This is the article that, in April 1994, set off a raging controversy regarding the morality of taxation in the pages of Full Context.
Ayn Rand's position on government financing -- that taxation is by nature theft and that government is best financed through purely voluntary means -- sets her apart from almost all other political thinkers. This is, however, a double-edged sword for Objectivists. The good news is that hardly anyone else takes a stand on the issue, so that we've got the field all to ourselves. The bad news is that the Objectivist position on government financing can be a source of embarrassment or befuddlement, and is often held up to those new to the philosophy as an example of its extremism and lack of concern for "the real world". In addition, the issue of voluntary financing has little "resonance" with normal folks. Who cares about voluntary vs. coercive financing when there are so many more pressing issues facing the polity -- who, that is, except ideological wackos with (hide the children!) libertarian leanings?
Even among those of basically libertarian principles (and despite what your opinion is of the Libertarian Party, the Objectivist political theory must be classified as libertarian, though perhaps with a small "l"), the issue of voluntary financing is usually considered one of the last that must be dealt with in the progression towards a free society, not one of the first. Rand herself, for example, in her 1964 essay "Government Financing in a Free Society", writes that voluntary financing "will be practicable only in a fully free society, a society whose government has been constitutionally reduced to its proper, basic functions."
Leaving aside the question of how any society can be "fully free" under a regime of forced taxation, I want to challenge the conventional Objectivist wisdom about voluntary financing of government. If voluntary financing is so crucial to liberty, then what are we waiting for? Do we want to wait for the arrival of a virtually libertarian society before we introduce what Rand seems to consider "the last reform"? Why don't we find a path to tax freedom that we can embark on now?
In this essay, I propose just such a path, one which may not appeal to all (or even any) Objectivists, but one which I believe can move us closer to the day when government will be financed through fully voluntary, non-coercive means. Read on.
Not so long ago, George Bush (remember George Bush?) floated the idea of a check-off on your income tax form, by which you could dedicate up to ten percent of your income tax exclusively for deficit reduction. This modest proposal contains the germ of what I call choice-based taxation: the ability -- the right -- to assign your taxes to whatever governmental services you deem most important.
The idea for full-blown choice-based taxation came to me on witnessing the June 1990 elections in Czechoslovakia, in which 96% of the electorate cast their votes. Weeks before the voting, each citizen received in the mail an election packet that included one-page descriptions of each of the 24 political parties and its program -- advertisements, if you will, though they could include only text. Each citizen had weeks to reflect on the positions of the parties and decide which candidates to vote for.
Well, this bright idea, so respectful of the minds of the voters, set me to thinking: What if you and I were so respected as taxpayers? What if you were supplied with an information packet along with your tax forms, and could decide which government departments or services you wished to support with your tax money? Just think: each department is required to come up with a one-page summary of what it has accomplished recently and why its programs are so important to the people of the nation, and you get to allocate your tax money among those departments or services that seem on reflection to be most worthy of your support. Right there on the old 1040, you would have the final choice about the percentage of your taxes you wanted to assign to each department.
One of the beauties of such a choice-based taxation scheme is that it co-opts the income tax, which every self-respecting lover of freedom despises. I believe that we can turn the income tax, which is in essence a way of punishing the creation of wealth, into a weapon against the state. If "the rich" (successful businesses and the individually better-off) do pay most of the taxes in this country, then don't they deserve to have more of a say in how that money is spent? Given all the talk about tax fairness, we need to ask: is it fair to soak the rich and give them little or no say in what is done with the money that is taken from them? The old adage "He who pays the piper calls the tune" not only does not hold true in the realm of government -- in the United States today those who pay the piper are being forced more and more to play the tune, through increased regulation. This state of affairs isn't fair, and it's about time someone (namely, Objectivists) said so.
Furthermore, assigning your taxes as you wish has an impeccable "democratic" or old-line liberal ring to it: after all, is it not right that you be allowed to decide which functions of government you want to support with your hard-earned money, especially if you are morally opposed to foreign aid or national defense or government subsidies for art or whatever? Who could argue with the principle of choice, applied even to taxation and fiscal matters?
Another beauty of choice-based taxation is that it takes the fundamental power of government -- the power of the purse -- away from our so-called representatives, at least in part. That portion of federal revenues derived from income taxes (currently around 35% from personal income taxes and 7% from corporate taxes) would lie beyond the power of Congress. Furthermore, everyone would be aware of the percentages assigned by the people to the various departments, which would make highly suspect any effort by our "representatives" to allocate the funds at their disposal in wildly different percentages.
There is no guarantee that you or I would like the resulting percentages. What if the people in their wisdom vote for more welfare, more farm supports, more government-supported art, more spending on environmental regulation? That outcome is entirely possible, but then again it is entirely possible that the people would vote less money for the NEA and the EPA, and more money for such basic functions of government as defense and criminal justice. Given the priorities of the average American vs. those of the average legislator, I know I would rather entrust fiscal decisions to the people.
A focus on such results looks only at the short term, however. In the long run, a radically democratic financing system will reintroduce the one principle capable of eradicating coercive government at its root: the idea that government exists to serve the people, and not the other way around.
In these days of government of the Congress, by the Congress, for the Congress, we have lost sight of the fact that government exists to serve the needs of the people -- that government is a service. Where do all our taxes go? Into government services: justice, defense, welfare, farm supports, national parks, foreign aid, and all the rest. You or I may not like them all, but they're all services provided by the government. Yet who is making the choices about these services? Not those who are served, but our so-called representatives. No wonder it seems more and more that the federal government serves not the people but the Beltway establishment.
Beyond the democratic pedigree of a choice-based taxation system could lie a path towards fully voluntary government financing. For, once we establish the principle that it is services you are paying for with your taxes, then slowly we can push the idea that it is right for you to pay only for the government services from which you feel you benefit, and only to the extent that you benefit from them. That is, we will be able to establish that even paying taxes is fundamentally not an example of forced expropriation but of voluntary exchange of mutual value between consenting parties. At that point, there will be no need or justification for the government to set required levels of giving (such as a flat 10% of income, say); instead, levels of giving will be left to the discretion of the individual, and government financing will be fully voluntary.
I believe that choice-based taxation may also provide a way to reduce government to what Rand called its "proper, basic functions". One mechanism for doing so would be the privatization of government-sponsored businesses and charities such as the Postal Service, the NEA, foreign aid programs, public television, and the various welfare programs. In performing such services, the government is in direct competition with private businesses or private charities. In order to privatize these government-run services, they might be given privileged status on tax forms for a few years, meriting a check-off box or a line for contributions to charities that are making the transition to private status. Another mechanism might be a cut-off point for assigned percentages of income: any government service that garners less than 5% of voluntarily paid taxes must be phased out or privatized within 5 years, for example. Another might the opportunity for false-advertising suits against departments of government that engage in activities other than those touted in their annual income-tax blurbs!
Much fine-tuning remains to be done in order to come up with a viable proposal for choice-based taxation. But I believe the principle is clear. Let me illustrate it, finally, with an analogy. We have all heard the venerable American saying about service in the free enterprise system, "Customer is King". Visualize to yourself the day when we will be able to say, with the same confidence in the ultimate power of the citizen-consumer, "Taxpayer is King". That day will be the result of a long-fought battle, but I believe it is a day that we can earn and expect, and that will come to pass.
Until that day, however, we would do well to bear in mind another old adage: Caveat Emptor.