Our government imposes a tax burden on the citizens for one of two main reasons; the first, and most obvious, reason is to fund the government operations, while the second, and more insidious, reason is to affect social justice through a redistribution of wealth. The former reason is almost unnecessary as the central government has the ability to either borrow or print money to fund whatever level of spending it desires, while the later reason is the primary focus of almost all social programs in America. The key to taxation is that money earned by the citizens is collected by the government; an involuntary transfer of property that would be considered confiscation in any other context. Part of that social justice element is to modify behavior: increasing a tax on any activity will result in less of that activity in the future. The opposite of taxation is subsidizing those activities that the government wants to increase.

Taxes can be obvious or stealthy. A few obvious taxes are the income, payroll, and sales taxes; and a few stealthy taxes are the fuel tax on gasoline sales, filing fees, and inflation - the mother of all taxes. Politicians do not want to be held accountable for increasing taxes so they use the euphemistic terms “fee” or “penalty” whenever it is possible to cloak the reality of confiscation.

Confiscatory taxes are not always undesirable as long as the tax dollars collected are put to efficient use to fund the essential services that only government can provide. The defense of the nation through an effective military or the protection of private property enforced through a fair court system would be the classic examples of a government benefit justifying its cost. Not all government spending passes the cost-benefit test of serving society as a whole. Too many current government programs fall into the social justice arena of taking from one to benefit another; economists refer to that as special interest groups or rent-seeking; common folks call it crony capitalism.

Free markets system is based on the concept of private property rights – if one owns property, it should therefore be one’s prerogative to keep, sell, or gift that property to others without government restrictions. In a free market economy, decisions to use one’s property come down to making choices that benefit the individual. Trade between two parties is mutual and beneficial to both parties or the trade would not occur. Many people mistakenly believe that the market system is characterized by one party to the trade being a “winner” and the other party being a “loser”. This winner/loser game assumes that people will freely engage in activity that is clearly harmful and will continue to do so in the future. That is not capitalism!

The key to free markets is that sellers must meet the demands of the buyers or no sale will occur. That condition requires producers of goods to be more efficient to keep the cost low while maintaining the quality at a level acceptable to consumers. Those entrepreneurs who are successful at meeting consumer demands will be rewarded with sales and profits, while those who are not successful will be forced out of business or be forced to enter a different business in which they can achieve success. This market dynamic is healthy in that it prevents scarce resources being used in inefficient processes. Society as a whole benefits when all businesses are efficient because prices are lower and more choices are available to the consumers.

Taxation distorts the economic relationships we would naturally have with one another if we were allowed to keep our money and spend it in our own best interest.