The well-known saying often attributed to Benjamin Franklin states that in life there are only two certainties — death and taxes. I have nothing to say about death, but taxes are by no means inevitable.
In our everyday mythology, the state is portrayed as a magician (for some an evil one, for others a good one) who, in theory, should “serve the good of society,” promoting its development, maintaining order, and caring for the weak. For these purposes, the state needs our taxes. It is on the basis of this myth that we discuss taxes and the tax system. We evaluate them from the perspective of their “reasonableness.” We think that perhaps a balance can be found between the harm done to us when we pay taxes and the expected benefit that state expenditures might bring “to society as a whole.”
However, I think everyone would agree that there is no point in “improving” something that cannot be improved because it arose for entirely different purposes. With taxes and taxation, that is exactly the situation, and therefore the very foundation of our usual reasoning is false.
“Feudal Republics”
The possibility of combining the efforts of many people to achieve certain goals that they cannot achieve on their own — this is one of the main reasons why human society exists at all. However, this is only weakly connected with taxation, if at all.
As we know, history is written by the victors. In our case, this means that there is no separate term to denote forms of self-organization among people without a state of the type familiar to us. The ideologues of the victors — states of the “military” type, which we will discuss below — consider such forms to be states as well, only somewhat underdeveloped. They consider them a “stage” on the path to perfection — the absolute state. In their terminology, such states are usually called “feudal republics.” Let us call them that for lack of a better term. In the framework of our topic, it is very noticeable that the very logic of the origin and existence of these two forms of what can be called “state” is completely different.
Let us take Ireland as an example. Ireland for a full thousand years — until its conquest by the English in the 17th century — existed without any state whatsoever. Irish society was a collection of túatha — associations that are called “families” or “clans” in our tradition. The territory of a túath is the sum of the land holdings of its members. You can leave your túath by selling your land and joining another.
Note that such a system makes large wars meaningless. Wars here clearly look like what they actually are — ordinary criminal offenses — an attempt to seize the property of specific individuals.
Having such an order, strange for us, Ireland at the same time was not at all the “backwater” of Europe in that era. On the contrary. Irish monks preserved for us many ancient sources that were being destroyed on the continent by the Christian Taliban; those same monks are known for their asceticism, they traveled throughout Europe, engaged in enlightenment, and some historians believe that they actually restored Christianity, which after the fall of Rome had fallen under a new wave of paganism.
Ireland had “kings,” at various times elected or non-elected figures; however, these were military leaders and judges, not full-fledged rulers. Legal functions were carried out by private lawyers — brehons. The “books of the brehons” are well known — collections of laws and legal rules that arose from the generalization of centuries-old practice.
Taxation in the sense familiar to us did not exist. These were, rather, membership fees, and irregular ones at that, collected for specific tasks.
Military State
A state of the military type arises when a certain gang, living by raids, suddenly realizes that it is better not to take everything and run far away, but to “peacefully” settle down and take on a regular basis. This taking is called a tax. It is collected constantly, being a typical racketeering tribute “for protection.” Thus, receiving taxes is the cause and purpose of the existence of a state of the military type.
It is understandable that the members of the occupying gang did not pay any taxes. Participation in the gang was repaid by military duty in case of an attack by a neighboring state or an operation to capture it. The English aristocracy, if I remember correctly, began paying taxes only in the 20th century, when it finally lost its role.
Violence and direct coercion are characteristic features of such a state. State policy consists of taking for as long as it is possible. The “tithe,” which was almost a universal tax rate, seems small to us today, but if one considers that in that economy, especially in a small household, there were practically no surpluses, this is an enormous amount. Therefore, a tax collector was considered a doomed person. Christ had to specifically point out that tax collectors are people too, and with a fortunate combination of circumstances, they may even be worthy of the Kingdom of Heaven. Occupancy relations were the basis of state policy quite recently. Voltaire, of all people, strongly doubted whether it was worth teaching the common people to read. It was believed that once they learned to read, they would stop working.
States of the military type with their institutions of coercion gave rise to a chain reaction of seizures and wars and, as a result, spread everywhere. In a “feudal republic,” war is an attack on the private property of specific individuals, generally — an unpromising endeavor, fraught with blood feud and being declared outlaws. On the contrary, in a military state, war is a profitable undertaking. One simply needs to capture the enemy state, that is, defeat its armed forces. The winner gains at his disposal a territory ready for use and in it — institutions of coercion, dependent population, and income in the form of taxes.
So, we see a conceptual difference between a military state and a “feudal republic.” The main characteristic of a “feudal republic” is that it is an association of people. The main characteristic of a military state is “sovereign territory.”
"Feudal Republic" Military Type State
Main characteristic Association of private persons — owners Territory Financing of public activities “Membership fees” Forced taxes Goals and size of financing Determined by participants Maintenance of the “ruling class,” improvement of territory. Size determined by the “ruling class.” Regularity of financing Determined by participants Regular financing Nature of bureaucratic activity Situational, “in free time from work” Regular
I do not know about you, but for me, calling these different forms of organization by the same word “state” does not sit well. Note that states of the military type obviously harbored a special dislike for “feudal republics,” understanding their moral attractiveness for their own subjects. Recall the genocide that Ivan the Terrible organized against the Novgorodians. The Novgorodians were not only physically destroyed, but also resettled. A wonderful practice that another “effective manager” later used successfully.
Bourgeois Republics
Over time, military states acquired ideology, for example, the wonderful idea of the divine origin of the monarch’s power, or its more decent version about the sovereignty of the people. The right to receive money for active idleness had to be justified somehow. Political technologies are the oldest invention. What is worth, for example, the famous “come and rule over us,” allegedly said by the Slavs to the Varangians.
Despite all these tricks, the question of the state’s right to power was regularly raised, especially in those countries where the state, for various reasons, did not overly oppress its subjects. All this ultimately led to the emergence of a regime that can be generally called a “bourgeois republic.” This regime began with representative democracy and the principle of “no taxation without representation.” It allowed the “masses” to elect the main bureaucrats and to influence the legislative process. However, it did not change, in essence, the main feature of the military type state — the violent monopoly on sovereign territory. Taxation remained regular, and its goals and volume were still established by the “ruling class.” The purpose of the state’s existence is still the extraction of rent.
Now we live precisely in such a state. Interestingly, this state, essentially of the military type, disguises itself as a “feudal republic.” In its propaganda, it constantly tells us about “doctors and teachers” and other pensioners, orphans and the disabled, who would perish without its beneficent care. Meanwhile, when you pay taxes, you do not pay doctors, teachers, orphans and the disabled, but simply fund the existence of a bureaucracy that itself determines what to do and how much money is needed for it.
A Few Comparisons
Of course, “feudal republics” were by no means an ideal social order, and most often, especially in later stages, they bore the features of military type states as well. The same is true of military states, many of which retained institutions of “feudal republics.” The English yeoman was a free man. He owned land and carried weapons. The Russian peasant was a slave, and his master was also a slave of the tsar. The reasons for this are a poorly researched question; one can assume that it all comes down to the ability to resist invaders in an organized manner.
However, the example of Ireland shows that there are no objective reasons for “feudal republics” to inevitably transform into military states with forced taxation “in the course of development.” I want to draw attention to Ireland’s thousand-year history. It is difficult to find a military state capable of boasting such a long history.
The reasons why “feudal republics” ended their existence (in the best case, bequeathing some freedom-loving habits and institutions to the inhabitants of military states) are quite simple. They consist in the fact that for a “feudal republic,” the army is a source of expenses, while for a military state it is a source of income. In the first case, the armed forces consist of the residents themselves or mercenaries; in the second case, of what later became the nobility. That is, military states are always in service and feed on what they take, while “feudal republics” need specifically to spend money to gather an army and successfully resist military states.
Note that the entire history of military states is endless wars for territories. If in the Middle Ages and the Early Modern era, wars were the business of the nobility, which did not pay taxes, then with the emergence of the “bourgeois republic” and, especially, the idea of the nation-state, wars became the business of “the entire people.” This is, generally speaking, logical: if power is considered dependent on the people, then the people must not only pay taxes but also fight for it. When nation-states took up the matter, the count of victims went into hundreds of millions, and some of them managed to kill people inside their own borders even more than outside. I think all this fun would still be continuing if it were not for the atomic bomb.
And the last point here — this is the “product of history,” its typical hero. For a military state, this is, as a rule, a monarch, a military commander, later — a “statesman.” The heroism of these characters consists either in the direct expansion of territory and the number of taxpayers, or, at best, in correcting the foolishness made by previous heroes. “Feudal republics” are more humane. For Ireland, for example, such a historical type is a monk-enlightener.
A Little About Methods
One often hears roughly such arguments. “Can’t there be normal, fair, and socially beneficial taxation? Let’s imagine literate and active voters, selfless and patriotic bureaucrats. Isn’t that the whole point — won’t taxes be reasonable and spent usefully under such conditions?”
The answer is that there is no country in which there exists a single tax. After all, the logic of the above reasoning assumes that the purpose of taxation is subsequent redistribution. If this is indeed the case and if all the listed conditions are met, bureaucrats are honest and citizens are vigilant, then the only reasonable state of affairs this will lead to is one tax paid by everyone, from which a budget is formed that then goes to public needs. However, there are no such examples in the world.
And it is not that ideals do not exist. The point is that the method itself, called “taxation,” leads to the expansion of the state. Bureaucrats spend not their own money; moreover, they will always receive this money, since taxation is compulsory. The method of taxation allows solving problems not through increased efficiency, but through the expansion of bureaucracy. Bureaucrats who have compulsory taxation in their hands are objectively interested only in becoming more numerous and in their sphere of activity constantly expanding.
Nomadic Bandits, Stationary Bandits, and Eternal Bandits
Economists tell us that the origin of the state and taxation does not matter. What matters is the circumstance of why people tolerate it, that is, why they choose it. Mancur Olson offers us a metaphor of the state as a “stationary bandit.” It consists in the fact that people prefer a stationary bandit to a nomadic one. The nomadic bandit lives by the principle “grab and run.” Therefore, he has a very short time horizon and is interested in taking as much as possible, here and now. The stationary bandit, due to his stationariness, has a long time horizon. He is not only capable of taking not so much, but will also “tend” to the territory assigned to him and protect it from nomadic bandits.
This simple and, it seems, most popular theory among experts is confirmed by our recent practice. I once came across a text describing the competition between “Kazan” and “Tambov” criminal groups in St. Petersburg. The Kazan groups worked on a shift basis; the “guys” came to Petersburg for a certain period, after which they were replaced by new ones. The Tambov groups worked on a permanent basis and invested in business and political connections. In the end, the Tambov groups won.
From the standpoint of this theory, all kinds of reforms and transformations should aim to create conditions for choosing a stationary bandit. However, it seems that regarding the state, this theory does not work. The Tambov and Kazan groups competed with each other, and their clients had a choice. The taxpayer has no choice. He has only one state. And therefore the state will always remain a nomadic bandit.
The problem is obvious. On the one hand, criminal groups were internally unified and hierarchically structured. The state, however, is not unified. It represents a set of different groups, often pursuing different interests. On the other hand, many groups were represented on the market of groups, and the consumer could choose. On the market of states, the state is a monopolist.
Of course, within the state itself, there are various constituent elements that, for systemic reasons, tend toward the state of a stationary bandit. In our system, for example, this is the president. However, no president can unite the nomadic bandits of the bureaucracy, because the mechanism of social choice does not work in this process. Competition cannot be replaced by hierarchical instructions. Nomadic bandits must have weighty reasons to become stationary ones. Within a monopolist state, such reasons cannot arise.
By the way, if our tax code is adopted in the form in which we last saw it, this will be another victory of nomadic bandits over the stationary one.
Furthermore, one can assume that the root of the evil is still in the definition of “bandit,” not in whether he is stationary or not. The history of the USA illustrates this. This country was founded on ideals close to a “feudal republic.” There were no taxes in the USA, as is well known. The activities of the government were supposed to be financed by excise taxes, customs duties, and the like. However, over time, the state returned to taxation. And if introducing the income tax required a constitutional amendment, later the state did not bother with such scrupulosity. Taxation (which was generally initially presented as a temporary measure) became permanent and obligatory, and now people are prosecuted criminally for “non-payment of taxes.” We see how its own “bandit” settled in the USA, and now we observe the process of its transformation from stationary to nomadic (this is evidenced by, among other things, the unprecedented restriction of civil rights under the guise of fighting terrorism).
The history of the USA is an answer to the question of whether a “good” state based on a military type state can exist. As we see, it cannot. As long as the state considers itself a monopoly on sovereign territory, institutions of a military state in the form of taxation, monopoly on money, and the like will naturally “settle” in it. Over time, the state begins to exist at the expense of rent and begins to make more and more efforts to seek this rent.
Let Us Summarize
I did not dwell on the purely economic side of taxation. It has long been proven that taxation causes harm, if only because it is redistribution. There are no socially significant functions, including defense, that can only be financed compulsorily through taxes.
So, taxation cannot be “reasonable” by definition. What can be reasonable and beneficial is the association of efforts of private individuals, resulting from voluntarily assumed obligations. A stationary bandit settled in America because Americans created a new state that carried the congenital defects of a military type state, and above all, the understanding of the state as sovereign territory, and not as an association of private individuals. It would be funny to blame the founding fathers for this; they lived within the framework of the ideas of their time. Within these frameworks, they did titanic work defending freedom and human dignity.
Of course, I do not believe that taxes should simply be abolished right away. Nothing will come of this. The transition to a “state” that is a contract of private individuals will take time. To avoid being unfounded, I can suggest several stages, relevant to our topic.
Definition of the functions of the state, what the taxes are being collected for. At first, this may be a very long list; it is important that everything outside it has no right to existence.
Transition to direct taxes
Abolition of taxation of legal entities. After all, if corporations pay taxes, they should participate in elections, right?
Prohibition on the state of all “earnings” outside of taxes. Prohibition of external and internal loans, income from natural monopolies, inflation, and other manipulations with money. Liquidation of the central bank.
Abolition of the progressive rate, ideally — a poll tax. Otherwise it turns out that if I pay a large sum in taxes, then I should receive more defense, protection from emergencies, and the like.
Abolition of taxes