The ideology of libertarianism is (for the most part), centered around the non-aggression principle (or the NAP). This ethic claims that all coercion is wrong, with the exception of self-defense. To those who take this principle to an extreme, any form of taxation would be considered a violation of the non-aggression principle, but to those who are minarchists and simply want the state’s authority over society and its authority over the individual to be minimized, one question remains: what is the least bad tax? Well, first we must define what exactly a “bad tax” is, or even what a “good tax” could be.
If you are a working person who has had a massive portion of their income taken from them and given to a corrupt political machine, then the fact is you probably hate paying your taxes. Part of what defines a “bad tax” is the amount being taxed. I remember in middle school; my class was tasked with the goal of creating what we thought would be the ideal country. Part of creating the country was deciding what would be the ideal tax rates. I don’t remember the full details, but I do remember that we eventually decided on a 0% tax rate for the poorest citizens, a 6% tax rate for the middle class, and a 20% tax rate for the richest citizens. This seemed at the time, practical. Seeing that the current U.S. tax code was something much different, it shocked me growing up that when I start working, I couldn’t keep more than 80% (give or take) of the money I earned.
Despite having to pay less, tax cuts don’t make taxation any more moral than what it currently is. It’s only a difference of being forced to give up your pearls instead of your diamonds; sure, you will be happy that something more precious didn’t get stolen, but that doesn’t change the fact that force is still force. So how do you make taxes voluntary? Well, consider what makes transactions within the market voluntary. Companies make a profit by selling products. The government could do the same with public goods, the only difference would be that not everyone would pay the same for those public goods and the entirety of the revenue gained would be spent. For example, if you want to be protected against theft by the police or to be saved by the fire department from a possible house fire, then you would have to pay taxes. Alternatively, not paying taxes wouldn’t result with you in jail, but rather leave you without the necessary service of property protection. You may be asking: “What incentive do I have to pay for universal goods like defense?” Ask yourself this: “What incentive do you have to give a McDonald’s worker or businessman his paycheck when you buy a Big Mac?” None. Yet, you do it anyway because you wanted that Big Mac, the same way you want those necessary government services.
We’ve gone over the fact the “good tax” must be a more voluntary one, but it also has to be a subjectively reasonable one. For instance, if you were a rich man, would you want to pay your taxes if the tax code was progressive and taxes were voluntary? Of course not, you would want a tax rate similar to everyone else’s rate. On that note, what business does the government have with knowing how much you earned in a year? Or why should businesses have to charge extra for their products just so that extra money goes to the state? As is the case with sales tax. A better solution would be to have property taxes based on land value similar to ground rents. Why? Consider how the real estate market does it; fees for homeowner’s associations are determined by the value of the property it manages. Not only does it fall within market-oriented thinking, but it’s also historically supported by libertarian thinkers. Here’s what Adam Smith had to say about a land value tax:
“Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent.”
In fact, the reason I titled this article the way I did was because libertarian economist Milton Friedman called the land value tax “the least bad tax.”
* Bhavin Patel is a student in high school as well as a geolibertarian (Georgist libertarian). He plans to major in computer science and minor in economics when he gets into college.