A Forced Labor Theory of Property and Taxation
The Philosophy of Tax Law (Oxford University Press 2016), Forthcoming
33 Pages Posted: 4 Feb 2016 Last revised: 9 Feb 2016
Date Written: February 3, 2016
One of the great accomplishments of civilization is to force its members to work and save more than they otherwise might. It does this, first and foremost, through property law, which restricts the access of ordinary members to the necessities of life unless they work. In exchange, civilization facilitates the accumulation of social capital, making work more productive and life ultimately more pleasant. Property deprives humans of their natural liberty to hunt and gather. Taxation permits civilization to make payment for this deprivation and justify the resulting forced labor. This is civilization’s grand bargain.
The foregoing theory, if true, has at least two important implications.
First, in Anarchy, State, and Utopia, Robert Nozick famously asserts that “[s]eizing the results of someone’s labor [e.g., taxing them] is equivalent to seizing hours from him and directing him to carry on various activities.” This, he claims, is illegitimate. He intends, of course, to apply this claim only to explicit taxation. But to the extent my theory is true, he must perforce assert that the grand bargain upon which civilization is based is itself illegitimate. I assert, to the contrary, that the uneven distribution of property rights without the creation of social capital is theft, and that taxation, explicit or implicit, facilitates the creation of such capital.
Second, optimal tax theory is based in part on the assumption that the amount members would work and save in the absence of tax maximizes preference satisfaction and therefore welfare. To the extent tax distorts such choices, the argument goes, it is welfare-reducing. But taking only half of the grand bargain as one’s baseline is intellectually incoherent. It is the essence of that bargain to change mankind’s natural preferences with respect to work and savings. My theory, if true, implies, among other things, that: (1) lump sum taxation is not welfare-maximizing, (2) taking distributive consequences into account in structuring non-tax law is not necessarily welfare-reducing, (3) income from capital should be taxed at the same or higher rates as income from labor and may be so taxed without reducing investment in social capital, and (4) optimal tax theory claims founded on the assumption that taxation is inherently distortive – for example, Harberger’s tax deadweight loss conclusion or Mirrlees’ conclusion that progressive marginal tax rates reduce welfare – require significant qualification.
JEL Classification: D31, D63, H21, K11, K34
Suggested Citation: Suggested Citation