by Martin Odoni

A common refrain I see from libertarians and anarchists, including ones who believe themselves to be on the left, is that

‘Taxation is theft’.

Now, this is not really true, and is based on the false ‘tax-and-spend’ notion that people make money and the Government takes it away from them to cover the cost of spending. It actually works the other way around. The state issues money, usually via a Central Bank, and circulates it around society, before it returns to the state in the form of taxes. If we keep in mind that the ultimate source of a currency is always a Central Bank, and that the Central Bank is always part of a state – even the European Central Bank is part of one after a fashion – the nonsense of the platitude, ‘Taxation is theft’ becomes very obvious. (Taxes go up and down, not to regulate the size of the spending budget, but to discourage or encourage more private spending, depending on whether the economy is too active, which causes inflation, or too sluggish, which causes recessions.)

The implication of the platitude is that, basically, the Government taking money from its population is a crime and should therefore be stamped out. But what would happen if it was stopped? After all, if the state does not need to rake in tax to cover its spending commitments, why not just get rid of taxes altogether?

Well, the answer is that, especially in a consumer/services-dominated economy like the UK, its native currency will lose value rapidly.

The key consideration is that the value of a currency is driven by the demand for it. The main reason people in the UK do their business in sterling is precisely because they have to pay their taxes in pounds. Therefore, within Britain, there is a constant demand for pounds, at least up to the level required to meet the overall tax burden of the population. The less they have to pay in taxes, the less need they have to do their business in pounds. And as, thanks in particular to Margaret Thatcher, UK manufacturing produces far less than it used to, the pound is a less useful currency than it used to be in terms of what can actually be purchased with it.

In a no-tax environment therefore, more and more businesses will start accepting other currencies, like the Chinese renminbi, or the euro, as payment for goods, instead of pounds. This is simply because the bigger a stockpile of these currencies businesses can build, the more it bypasses the cost and inconvenience of having to exchange currencies before importing goods to sell.

The point will come when the UK will be flooded with other currencies. The population will increasingly buy and sell in them, while sterling’s value will have gone through the floorboards, because no one will want or need it anymore.

At that same point, the UK would lose much of its independence, because it will have become dependent on the country that issues the new ‘dominant’ currency in Britain for its money supply. (See the way Greece has been treated by the European Union since the Global Financial Crisis, to realise how powerless a Government can become when it does not have a currency of its own.)

So, when people demand “Abolish all tax”, because they imagine that their wealth is being used to support “scroungers”, or “moochers” if they are American (even though the actual amount of UK Government expenditure paid on unemployment support, fraudulent and legitimate combined, is only about 1%), they are making a big, big mistake.

Now the use of slurs like “scroungers” gives away the reality that they are trying to rationalise their own selfishness by denigrating those who receive state support.

'Scrounger' accusations translated

“I want more!” The Veruca-Saltz-esque translation of the people who espouse ‘scrounger’-narratives.

But whatever the motivation, what they are missing is that, should they get their way, instead of keeping about 75% of something worth a lot, they will instead be keeping 100% of something worth dust.

A fool’s saving if ever there was one.