The Absurdity of Taxing Individual Effort

Taxation is one of those issues that is rarely questioned in a fundamental sense. We are born. We are taxed. We die. That appears to be the attitude. But taxation is a function of government and government is a matter of public habit and acceptance.

We were all born into a world where people pay tax. No one fundamentally challenges the system because that's the way it has always been. Sometimes people put forward various reforms, but no one seriously puts the whole taxation issue under a clear spotlight.

Let me first make my own position crystal clear. I consider taxation to be immoral. Taxation is the forced appropriation of another's rightful property - as money earned is a result of one's personal effort.

Taxation cannot be likened to payment for goods and services, which is the result of a voluntary transaction. No, taxation is compulsory and you have no say as to how your money is to be used.

Discussing various forms of taxation is a worthless exercise without discussing the fundamental premises on which taxation rests. So I'd like to look at just one of these premises, which form the foundation today's modern tax systems, and expose the stupidity of it. The Premise I'm talking about is that taxation of individual effort is a viable way to raise revenue for the state.

Consider this: If you work (expend effort) then you will pay tax. The harder you work (more effort), the higher the rate of tax you will pay. This is known as progressive taxation.

The statements above form the basis of all income tax systems. So to make this whole tax thing (and its underlying premise) clearer, let's consider the principle of taxing individual effort, and the logical consequences. And to do this, let's move tax into a different realm - not work, but sport.

Okay, here's the deal: You're invited to become a member of a world-class sports team. It doesn't matter what, take your pick: football, baseball, cricket, rugby or basketball. You are presented with the contract, which offers you a certain amount of money under the following conditions: Each time you win a game a percentage of your winnings will be deducted. The greater the win - the more will be deducted. If you win the whole season and come out as top team, then each player will have a further lump sum deducted.

So, what would be your response, apart from thinking 'what an absurd contract'?Well, part of you wants to win because that's the competitive nature of the sport, and the main reason you're involved. However, because of the financial penalties for winning, you'll always be mindful of the fact that if you're too successful, then you'll only receive a small percentage of your earnings - after the success tax has been deducted.

The natural consequence of trying to play competitive sport under those tax conditions is that you will have a conflict of interest! And, as a result, you'll be tempted to take the middle road, with not too much success and not too much failure, to satisfy your need for both money and self esteem.

Madness you say? Why on earth would anyone tax sporting success? Wouldn't that lead to overall mediocrity in sporting performance? Wouldn't that lead to people consciously undermining their best sporting effort? You bet it would! Well, this is the very same principle that is applied to the "sport" we call work.

If you put in years of effort in order to get a good job - which pays a higher than average salary - then you will be penalized for that effort, by having to pay more in tax. If you spend your evenings planning a business, in order to quit your low-paying job and finally make more money, then the reward for your initiative and effort will be that you'll pay more in taxes.

So the rules of this game are: The less you work, the less tax you will pay. The more you work, and the more successful you are, the more tax you will pay. If you don't work at all, you will receive bonus payments (welfare or negative tax).

I put it to you that this is the ultimate recipe for economic failure and decline. For who in their right mind will work harder or smarter when they know they will be penalized for it? And that is the essence of the current tax system. It creates a huge barrier to initiative and effort, the very things that should be encouraged. That is the nature of the society we inhabit - one where your best effort is penalised.

Now this is entirely legal, but is it moral? Of course not! You wouldn't consider it moral if applied to sport, so why consider it moral when applied to work?

No wonder people are always looking out for ways to avoid taxes, by doing cash work, not reporting extra income, working in the so-called black market, banking offshore and generally trying their best to hang on to what is rightfully theirs. And if you have any self respect it's the obvious, common sense thing to do! Remember, there is a distinction between what is moral and what is legal. They are certainly not always the same thing.

Okay, you might be thinking, but what about a flat tax or a sales tax? Well, a flat tax would remove one element of a corrupt and perverse system - the payment of an increasing rate of tax for increased effort. But it in no way addresses the fundamental issue of the absurdity of taxing individual effort. A flat tax is still the taxing of such effort, but on a level playing field.

A sales tax is certainly different and taxes consumption?), instead of effort. This would have certain macro-economic advantages, in that it would encourage people to save and be frugal. It would encourage people to stay home and watch TV, instead of going out for a night on the town. A sales or consumption tax is more likely to support a culture of savings and not act as a block to individual effort.

Of course, the naysayers would criticize a consumption tax on the grounds that it would penalize the poor most. And that's probably true. If a guy earning $100,000 a year manages to save $25,000 and spend the rest, he is clearly ahead of the person on $25,000 a year with no savings and not enough money to even enjoy life.

However a flat tax and a consumption/sales tax are both beside the point. Yes, either one would be an improvement on the means by which the state currently finances its operations, but this would hardly impact on the underlying immoral foundation of any tax system - that it is money expropriated by the threat of force.

You might ask, "where is force a factor in a sales or consumption tax - seeing as my income is not being taxed, and I'm not being forced to buy anything?"

Well, there's two answers to that question: first you cannot get by in life without buying something. And second, with a sales tax force is being applied to those who collect such taxes, the businesses that provide the goods and services. Under a sales tax regime it's business people who become the new tax collectors - proxies for the state. And if they refuse, then they get thrown in jail. All this does is shift the burden of tax collection from you, the income-earner, to those in business.

Whatever its form taxation is taxation and is still the forcible expropriation of someone's property without their consent. No free society can exist where such a taxation system exists. The two are incompatible. A free society can only come into being when all transactions are based on mutual agreement and contractual undertakings - both of which are entered into voluntarily.

The essence of freedom is your right to do business and enter relationships with people and systems of your choice. In other words, the all-important element of voluntarism. Anything else is just a charade.


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David MacGregor has been active in the offshore banking, asset protection and investing world since 1998 and lives the Internationalist lifestyle he writes and advises about. He operates a private information service for those seeking more personal and financial freedom, and you are invited to download his free introductory e-book entitled The Sovereign Matrix.