Pre-tax income does not belong to the taxpayer

The argument

Taxation cannot be theft if the taxpayer never had an exclusive claim to the money in the first place, and that is the line this argument takes. In The Myth of Ownership, Liam Murphy and Thomas Nagel argue that our property rights are given to us by the state, and therefore make the case that pre-tax income is not essentially owned by the taxpayer. Pre-tax money is viewed as a product of the institution, the market and its regulations. The claim is not that the state has a stronger right to the money than the earner, but that the pre-tax figure is not a natural quantity at all. It is an output of a particular legal and economic arrangement — contract enforcement, property law, currency, the rules that make a market function — and a different arrangement would have produced a different number. From this it follows that the familiar picture is inverted. The only reason someone would be entitled to their pre-tax income is because of the protection that a tax-funded state provides, which creates the prerequisite for that source of revenue. On the theft account, a person owns the whole pre-tax sum and the state then removes part of it; on this account, there is no stage at which the untaxed figure exists as the earner's property, because the conditions that generated it are the same conditions the tax funds. Because this income is "owed" to the state in that sense, its demand for a portion of that sum to promote the welfare of its citizens is not a theft. Pretax income therefore bears no moral significance on its own, and the system of tax distribution is the result of an economic structure rather than an injustice inflicted upon one. There must be a cognizant distinction between unjust taxation and unwise taxation: a tax may be badly designed, excessive or counterproductive, and all of those are arguments about policy rather than about theft.

Premises

Counter-arguments

Critics reply that the argument proves too much. If the state's provision of institutions dissolves any prior ownership claim, then the state could take 100% of a person's income without committing theft — a conclusion most find absurd, which suggests the premise is too strong. They also argue it conflates a causal claim (markets and property depend on state institutions) with a normative one (therefore individuals have no moral claim to what they earn within them): a worker can depend on roads and courts to earn a wage and still be the rightful owner of that wage. Libertarian critics add that the state's role in protecting property no more makes the state the owner of that property than a security guard owns the goods he protects.

Rejecting the premises

[Rejecting P1] That property rights are maintained by a tax-funded state establishes only that the state enables income, not that it owns it; a precondition of earning is not the same as a claim on the proceeds. [Rejecting P2] The dependence of income on institutions is causal, not moral; one can owe the existence of a market to the state while still holding a rightful claim to what one earns within it. [Rejecting P3] If having no exclusive prior claim licensed any level of taking, the state could seize all income without theft — an implausible result that casts doubt on the premise.