Why Taxation Is Unnecessary

The super-rich on both sides of the Atlantic are appealing to their governments to tax them more to aid those less fortunate than themselves. The truth is, all taxation is totally unnecessary.

On BBC’s current affairs Newsnight programme last night, there was a big debate about this issue which included contributions from Tory heavyweight John Redwood. At first glance it sounds good, doesn’t it? Those who have enormous, vulgar, obscene wealth – them - should share it with those who have little or nothing – us. All very admirable. On August 14, billionaire Warren Buffet wrote an extraordinary Op-Ed in the New York Times in which he opined:

“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks...My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice”.

If Mr Buffet feels so strongly about helping those less fortunate than himself, he can simply give his money away. For example, in Sacramento earlier this year there were around 1500 people living in ONE tent city. If he were to give each of these people $10,000 that would cost him $150,000,000, which surely he could afford, and if his other wealthy friends did the same, they could solve homelessness in America.

Buffet’s friend Bill Gates had a similar idea – actually, Mr Gates had it first, it was he who converted Warren Buffet to philanthropy. Mr Gates and his good lady Melinda decided they wanted to set up a foundation to give away their wealth to help the poor, with a strong emphasis on developing vaccines, which is, or sounds, admirable, but did they really need to build a $350,000,000 campus in Seattle in order to do this? Gates Foundation employees receive excellent remuneration and benefits, and the organisation has many other expenses too. Okay Bill, it’s your money, and you are free to spend it how you choose; we won’t mention the tax exemption angle here.

Leaving aside conspiracy “theories” about Mr Gates trying to control the world, the guy is actually doing something worthwhile, but does taxing the rich do anything worthwhile? Well, in the first place, just as the Gates Foundation has built a palatial campus with its private money, so do governments build palatial offices for their tax collectors, paid for out of our taxes. Furthermore, tax collectors have Draconian powers in order to pursue their victims, which is not so bad when their ire is directed at a small number of super-rich, but it never stops there. In Britain, income tax was first levied by the government of William Pitt the Younger; it was supposed to have been a temporary tax to pay for a war against Napoleon – he was the famous Frenchman who went around with his hand down the front of his trousers saying “Not tonight, Josephine” – unlike Dominique Strauss-Kahn. Napoleon died in 1821; did income tax die with him?

The average house price in London is now around £350,000. That means that a man who owns three properties – a developer say – may well be a millionaire on paper. In fact, the man who owns your local corner shop may well be a millionaire, again on paper, but he has much bigger overheads than Joe Sixpack; in addition to his family he may have staff to pay as well as business rates, and maybe a mortgage on his shop as well as on his house. Taxation aimed at the super-rich always finds a way to trickle down to the rich, then the middle classes, then everyone. There is though, a massive folly in believing a wealth tax can solve all our problems. Allow Miss Rand to explain; this is from her essay The Inverted Moral Priorities, which was published originally in the Ayn Rand Letter, July 15, 1974.

“The percentage which the rich spend on personal consumption is so small that it is of no significance to a country’s economy. The money of the rich is invested in production; it is an indispensable part of the stock seed that makes production possible.”

She continues, the major part of the country’s fortune is in the middle class – as it is, but this is where it gets interesting:

“If an average housewife struggles with her incomprehensibly shrinking budget and sees a tycoon in a resplendent limousine, she might well think that just one of his diamond cuff links would solve all her problems. She has no way of knowing that if all the personal luxuries of all the tycoons were expropriated, it would not feed her family - and millions of other, similar families - for one week; and that the entire country would starve on the first morning of the week to follow. (This is what happened in Chile.)...No one tells her that higher taxes imposed on the rich (and the semi-rich) will not come out of their consumption expenditures, but out of their investment capital, (i.e., their savings); that such taxes will mean less investment, i.e., less production, fewer jobs, higher prices for scarcer goods; and that by the time the rich have to lower their standard of living, hers will be gone, along with her savings and her husband’s job...”

She concludes “...the businessman’s profits are the only protection of her home, her family, her life - and that if the erosion of profits were to force businessmen out of production altogether, the only alternative would be a ‘nonprofit’ industry run by the government...” as happened in the Soviet Union, from whence she fled to the Promised Land as a young woman.

Ayn Rand died in 1982, but she must be turning in her grave to hear Warren Buffet espousing this sort of nonsense, so no, taxing the super-rich is not the answer, but a far more fundamental question should be raised, namely, is taxation necessary at all?

Broadly speaking, the government, any government, has three ways of raising money. It can make it, either physically – the coin and note issues – or create it as credit. It can borrow it – and repay these loans with interest – which is why Greece is in such a state at the present time. Or it can tax it.

Taxation is the method preferred by Libertarians, ie limited government, tax and spend, don’t build bureaucracy, etc. The problem is that taxation reduces the spending power of us all. Furthermore, taxation is both everywhere and cumulative. You pay National Insurance (a form of tax) and income tax on your earnings; you pay tax on your car, tax on your petrol; then there is VAT. When you shop at the supermarket, the supermarket is paying tax, the tin of beans you buy is taxed – the importer pays tax; the company that cans it pays tax, and so on.

Of the above methods, the cheapest by far for any government is to do what the banks do, create credit at the stroke of a pen. Clearly if too much credit is created, prices will rise dramatically (inflation), but if in a highly technologically advanced society credit is created in precise amounts, it can be spent into circulation without causing havoc. Every government has or should have the sovereign right to create its own money. The banks have been doing this recently after a fashion with Quantitative Easing, but rather than creating new money, QE creates new debt.

The big question is if this solution is so simple, why has it not been used before? Followers of Major Douglas, the founding father of Social Credit, believe it is to condition us psychologically. Followers of David Icke and Alex Jones, well, best not go there.

Whatever, it is clear there is far too much taxation already, we do not need any new taxes on anyone, but the really big question is, if the whole world is in debt, who is the creditor? Because for every debt there is both a debtor and a creditor, and the money owed by the debtor is always precisely the same as that owed to the creditor. Any other proposition is silly. Furthermore, if this debt of nations has been whipped up out of thin air, then there should be no obligation – legal or moral for us to (re)pay it, which is why the banksters and their front men got into such a pother over the possibility of a Greek default which could lead to a domino effect that would – not cause another world recession – but collapse the entire debt-based money system and thereby liberate us all.

[The above op-ed was first published September 1, 2011.]

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