Is Taxation Theft?

In elementary school, most of us learned the simple facts of the American Revolution: America was once composed of thirteen colonies established and governed by Britain. The colonists were unhappy with the way Britain ruled over them, so they rebelled and won what we now call The Revolutionary War, or the American Revolution. Major figures of the revolution are called “Founding Fathers,” and on a hot day in Philadelphia in 1776, they got together and signed the Declaration of Independence. That is the fourth-grader’s digest of how our country came to be.

Among their many grievances, the colonists were particularly unhappy with the taxes and economic control imposed upon them by the Crown. Britain imposed copious taxes upon the colonies, which inspired one of the most famous rallying cries of the Revolution:

“No taxation without representation!”

The heart behind this slogan was against the injustice of being taxed without consent. Notice, the colonists did not say “no taxation, ever” - rather, their chief complaint was not getting a say in the fiscal policies that directly affected their lives. Taxes like the Stamp Act would be the modern equivalent of paying the government every time you sent a text, read a Substack article, or Googled something. The Tea Act of 1773 famously inspired the Boston Tea Party and similar acts of rebellion against His Majesty’s governance.

Under the English Bill of Rights, taxes could not be passed without the consent of Parliament (a type of representative government). The problem was that Parliament had no colonial representatives, so taxes represented only the interests of non-colonials. Essentially, Britain imposed these taxes as an economic recovery plan after racking up steep war debts during the 1700s. The Crown viewed its colonial subjects as an economic resource that could be taxed to death to make up a budgetary shortfall.

When this country was founded, its founders sought to establish a system in which Americans’ interests could be represented and influence fiscal policy.

Since America’s founding, the phrase “Taxation is Theft” has gained popularity among communists, anarcho-capitalists, and libertarians of various persuasions. Historically, this slogan was extrapolated from the Enlightenment-era sentiment that every individual is entitled to their own property (Locke) - an idea that significantly influenced the Declaration of Independence. The proximity of these ideas has led many to take “No taxation without representation” to mean the same thing as “Taxation is theft”.

If you believe the American Revolution was about taxes, not governance, then hating taxes is the ultimate act of patriotism. Look no further than your last paycheck’s Federal and State tax withholdings to inspire your revolutionary spirit. It doesn’t take an expert in history or finance to remark that America’s current tax system is likely a far cry from what the founders imagined. But saying “taxation is theft” begs the question:

Taxes are not an idea unique to a particular country or time period. Since ancient times, societies have independently concluded that to live in a civil society with common goods and a rule of law, there are costs. The economic slogan “no free lunches” supports this conclusion - everything has a price.

We like having a military, law enforcement, and firefighters, who make us feel safe and secure.

We like roads, bridges, and infrastructure that support the physical needs of our society.

We like having government programs for the disabled, the poor, and the elderly.

So, who pays for these common goods? We all do, in the form of taxes. None of these items could be provided without funding; none could be provided free of charge per use, and none would be adequately replaced by for-profit entities. Abolishing taxes would mean living in a society without any of these common goods.

From a finance perspective, governments are funny because there is a complete absence of exchange transactions. When you remit taxes to the government, you don’t receive a direct benefit of equal value. You cannot go out to the highway and pick out a strip that was financed by your 1040 and say “this is exactly where my taxes are going.”

Still, you enjoy the benefits of highways and other common goods. We collectively agree that although tax dollars cannot be discretely assigned to benefits enjoyed by individual taxpayers, taxes are necessary to finance benefits used by everyone.

Most people dislike taxes. Your tax dollars may go toward things you disagree with or don’t use. You may dislike how the tax system works, how complex it is, how it changes every year, or the burden of your tax liability. You may think some people don’t pay enough taxes. You may dislike any or all of these things, but I would argue taxes are not inherently evil. Remember, the revolutionaries were not arguing against taxes as a concept, but the system that offered no opportunity for recourse in the face of disproportionate taxes.

Taxes done poorly hurt people. What’s great about living under a representative government is that you get a say in how things work. The power of your voice and your vote is exactly what the founders fought for. Using the tools afforded to you in America means your interests are represented, and you can help shape fiscal policies that directly affect you.