Myth-Making on Taxes. - The Myth of Ownership: Taxes and Justice - book review

National Review, July 1, 2002 by Richard A. Epstein

The Myth of Ownership: Taxes and Justice, by Liam Murphy and Thomas Nagel (Oxford, 272 pp., $25)

Any modern society must perform two tasks simultaneously: It must secure a free and stable social order, and it must distribute fairly among its citizens the wealth that is generated by that order. Only some mixed system of private initiative and government action can meet these twin challenges. But which mix, and why? A well-nigh universal consensus recognizes that government must protect its citizens from violence and aggression, both at home and abroad. A powerful social consensus gives the state some role on such matters as highways and public health. Widespread support can be found for using state power to constrain monopolies. But a festering long-term dispute divides us on whether -- and if so how much, and by what means -- the state should, and indeed does, redistribute wealth from richer to poorer citizens.

Governments run on taxes -- and the more extensive the array of government functions, the heavier the burden of taxation. Frequently, therefore, the grand struggles over the size and function of government are mirrored in battles over the proper tax structure. In this running dispute, limited-government figures from Adam Smith to the present have championed a broad tax base with low, flat taxes. (Count me in.) In contrast, modern social-welfare theorists are more agnostic on the tax base, but insist on steeply progressive rates to fund such welfare rights as education, housing, and medical care.

Over the past generation the two sides have fought to a draw. First, Reagan lowered taxes and flattened rates; then Bush I and Clinton raised rates and reintroduced more progressivity; now the second Bush lowers rates and wants to repeal the estate tax. The current political uncertainty has drawn academic writers into the fray, most recently Liam Murphy and Thomas Nagel (both of whom teach philosophy and law at New York University), in this new book. For Murphy and Nagel, there is no middle ground. They are unabashed defenders of the social-welfare state, with hefty tax burdens to match.

The authors develop their case primarily at the level of political theory; seeking conceptual victories, they are eerily silent on the empirical literature. To be sure, our authors don't agree with the French anarchist Pierre-Joseph Proudhon that "property is theft," but they do justify high taxes by claiming that private property is, at bottom, a creature of the state -- and not, as libertarians and others would have it, something that individuals hold as of right, which the state is then obliged to protect. According to Murphy and Nagel, the distribution of pretax income is not really the result of a "free market": "There is no market without government and no government without taxes; and what of market there is depends on law and policy decisions that government must make." The state, therefore, may tax as it will the property it has created.

But note what their account leaves out. In postulating the primacy of the state over property, the authors present us with a faceless, disembodied government; no one knows who runs this government, how its officials are chosen, or what laws limit their powers. Yet if private ownership is a myth, then so too is the ordinary liberty to pray, to speak, to marry, or to work. These things, too, require the protection of government: People need to have their private spaces protected from interference by others. Does that kind of government involvement mean that the freedom of religion, for example, is a "myth"? The authors constantly carp at the naive reluctance of the "everyday libertarian," a.k.a. the common man, to accept their views. But the ordinary citizens are right: If property is a myth, then liberty is a myth as well. By making our rights entirely contingent on government, Murphy and Nagel leave us no way to push back against Leviathan.

The much-maligned classical-libertarian writers offered a more cogent explanation of government's role in protecting rights. They postulated a "social contract" theory, beginning with a state of nature in which no law restrains private action. (They understood this "state of nature" to be purely a thought-experiment, but it's closer to what really happened than the story told by Murphy and Nagel.) The chaos and instability of the state of nature leads everyone to mutually renounce force and fraud, so that each gains the liberty to develop his own talents. They quickly then realize that all would starve unless they had private ownership of land and chattels, for people will sow only when they can reap. This system of property, however, would count for little if each individual could act as a judge in his own cause; individuals therefore agreed to place the resolution of disputes in the hands of an impartial government arbitrator, and to tax themselves to fund its activities.

The gains from each of these steps are enormous, which is why we are willing to presume that everyone would agree to the system. But how should we divide those gains? Locke, Smith, and Hayek all believed that taxation proportionate to income -- i.e., a flat tax -- was the fairest solution. It would avoid the perils of a head tax, which could ask individuals to contribute more to public operations than their total income, thus depriving them of the gains from social interaction and giving them an incentive to leave the system. The flat tax would also be relatively easy to administer, and allow government to raise as much revenue as was needed to meet particular threats. Under the social- contract theory, moreover, government would be allowed to use tax revenues only for the purposes that called it into being: the protection of liberty and property and the provision of basic public goods.