“Across the West, it is the biggest expense in anyone’s life, costing more than a house, a car, a pension, or an education: the cost of the state itself. Government does so much – and we accordingly must pay so much – that it has now grown to become, pretty much wherever you are in the developed world, the most expensive purchase you ever make over the course of your life.” – Daylight Robbery
Indentured servitude was a common practice in the seventeenth and eighteenth centuries as European immigrants, anxious to make their way to America, had little money to spare. Therefore, in exchange for work, more than half agreed to forgo wages in their new country until the terms of their contracts were fulfilled.
Today, compulsory taxation makes servants out of us all once again. By 2022, the United States Tax Freedom Day didn’t fall until April 18th, when indentured service to the state ended, and workers began to keep their salaries for the first time that year. In fact, over a normal working career, the average American taxpayer will work for 15-20 years without a salary to fund their government.
The role that government plays in a society determines how long a worker must pay for that burden. If the government is structured to fund Constitutional limits such as armies, police, courts, and various infrastructure projects, the amount would be greatly reduced. However, the more promises made by politicians, the more money they will likely need to fulfill them. Every whim from free college, to healthcare, warfare, welfare, and education extends US Tax Freedom Day.
The choice for Americans lies somewhere between the opportunity for wealth creation and the demand for wealth equalization and distribution. More money left in the hands of citizens will bring more prosperity, freedom, happiness, and yes, inequality. At the same time, higher taxes reduce economic growth by pulling money out of creative endeavors and reallocating it to make work jobs and other public consumption, as the government tries to make everyone more equal. In the private sector, a rising economy rewards the best and brightest based on merit. Under government, politicians and bureaucrats reward people based on politics.
In Dominic Frisby’s 2019 book, “Daylight Robbery”, British financial writer Frisby, tells the tale of taxation throughout history, and the negative consequences that followed. While pernicious taxes brought about both the Magna Carta and the US Constitution, neither has been able to satiate government power since. Using Hong Kong as a case study, Frisby advocates for a system free of tariffs, subsidies, and sales and VAT taxes, where high earners are taxed at a maximum rate of 15 percent. As one of the most consistently rich nations in the world, Hong Kong's government of limited interventions have led to a country superior in education, healthcare, and transportation.
In earlier times, congregants voluntarily tithed a proportional percentage to their churches while using friendly and mutual aid societies to cover basic needs, like healthcare, education, and welfare. In America, the government originally financed debts through public land sales and tariffs. Then despite an earlier ruling by the Supreme Court that made income tax unconstitutional, the 16th Amendment was passed in 1913 making it permanent and mandatory, at times progressive, and at others, regressive. As is true in every case, the income tax started low and for a few, before accelerating as it drew in more and more people, at higher rates. Since the income tax doesn’t provide enough income to cover the government’s expenses, debt and inflation make up the difference. As time went on, taxes and control shifted from local, and state authorities to a more centrally planned federal system, ending with the ungovernable behemoth we have today.
There are several consequences to taxation that affect behavior, both good and bad. For example, cigarette taxes may cause some to quit smoking but can also lead to illegal imports. One of the biggest effects of high taxes is the incentive to avoid them, whether through the hiding of assets or simply through transfers to more tax-advantageous financial vehicles. Since taxes create lower growth, and in turn, lower profits, where one chooses to live can be consequential. As jobs become more mobile, moving from high-tax cities, states, and countries to lower-tax alternatives can alleviate some of the ill effects. When taxes are fair and low, and the people feel they have a voice in how they are used, earners are less likely to seek evasion, as the cost of avoidance can be high. Ironically, finding the sweet spot between compliance and avoidance has resulted in more tax receipts for the government, not less.
Fortunately, complaints about taxes may become less important as traditional brick-and-mortar work is replaced with gig workers. Tech companies, including Amazon, Airbnb, and Uber, have little overhead and as a result, lower corporate taxes. With fewer employers acting as tax collectors, government income is greatly reduced. As a result, we get the dual benefit of economic growth with government shrinkage, all without casting a single vote. Another positive development is cryptocurrency, a trillion-dollar industry, that operates outside government control—and government manipulation. As crypto becomes more popular, more payments and transactions will be made outside the government’s fiat money supply, significantly draining their influence.
The income tax ushered in the era of big government. By robbing the government of their primary means of support, their power and control can be greatly reduced, returning freedom and prosperity once again to the people.
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