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From: <A 
href="" title=article@xxxxxxxxx>Mises Daily Article 

To: <A href="" 
title=article@xxxxxxxxxxxxxxxxx>Mises Daily Article 
Sent: Tuesday, April 15, 2003 8:14 AM
Subject: Economic Secession Won't Succeed

<A 
href="">http://www.mises.org/fullstory.asp?control=1204
 
Economic 
Secession Won't Succeed 

By Paul Birch and Gene Callahan
[Posted April 15, 2003] 
<IMG align=right border=0 
src="">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 <FONT 
color=blue size=2><A 
href="">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 <A 
href=""><FONT 
size=2>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 "<A 
href=""><FONT 
size=2>unplug from the grid." You can find ideas falling 
broadly under the umbrella of economic secession at <A 
href="">Backwoods Home Magazine, in the 
writings of <FONT 
size=2>Claire Wolfe, in the many books on <A 
href=""><FONT 
size=2>financial privacy, <A 
href=""><FONT 
size=2>encryption, <A 
href=""><FONT 
size=2>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. <A 
href="">is pushing the 
I.M.F. and World Bank to crackdown on "money laundering." The O.E.C.D. <A 
href="">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 influence&#8212;for a wide variety of motives, 
both selfish and altruistic. They want to be (and in fact are) important&#8212;even 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 do&#8212;but 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 <A 
href=""><FONT 
size=2>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 it&#8212;and 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 need&#8212;or desire&#8212;to 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 <A 
href=""><FONT 
size=2>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 website of his 
writings. Gene Callahan is author of <A 
href=""><FONT 
size=2>Economics for Real People. 
Send him <FONT 
size=2>MAIL, and see his Mises.org <A 
href=""><FONT 
size=2>Daily Articles Archive. He delivered the 
Henry Hazlitt Memorial Lecture at the Austrian Scholars Conference 9, March 13, 
2003. Click <FONT 
size=2>HERE to view the online video version 
of his lecture.

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