstaining from feeding at the public trough only means another will get that share of the loot. It transforms the very moral thread of a society by giving a wink and a nod to stealing from their fellow man. Simply by voting, the public can order the theft of his or her neighbor’s property.

Consider also that governments derive their powers from the people, the source of these powers. The people have no right to plunder one another, not even in the name of charity. Yet taxes are just that, the means by which governments plunder their citizens. How can a government justifiably pronounce the right to take, by the threat of force, another person’s property when the citizens do not have such rights and therefore, cannot delegate such right to the State?

Moreover, income taxes create a disincentive to work. Society gets less of what is taxed. In the case of taxing labor, the government discourages people from working. It creates divisions in society, namely, the “us versus them” mentality of tax takers and taxpayers. Those who pay taxes are having to finance a nanny state which ever increasingly adds to this disincentive to work. It’s a vicious cycle. Generations of Americans are now dependent on a taxpayer subsidized welfare state.

The income tax has been set up as a graduated or progressive tax. That is, the more you earn the more you should pay. This “ability to pay” idea has been around since before Sen. Brown used it as his motivation for the 16th Amendment. It is the antithesis of the theory of equality. It denies an individual’s legal status before the law as being equal by taking his or her possessions into account. It assumes that some people get rich at the expense of others because they use more of the benefits of the government. The only way this could happen would be if the government granted a special privilege that enriched another. But, since the government has no wealth of its own, in creating a special advantage for one citizen it automatically creates a disadvantage for another. These privileges come in the form of monopoly, protection, tax subsidy or tax abatement.

By so doing, the State is no longer the dispenser of justice, rather injustice. The answer is not to tax these receivers of State privilege with higher taxes. If the State does so then it is also partaking in the ill-gotten gain of those who received the privilege. It is another scheme of wealth redistribution from the poorer taxpayers back to the government, by way of those who have received some State granted advantage. To clarify this point, consider a business that receives a State provided monopoly in a certain sector in a local economy. Let us say XYZ Cable Television, Inc. By shutting out the competition, XYZ Cable can increase it’s profit margins by charging subscribers higher rates and provide poorer service. But because XYZ Cable now makes more profits it has to pay higher progressive taxes. The end result would be the government being the actual profit taker from the monopoly that it had granted to XYZ Cable Television. The actual losses are being realized by consumers and not the rich guys at XYZ Cable Television. They are merely a conduit for which the State pays itself back.

But taxing the legitimately successful business owner higher than others is still a state of disequilibrium. Some people are more industrious, thrifty or smarter than others. The wealth of a society is in proportion to the productive efforts of the individuals who make up that society. Governments have nothing to do with it. The effects of a progressive income tax discourage production. A careful analysis would show that an income tax is actually a tax on capital. It doesn’t tax what you consume but what you may have saved. That is, the income that isn’t delegated to consumption can become savings, the source of capital. Those savings may have been loaned out, at interest, to a business for capital equipment improvement or even to start up a small business. By taxing its citizens and businesses, the government is reconfiguring and impairing the capital structure of the economy.

Taking it a step further, since all wages come from production which is in proportion to the amount of capital in use, it is clear that the income tax reduces both job opportunities and wages by depleting capital investment. Moreover, taking the unseen into consideration, the goods that are not produced because of this lack of capital leads to an increase in the cost of living for the wage earner. Fewer goods being produced means higher prices at the checkout. This is how the progressive income tax hits the wage earner the hardest. What the wage earner loses out of his paycheck in taxes is small in comparison to what he loses when the paycheck is spent.

Income taxes are paid by small business owners as well. This creates another disincentive by having small businesses diverting their energy and effort into the enterprise of tax avoidance rather than business expansion. Much capital is wasted in the name of tax code compliance. Many small business owners choose to remain small to avoid paying an ever increasing progressive tax rate. They are for all practical purposes, being penalized if they hire a few more employees or expand their inventories. Simply put, the progressive income tax on small business owners stunts economic growth.


This installment only scratches the surface of how the income tax is immoral and puts a drag on the economy. By pondering the unseen consequences of taxing wages, capital and production one could easily imagine how much better off the whole of society would be without this form of legalized plunder. I’ve used this quote from Frederic Bastiat before, but it is so appropriate that it needs repeating,

“Everyone wants to live at the expense of the State. They forget that the State lives at the expense of everyone.”

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