Economic Secession Won't Succeed

R. A. Hettinga rah at shipwright.com
Tue Apr 15 12:25:54 PDT 2003


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Subject: Economic Secession Won't Succeed
Date: Tue, 15 Apr 2003 08:14:49 -0500
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Economic Secession Won't Succeed

By Paul Birch and Gene Callahan

[Posted April 15, 2003]

 Some freedom-minded people pin their hope for liberty on withdrawing from
an unfree world. In times of crisis, such as wars and recessions, this idea
gains popularity. We might refer to this notion as "economic secession,"
borrowing the name from John Kennedy's
<http://www.anti-state.com/article.php?article_id=395>article of the same
title." Despairing of advancing the cause of liberty in society at large,
they hope to be able to secure their own liberty anyway.

They may
<http://www7.mailordercentral.com/lfb/prodinfo.asp?number=IV7956&variation=&aitem=3&mitem=4>put
their trust in new computer technologies, which they believe will let them
hide money and economic transactions from the taxman. They may hope to
withdraw into some remote location and
"<http://csf.colorado.edu/forums/pfvs/2002II/msg00450.html>unplug from the
grid." You can find ideas falling broadly under the umbrella of economic
secession at <http://www.backwoodshome.com/>Backwoods Home Magazine, in the
writings of <http://www.libertymls.com/gulch/>Claire Wolfe, in the many
books on
<http://www7.mailordercentral.com/lfb/prodinfo.asp?number=PV8398&variation=&aitem=5&mitem=6>financial
privacy,
<http://www7.mailordercentral.com/lfb/prodinfo.asp?number=CU8417&variation=&aitem=2&mitem=4>encryption,
<http://www7.mailordercentral.com/lfb/prodinfo.asp?number=PV8287&variation=&aitem=1&mitem=6>becoming
invisible, and so on.

We don't mean to disparage someone who wants to move to the remote
countryside, encrypt his email, or set up a numbered bank account in
Bermuda. Such activities are not, in themselves, objectionable, and they
may be a good choice for some people. But we do wish to point out that they
do not solve the problem of the gradual erosion of liberty in our world.

We will not discuss the issue of whether it would be morally sound to
abandon our fellows and withdraw from the effort to improve human life in
society. We don't need to do so, because the attempt fails on its own
terms, for several reasons.

First of all, "economic secessionists" often seem to confuse money with
wealth. If they can hide their cash, they think, they can avoid taxes. But
money is only useful in so far as you can exchange it for the economic
goods and services you want to enjoy. In the long run you have to keep your
real wealth where you live, or transfer it there. Otherwise it's worthless.
Most real wealth is highly visible. The government of the place where you
live or spend your time will be able to see this wealth and gain access to
it; and thus can readily tax and regulate it. There is no sense in
imagining that hiding your cash will get you off the hook; the government
will simply seize your real assets for failure to pay taxes on them, as
they already do today.

In many countries, governments have in recent years found it convenient for
political purposes to shift the burden of taxation away from income taxes,
towards sales and property taxes; and this at a time of rising taxes
overall. For example, in the past two decades, income tax rates in the U.K.
have fallen by about 30%, but local property taxes (rates and council tax)
have increased three or four fold. Thus we should not expect the taxation
of real wealth to prove problematic, even in those unlikely scenarios in
which it is supposed that the bulk of ordinary people's incomes could be
successfully concealed.

We would also point out that governments are increasingly forming tax
collection cartels; there are no longer any real tax havens that the U.S.
and other high-tax countries are not now bullying into submission. Ireland
has come under pressure from other E.U. states for having "too low" a
corporate tax rate. The U.S.
<http://www.globalpolicy.org/nations/haven/usfight.htm>is pushing the
I.M.F. and World Bank to crackdown on "money laundering." The O.E.C.D.
<http://www.oecd.org/pdf/M00004000/M00004517.pdf>has been addressing the
"problem" of countries that engage in "harmful tax competition." Even
Switzerland, with its traditional and much-vaunted banking privacy, has
caved in.

Economic secessionists may think that making it more expensive for the
government to collect taxes will reduce its incentive to do so. But
taxation is not, for the most part, about the government "making money,"
because modern governments actually consume only a tiny fraction of the
total tax revenue; rather it is about redirecting the spending of
individuals, and thus the collective spending of the economy, in ways
predicated upon the political goals of the regime.

Typically, the cost of collecting a tax amounts to no more than a few
percent of the revenue obtained; so the ability of governments to tax would
not seriously be impeded until tax collection became at least fifty times
more expensive (something the ready accessibility of real wealth makes most
improbable). Note, by the way, that in order to promote their political
aims governments may continue to collect particular taxes even when the
monetary cost exceeds the monetary revenue. The marginal cost of
collection, in cash terms, doesn't worry them.

People rarely go into politics or public administration in order to make
money. Many of them could become considerably wealthier in the private
sector (in purely pecuniary terms, though not in terms of what they
actually want). What they want is mostly influencewfor a wide variety of
motives, both selfish and altruistic. They want to be (and in fact are)
importantweven if that importance is often only that of being an important
pain in the neck.

That is why it is a mistake to think of government as primarily concerned
with collecting as much tax revenue as possible, practicable, or
profitable. That may be what bandits would dowbut to governments taxation
is merely one of the tools with which society as a whole is constrained and
governed. Even the fact that government actions can prompt us to seek tax
shelters confirms their influence!

Not only are we unable effectively to escape having the government tax us
directly, we are also unable to escape the effect upon us of government
taxes on others. Introductory economics classes teach that although the
government may specify the legal incidence of a tax, its economic incidence
is subsequently determined through the market. As Mises
<http://www.econlib.org/library/Mises/msSApp.html#Epilogue>says: "It is the
market, and not the revenue department, which decides upon whom the burden
of the tax falls and how it affects production and consumption. The market
and its inescapable law are supreme."

Even if an individual citizen succeeds in concealing all of his wealth and
income from the tax collector, there will be others who cannot or will not
do so. Someone who is inclined to say, "Well, that's their problem," does
not realize that he is paying those taxes as well. If the butcher is taxed,
he pays more for meat. If the airlines are taxed, he pays more to fly. If
capital gains are taxed in some countries, that will lower the returns on
capital in "tax havens," just as taxing corporate bonds lowers the return
on tax-free municipals. Furthermore, rearranging one's affairs to avoid or
evade taxes (the former is legal, the latter illegal) carries its own
burdens, whether in terms of actual costs, lower returns to capital, or
foregone opportunities. The costs of tax avoidance and tax evasion are
also taxes.

What would happen if the man in the street were able to hide a larger
fraction of his personal wealth or income? Would the government shrug its
collective shoulders and reduce its spending? Hardly. It would merely
assume that each taxpayer is hiding a similar fraction of his income and
increase all tax assessments accordingly. This would penalize honesty, and
in fostering anger against the tax evaders would in all likelihood
encourage the introduction of ever more draconian and authoritarian laws.
And the tax revenues would keep flowing just the same.

Many secessionist apologists are misled by the existence of a small
minority of people who operate on the black market or are otherwise able to
shield much of their wealth from direct taxation; or by the fact that most
people occasionally massage their tax returns a bit or pay tradesmen in
cash for a small consideration.

However, these transactions relate to only a small fraction of the national
product. The tax revenues "lost" are not large; indeed, the argument above
implies that there is no overall loss of revenue. Governments know all
about itwand don't care. It doesn't threaten them. Indeed, the existence of
black marketeers, tax shelters and tax evasion provides them with handy
scapegoats whenever they needwor desirewto increase taxes or impose tougher
regulations.

All in all, to make economic secession work we should have to withdraw into
autarky, foregoing the benefits of the division of labor. It is doubtful
whether Thoreauesque self-sufficiency is any longer practicable in
developed countries, for all but a minuscule fraction of the population.

Conceivably one could still flee to Siberia or the jungles of New Guinea;
and there live free from any burden of tax, other than the burden of
grinding poverty and social isolation from one's self-imposed exile. We
will not take exception to those who make such a choice. As Aristotle
notes: "He who would live without the polis must be either a beast or a
god." In either case, criticism would be pointless.

If we are unprepared to take so drastic a step, we would do well to heed
<http://www.econlib.org/library/Mises/msSContents.html>Mises's words, which
echo John Donne's famous epigram that "No man is an island":

"Society lives and acts only in individuals; it is nothing more than a
certain attitude on their part. Everyone carries a part of society on his
shoulders; no one is relieved of his share of responsibility by others. And
no one can find a safe way out for himself if society is sweeping towards
destruction. Therefore everyone, in his own interests, must thrust himself
vigorously into the intellectual battle. None can stand aside with
unconcern; the interests of everyone hang on the result. Whether he chooses
or not, every man is drawn into the great historical struggle, the decisive
battle into which our epoch has plunged us."


Paul Birch lives in Cowes on the Isle of Wight, England. He is a freelance
scientist and writer who has published many papers on space colonisation.
He is also interested in political philosophy and maintains
a <http://www.paulbirch.net/>website of his writings. Gene Callahan is
author of
<http://www.mises.org/store/product1.asp??SID=2&Product_ID=116>Economics
for Real People. Send him <mailto:gcallah at erols.com>MAIL, and see his
Mises.org <http://www.mises.org/articles.asp?mode=a&author=Callahan>Daily
Articles Archive. He delivered the Henry Hazlitt Memorial Lecture at the
Austrian Scholars Conference 9, March 13, 2003. Click
<http://www.mises.org/video/ASC9/Callahan.wmv>HERE to view the online
video version of his lecture.

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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
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"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'





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