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There are so many theories, myths and fallacies about taxes, that we deemed it necessary to clarify this situation. Taxes and myths is what this article is all about.

It is not possible to argue about taxes without first taking a look at their legitimacy, or lack of thereof. If something is not legitimate, this is, agreed upon by people in a straightforward and commonsense manner, without subterfuges or lies, it is then illegitimate.

Taxes derive from the power governments yield over their people. Governments are, as a matter of fact, the supreme authority from where all other authorities derive. This is how the current world operates, whether you like it or not. We have multiple objections to this point of view, but we will limit ourselves to only two: one theoretical and one practical.


Theoretical objection

We have mentioned this objection in several other lectures; however, it is worth repeating it again. It is quite simple. We, the people, are born with freedoms. In order to coexist we voluntarily agree not to exercise some of them because this would interfere with other peoples’ freedoms. We call these remaining freedoms, rights.

A government is created because, presumably, there is some advantage in having a unified and centralized authority to manage certain affairs. How centralized and which affairs is a matter of argument, which is not relevant to this point. A government is a theoretical construct. It has no physical body; it is not born and it does not die. Therefore, a government has no freedoms and therefore no rights. In order for a government to have certain authority, this authority must be received from somebody with a freedom, since authority is simply the capacity to restrict freedoms by force. These somebody are the members of the people. People grant privileges to governments. A privilege is the capacity to do something, subjected to the will of the donor.

I can let you borrow my car or not. Borrowing my car is a privilege and I, as the car's owner, can cancel that privilege at any time.

And so, governments have privileges which may be canceled by us, the right holders, at any time. However, governments act in the opposite manner. They behave as if they are the freedom and right holders and we, the people, the privilege receivers. This is a gross theoretical mistake.

Governments have privileges, we have rights. Government authority extends only so far as we grant them privileges to do so.

Taxation is nothing more than theft supported by the threat of violence. Either you pay taxes or people with badges and guns will come and throw you into jail.

However, taxation being a forceful imposition, is understood as coming from a superior right holder, the government. At least, this is the legal interpretation. The only way in which taxation is not theft is if the government has rights and we privileges. In this manner, governments deny us the privilege to retain all our income, which makes it legal.

But, as we have seen above, we have rights and governments have privileges. Privileges can never trump rights, therefore the inescapable conclusion is that taxes are illegal and therefore illegitimate.


Practical objection

Even if we could somehow overcome the theoretical problem (and we can’t see how), we have a practical problem to deal with. The existence of governments assumes the idea that there is a contract between the people that agree to have a government and be regulated or controlled by it. In other words, the existence of governments needs a valid social contract.

However, as we have seen in Social Contracts Are A Scam there is no such thing as a valid social contract. Without a valid social contract, there is no valid government, and without a valid government, there is no legitimate tax. Yes, it is that simple.


Tax classes

All taxes are illegitimate. There is no doubt about that. However, they exist and they are imposed onto us, based on a myriad of “real-world” arguments. Is it possible that even when they are illegitimate they are there “for the greater good”? Are they necessary to provide benefits to society? Are they “progressive”? Are they practical although illegitimate?

In a single word: NO!

It is these arguments that we are going to study next.

In order to make this study easier, we are going to separate taxes into classes. In essence, there are seven types of taxes. To prevent crossing into semantic battleground, we are going to define them as follows:

  • Progressive Taxation (income): the more you earn, the higher the percentage of your earnings you pay as taxes. For example, if you earn 1000 you pay 5%, if you earn 10.000 you pay 12%.
  • Proportional Taxation (income): everybody pays the same percentage from their earnings in taxes. For example, if you earn 1000 or 10.000 you always pay 5%.
  • Regressive Taxation (income and sales): the more you earn, the lower the percentage of your earnings you pay as taxes. For example, if you earn 1000 you pay 12%, if you earn 10.000 you pay 5%. Regressive taxation can use progressive or proportional methods to calculate taxes.
  • Fixed Taxation (income): everybody pays the same amount of money in taxes regardless of income. For example, if you earn 1000 or 10.000 you pay 500.
  • Consumption Taxation (sales): everybody pays the same percentage of the sale prices. There are many types, but two are the main ones: Sales Taxes and Value Added Taxes.
  • Inflationary Taxation (sales and income): hidden tax that occurs when governments create money out of thin air.
  • Exotic Taxation: these are taxes that have been implemented in few places or have been proposed but not implemented such as Voluntary Taxes and Negative Taxation respectively.

We will now take a look at different myths that surround those types of taxes.

Note: the following parts will make use of the same statistical concepts developed in the lesson Austrian Economics In Pictures.

Note: please see the Glossary if you are unfamiliar with certain words.

Continue to Taxes And Myths - Part 2


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