“Taxation is theft,” per Murray Rothbard, has surfaced as the quintessential fiscal libertarian rallying cry. The purist form of this premise submits that because taxation is involuntary and necessitates coercion, it violates the Non-Aggression Principle (NAP), when applied meaning that “it shall be legal for anyone to do anything he wants, provided only that he not initiate (or threaten) violence against the person or legitimately owned property of another,” as Walter Block defines it. Distilled, taxation forcibly takes one’s lawfully earned property away, and because “all forms of wealth are produced by man’s mind and labor,” according to Ayn Rand, that act hearkens back to slavery and is antithetical to a free society.
This is a compelling argument, but what practicality does it contain; or in other words, what are the alternatives to revenue collection if there is no taxation? Many libertarians justify an abolition of the income tax with the NAP, but apply a double-standard in advocating Georgist property taxes to compensate for the revenue loss.
Rand, who advocates a minarchist, or night-watchman state, posits that people would donate, of their own self-interest and volition, to the government to fund police, courts, and a military. Rothbard and Block, who both consider these services ripe for privatization and a general government superfluous, say police and courts could be subscribed to by regular or deferred payments and fees. An individual not paying for police or courts would quickly recognize the harm this causes them via lack of protection and representation.
The military’s budget, meanwhile, would not collapse overnight if a single person opted out of donating to it. This mindset, however, would carry across whatever geographical area the military presides over, compounding into a gross dearth of funds, as Ethan Glover argues. To mitigate this effect, programs more sophisticated than basal donation forms must be used to fund a public good like the military.
These plans, of course, may be mixed and matched, and either applied to funding the Randian night-watchman state, or a more expansive government. The sole limit is the people’s will. If it is worth funding a public education system for example, and charities for some improbable reason are unable to make up the difference, these methods could be utilized for great success while still protecting the individual, who Rand called the greatest minority of all, and their liberty to opt-out of funding something they oppose, and in so doing, protecting their lawfully-held property.
The notion of voluntary taxation is an interesting mental experiment worth considering in public policy discussions for how to transition non-essential government programs into free market ones. Indeed, you do not necessarily have to affirm the NAP, or advocate abolishing all taxes to find value in the following proposals.
The first proposal to buttress a useful system of voluntary taxation is fairly straightforward and already used in the indie entertainment sector. Artists who want to fund expensive projects use crowdfunding platforms such as Kickstarter or Indiegogo, which show total committed contributions, and with each donation, the extent to which a funding goal has been reached. With the former service, if the goal is missed, the funds are both not taken from donors’ accounts and not released to the recipient. This undermines the ethos of “why should I pay if everyone else will not?” while simultaneously fostering urgency. This method would be particularly effective in responding to crises like Hurricane Sandy, where many of the affected lacked insurance and, particularly in a society without federal hurricane aid, otherwise would be unable to receive dire assistance outside of charity.
The second proposal for voluntary taxation is somewhat more complex, but mainly takes the first a step further. With it, if a donor contributes a certain amount, they would receive a benefit. It could be as simple as a sweatshirt or as grand as a tour of a military base. It is that simple, and is already used by Kickstarter and Indiegogo.
Verifiable donation indicator
The third proposal is an application of the second. People who donate a certain amount could receive an electronically verifiable—through a magnetic strip, QR code, pin number, or any other method—sticker or card, which participating financial institutions could incorporate into their services to make it more visible during purchases for example, by displaying either the gross amount donated or percentage of one’s income submitted toward a public good in the current fiscal year. If one makes many contributions, there could be a displayed breakdown on the sticker or card. Social pressure, studies reported by the Boston Globe find, is one of the most effective methods to extract funding from a source. So the third proposal would lead to folks trying to one-up each other, and make raising money a game of high scores, all for great causes.
Discounts for donors
The fourth proposal necessitates the third. Participating retailers could provide a discount based on the aforementioned sticker or card, either because someone donated a general amount or percentage, or just the bare fact that they donated something at all. The discount would be modest and maybe around 5%, rarely more than 10%. It could, however, be tiered according to how much is donated. Either way it would be great PR for any company who sought involvement.
Public pressure for corporate donations
The fifth proposal is public pressure convincing a company that it would be expedient to their reputation if they funded some charitable organization. This proposal could be combined with other ones, e.g. an electronically-verifiable sign outside an establishment displaying how much said establishment donated. As with the human condition at its essence, though, the principle of aiding a charity organization without bragging could yield comparable gains.
Business ostracism for non-donors
The sixth and most audacious proposal for voluntary taxation involves businesses, in the pursuit of good PR or a concern for the people’s general welfare, ostracizing anyone who lacks a charity identification sticker or card by barring them from consuming their service. Strike the Root describes this plan as follows: "The dynamics of institutional development may be such that an individual who refuses to pay for defense [charity, etc.] will be effectively unable to lead a decent life in society. Payment is, in other words, voluntary, but nonpayment is excruciatingly uncomfortable." This would likely be the most effective revenue-gathering method, and its efficacy would be magnified with the previous proposals.