The Decivilizing Effect of Taxation

The most destructive aspect of taxation is that it has this underlying decivilizing effect on the economy, due to its impact on individuals' time preferences. The positing of taxation runs counter to the natural tendency of time preference to fall, as it creates disincentives for saving and production. The prospect of being taxed for one's efforts to produce or save leads to an increase in time preference.

Moreover, taxation has the potential to reverse the natural tendency, pushing society towards a path of decivilization and bare subsistence living. Through the means of coercive, non-contractual transfers of physical assets from rightful owners, who could have derived income from them, to the recievers of these expropriated goods.

To understand the impact of taxation on property, we must consider how these assets came into possession of the rightful owner: excluding prior taxation, assets subject to taxation are those that have not yet been consumed or had their value exhausted through acts of consumption(the tax man does not take away a mans garbage). There are three ways an individual acquires taxable assets:
i. The owner perceives some nature-given goods as scarce and actively brings them into his possession before anyone else takes this action — homesteading
ii. The owner produced them through nature-acquired goods that he previously homesteaded — production
iii. Through voluntary, contractual, acquisition from a previous appropriator or producer — trade

The imposition of taxes results in a reduction of the income individuals can expect from engaging in these productive actions. Given that the utilization of scarce means for homesteading, production, or trade comes at the expense of consumption or leisure, taxation raises the opportunity cost of such endeavors. This, in turn, diminishes the marginal utility of these productive actions while increasing the marginal utility of consumption and leisure.

Consequently, individuals experience a shift in preferences, moving away from actions that contribute to economic growth and prosperity. Taxation, by reducing both present and future income derived from productive efforts, fosters a tendency towards higher time preferences. In this way, taxation disrupts the balance between saving, production, and consumption, contributing to an economy characterized by diminished incentives for long-term planning and productivity.