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This is probably one of those questions that most people would think of as ‘stupid’. And most people would answer ‘taxes are money that is taken by the government’. Some people might even add “under threat of violence’. And of course I won’t entirely disagree.

However, looking at the money is just looking at the mechanism. If I were to ask “what is travel?” people would not answer with “car”. A car is just a means to an end. The same is true with taxes, the money is just a means to an end.

So when I ask “what are taxes?” I am really asking what is the purpose of taxes and what are the consequences?

It is easiest to see with a small example: Suppose you need $1000. So you agree to do some work and sell the produce such that you get $1000. However assume you need to pay 20% VAT. That is $200. You thus come up short of your goal and have to work an extra 25% to come up with the VAT tax[2]. You need to earn a total of $1250 to end up with $1000. The time it took to produce that extra $250 is in effect taken by the government[1].

[1]: This is why tax and enslavement is pretty much the same thing
[2]: You did notice the ‘sleight-of-hand’ by which the government can take 25% of your time while claiming to only tax 20%? I.e. how a 20% VAT reduces your buying power by 25%?

When the government taxes us they are not really interested in our produce. Instead they take the money, give it to somebody else in payment (or subsidy) so that that person now does the government’s bidding.

To clarify that: in a society without any taxes at all, each person will need to produce something that is valued by somebody else. That is the normal way societies work. We all do our thing, and as long as we produce something that is valued by somebody else we will receive something in return. The value of the produce guides the production of that product (or service). When a value rises, people will want to take advantage and produce more of it. When the value falls people will abandon the production and produce less of it. This feedback mechanism is the infamous “invisible hand” that guides the economy.

When a tax is introduced it is the government stepping in and taking (partial) control of that “invisible hand”. No longer is society able to determine what is necessary, but the government determines (partially) what should be produced.

I should mention here that not everything the government wants us to produce is unnecessary. If 100% of what the government wanted to produce would be unnecessary the government would likely be replaced quickly. If you would be part of the government you would need to strike a balance between what the people want and what you yourself want. Which is probably why the government likes to talk about those “shovel ready infrastructure projects”, about education, healthcare and that incredible threat of those terrorists… but I digress.

So what are taxes?

Taxes are the government takeover of the demand/supply question in the economy.


Originally posted at: 2016-12-08
Last modified on: 2016-12-08