A Thought on Taxation

May 3, 2008

Taxes levied always lead to a deadweight loss. That is, unless you are taxing an inelastic good or activity. Otherwise, there can be no revenue.

So far so good. However, one should consider why some goods and activities are inelastic. This category tends to includes necessities; things that are relatively important to your survival and quality of life.

So, disregarding other arguments on taxes, the more effective a tax is the more coercive action is applied against an individual’s survival needs. This doesn’t strike me as an ethically justifiable action. Of course, one might take the position that the revenue gained will be redistributed in such a way as to maximize good. Nevertheless, there remains the ethical issue of providing services funded by revenue derived from attacking an individual’s unrelated survival needs—a government can’t tax healthcare if it provides it.

Services provided by governments are unarguably needed. But there must be more morally defensible ways of funding them.