On the Purpose of Tax

‘If we start by assuming that we raise taxes to pay for certain services that are by their nature collective (vg the police) and to pay for certain things that some people are unable to provide for themselves (vg education, health), then we need to determine what those things cost and what is the most effective (and fair) way to raise that money...’

...is more or less how a thousand essays, articles, blog posts and academic conversations have started over the years, before going on (mostly) to get thoroughly confused about what they want and what it might cost and who should pay and what the effects would be. I’ve done it myself more than once.

The problem with this statement as a premise for argument is that ‘we’ are not the ones raising or spending tax, and those who do so are not assuming any such thing. From the point of view of those who set taxes the purpose of tax is to control the people.

I’ve never been certain whether more people use power to get money than use money to get power, but they are very closely linked, whatever the exact truth. By using the power they have acquired by some means or other, politicians, bureaucrats, tyrants and despots of all stripes will take as much of your money as they can get away with, they will tax anything that moves or that doesn’t, if possible in several different ways. Their first love is liquidity because it’s easiest to get their hands on, which is why income and trade are always taxed very highly- it’s nothing at all to do with equity, efficiency or justice- and their second passion is goods whose demand is inelastic to price change, which is why around 80% of what you pay for alcohol, cigarettes or petrol goes straight to the treasury. You thought it was about protecting our health and saving the planet? Well, it isn’t. These things are taxed so highly because we buy them anyway.

They tax us because they can, so we will have no illusions about who’s in charge. Rulers love to tax because they can stop other people from getting above themselves, becoming too powerful, and can punish anyone who looks like getting uppity (look at how death duties destroyed most of the great fortunes and estates during the early part of the 20^th C, and the owners of them thought they were part of the ruling class). They love tax because it makes them wealthy, and it gives them money to pay their supporters, and, when necessary, their armies.

Some, like the bureaucrats who run the EU and the benighted left in general, love tax because they can use it to experiment with their social policy. Thus we hear a lot about unfair tax competition, that crazed notion that all taxes should be harmonized in case a part of one country’s economy should become more successful than that of another country. Utter lunacy, but this is how these people think.

Tax policy has nothing to do with raising the amount necessary for the provision of essential services and nothing, either, to do with real fairness. The thing to remember about politicians, at all times, is, they are not doing it for you.